Session 2009/2010

First Report

COMMITTEE FOR REGIONAL DEVELOPMENT

Report on the
Water and Sewerage Services (Amendment) Bill (NIA 3/09)

TOGETHER WITH THE MINUTES OF PROCEEDINGS, MINUTES OF EVIDENCE AND WRITTEN SUBMISSIONS RELATING TO THE REPORT

Ordered by the Committee for Regional Development to be printed 6 January 2010
Report: 11/09/10R (Committee for Regional Development)

This document is available in a range of alternative formats.
For more information please contact the
Northern Ireland Assembly, Printed Paper Office,
Parliament Buildings, Stormont, Belfast, BT4 3XX
Tel: 028 9052 1078

Membership and Powers

Powers

The Committee for Regional Development is a Statutory Departmental Committee of the Northern Ireland Assembly established in accordance with paragraphs 8 and 9 of strand one of the Belfast Agreement, section 29 of the Northern Ireland Act 1998 and under Standing Order 48 of the Northern Ireland Assembly. The Committee has a scrutiny, policy development and consultation role with respect to the Department for Regional Development and has a role in the initiation of legislation.

The Committee has the power to:

• Consider and advise on departmental budgets and annual plans in the context of the overall budget allocation;
• Consider relevant secondary legislation and take the Committee Stage of relevant primary legislation;
• Call for persons and papers;
• Initiate inquiries and make reports; and
• Consider and advise on matters brought to the Committee by the Minister for Regional Development.

The Committee is appointed at the start of every Assembly, and has power to send for persons, papers and records that are relevant to its inquiries.

Membership

The Committee has eleven Members, including a Chairperson and Deputy Chairperson, with a quorum of five Members.

The membership of the Committee since its establishment on 9 May 2007 has been as follows:

Mr Fred Cobain (Chairperson)
Miss Michelle McIlveen (Deputy Chairperson) ****

Mr Cathal Boylan Mr Ian McCrea ***** Mr Tommy Gallagher *** Mr Raymond McCartney Mr Brian Wilson

Mr Allan Bresland * Mr Willie Clarke Mr Danny Kinahan ** Mr George Robinson

* With effect from 15 September 2008 Mr Allan Bresland replaced Mr William Irwin and Mr Alastair Ross replaced Mr Stephen Moutray.

** With effect from 22 June 2009 Mr Danny Kinahan replaced Mr John McCallister.

*** With effect from 29 June 2009 Mr Tommy Gallagher replaced Mr John Dallat.

**** With effect from 4 July 2009 Miss Michelle McIlveen replaced Mr Jim Wells.

***** With effect from 16 September 2009 Mr Ian McCrea replaced Mr Alastair Ross.

Report on the Water and Sewage Services (Amendment) Bill

Table of Contents

List of Abbreviations and Acronyms used in the Report

Introduction

Consideration of the Provisions in the Bill

Other Issues

Appendix 1 – Minutes of Proceedings (Extracts)

Wednesday 16 September 2009

Wednesday 30 September 2009

Wednesday 7 October 2009

Wednesday 14 October 2009

Wednesday 21 October 2009

Wednesday 4 November 2009

Wednesday 11 November 2009

Wednesday 18 November 2009

Wednesday 25 November 2009

Wednesday 9 December 2009

Wednesday 6 January 2010

Appendix 2 - Minutes of Evidence

16 September 2009 Department for Regional Development

14 October 2009 Consumer Council for Northern Ireland Northern Ireland Water

21 October 2009 The Minister for Regional Development

11 November 2009 The Department of Finance and Personnel

Northern Ireland Committee of the Irish Congress of Trade Unions

9 December 2009 Clause by clause consideration of the Bill and further consideration of the Committee report

Appendix 3 – Written Submissions

The Consumer Council for Northern Ireland

Northern Ireland Water

Northern Ireland Authority for Utility Regulation

Northern Ireland Committee of the Irish Congress of Trade Unions

Appendix 4 – Memoranda and Papers from the Department for Regional Development

Proposed Water and Sewerage Services (Amendment) Bill - 2 September 2009
The Minister for Regional Development - Conor Murphy MP, MLA

Minister to brief the Committee for Regional Development – 15 October 2009
The Minister for Regional Development - Conor Murphy MP, MLA

Cost of Water and Sewerage Services for the 2010/2013 period and an update on the current
VAT position of Northern Ireland Water – 3 December 2009

Appendix 5 – Memoranda and Papers from Others

Response to invitation to give evidence at Committee Stage
The Committee for Finance and Personnel – 9 October 2009

Response to invitation to give evidence at Committee Stage
Department of Finance and Personnel – 14 October 2009

Appendix 6 – Northern Ireland Assembly Research Papers

Water and Sewerage services (Amendment) Bill paper, 25 September 2009:
NIA/466 and addendum Northern Ireland Water – VAT – 9 October 2009

The Water Component of the Regional Rate – 24 November 2009

Further Information on the Water Component of the Regional Rate – 3 December 2009

Appendix 7 – Other Documents Relevant to the Water and Sewerage Services (Amendment) Bill

Water and Sewerage Services (Amendment) Bill – As introduced

Explanatory and Financial Memorandum

Transcript of First Stage - 21 September 2009

Transcript of Second Stage - 29 September 2009

Motion for extension of Committee Stage - 2 November 2009

Transcript of motion for Extension of Committee Stage - 2 November 2009

Public Notice

List of Abbreviations
and Acronyms used in this Report

CCNI The Consumer Council for Northern Ireland

DALO Departmental Assembly Liaison Officer

DEL Departmental Expenditure Limit

DFP Department of Finance and Personnel

DRD Department for Regional Development

EU European Union

Executive The Northern Ireland Executive

HMRC Her Majesty’s Revenue and Customs

ICTU The Irish Congress of Trade Unions

MLA Member of the Legislative Assembly

MP Member of Parliament

NDPB Non-Departmental Public Body

NHS National Health Service

NI Northern Ireland

NIAUR Northern Ireland Authority for Utility Regulation

NIC-ICTU The Northern Ireland Committee of the Irish Congress of Trade Unions

NIPSA The Northern Ireland Public Service Alliance

NIW Northern Ireland Water

PC10 Price Control 2010/13

SDLP The Social Democratic and Labour Party

UK United Kingdom

VAT Value Added Tax

Introduction

Background

1. The Water and Sewerage Services (Amendment) Bill was introduced to the Assembly by the Minister for Regional Development on 22 September 2009 and completed Second Stage on 29 September 2009, when it was subsequently referred to the Committee for Regional Development (the Committee) for Committee Stage. The Bill has 2 clauses and no schedules. The provisions in each clause are explained in the Explanatory and Financial Memorandum.[1]

2. The purpose of the Bill is to ensure the continued provision of customer subsidy to Northern Ireland Water Limited in the absence of funding through customer charging.

The Committee’s Approach

3. The Committee received a briefing from the Department for Regional Development (DRD) on 16 September 2009, prior to the introduction of the Bill to the Assembly.

4. The Committee considered the principles of the Bill at a Committee meeting on 22 September 2009. Following discussion of the Bill, the Committee decided it would speak in favour of the principles of the Bill at Second Stage debate on 29 September 2009, and during Committee Stage would seek clarification on the budgetary and financial implications of continued deferral of water charges.

5. A public notice was placed in the main provincial newspapers on 5 October 2009, following commencement of Committee Stage, inviting written evidence on the provisions of the Bill. The Committee also contacted a number of key stakeholders seeking their views on the Bill.

6. In response to its call for evidence, the Committee received written submissions from the following organisations:

• Northern Ireland Water (NIW);
• Northern Ireland Authority for Utility Regulation (NIAUR);
• The Consumer Council for Northern Ireland (CCNI); and
• The Northern Ireland Committee of the Irish Congress of Trade Unions (NIC-ICTU).

7. On 14 October 2009 the Committee took oral evidence from NIW and CCNI. On 21 October 2009, oral evidence was received from the Minister for Regional Development, and on 11 November 2009, oral evidence was provided by officials from the Department of Finance and Personnel (DFP) and from NIC- ICTU.

8. Given the complex and contested nature of the broader area of water and sewerage services policy, the Committee sought to extend the Committee Stage of the Bill to 19 January 2010, to allow the Committee sufficient time to hear from those wishing to provide evidence on this Bill and to allow Members time to reach a considered position and to report on the Bill to the Assembly.

9. The Committee made a detailed analysis of the oral evidence provided by witnesses, and was generally satisfied that, at the time of considering the Bill, further clarification was not available on the budgetary and financial implications of continued deferral of water charges.

10. The Committee undertook clause-by-clause scrutiny of the Bill on 9 December 2009. At its meeting on 6 January 2010, the Committee agreed that its report on the Bill would be printed.

11. The Minutes of Proceedings relating to the Committee’s deliberations on the Bill are included at Appendix 1. Copies of the Official Reports of the oral evidence sessions are at Appendix 2 and the written submissions which the Committee received initially are at Appendix 3. Appendix 4 contains copies of the memoranda and papers from the Department for Regional Development (DRD), and memoranda and papers from others are at Appendix 5. The Bill research papers, from the Northern Ireland Assembly Research and Library Service are at Appendix 6, and other documents relevant to the Water and Sewerage Services (Amendment) Bill are at Appendix 7.

Consideration of the Provisions in the Bill

12. The Committee recognises that the Bill is largely technical in nature. During its clause-by-clause scrutiny of the Bill, the Committee agreed to all the clauses without the need for amendment.

Clause 1: Grants to water and sewerage undertakers: extension of initial period

13. Under Article 213(3) of the Water and Sewerage Services (Northern Ireland) Order 2006, the Department for Regional Development is required to make grants to Northern Ireland Water equal to the amount of discounts provided to customers in the initial period. The initial period is defined in the 2006 Order as three years from the coming into operation of the 2006 Order. This initial three-year period, is the period during which the direct rule administration intended to phase in charges for water and sewerage services. The initial period runs out on 31 March 2010. After this date the Department for Regional Development has no means to make grants to Northern Ireland Water. This clause seeks to extend the three year period to six years, covering the period to 2013.

14. The Committee supports the provisions in clause 1 of the Bill, which are necessary to ensure the continued provision of customer subsidy to Northern Ireland Water, in the absence of funding through payments by customers. This will place the continued provision of vital water and sewerage services, and the ongoing and essential investment in these services, on a sound footing, and will help to ensure that planned efficiencies and service improvements can be delivered.

Clause 2: Short title

15. This clause provides that the Act be cited as the ‘Water and Sewerage Services (Amendment) Act (Northern Ireland) 2009’. The Committee agrees clause 2 of the Bill.

16. The Committee’s consideration of the evidence on the provisions in the Bill, together with its formal clause-by-clause scrutiny, is detailed in the Official Reports at Appendix 2.

Other Issues

17. In the Committee’s consideration of the proposals in the Bill at Second Stage, the Committee decided to support the principles of the Bill, and the paragraphs above reflect that support. At Second Stage, the Committee also decided to seek clarification on the costs of continued deferral, including the costs associated with reclassification of Northern Ireland Water for public expenditure purposes, the basis for valuing Northern Ireland Water’s assets, and the ongoing ability of Northern Ireland Water to reclaim its input VAT. The Committee was also seeking clarity on the financial impact ongoing deferral may have on the Northern Ireland block as a whole, on the Department for Regional Development’s budget and on the budgets of other departments.

18. Members were keenly aware that this Bill is largely technical in nature; its passage does not prefigure any future decisions by the Executive on charging or the future of water and sewerage services in Northern Ireland. The issues on which the Committee is seeking clarity relate to wider water and sewerage services policy. The discussion below reflects the information made available to the Committee at the time of the Committee Stage and, as the paragraphs below illustrate, the Committee understands from witnesses that greater clarity is unlikely to be available unless and until the Executive makes a further decision on the arrangements for charging for, and provision of, water and sewerage services in Northern Ireland.

The cost of continued deferral

19. The Minister for Regional Development, in his evidence to the Committee, indicated that the cost of the provision of water and sewerage services for the three years to 2013 is in the region of £1 billion. (Official Report, 21 October 2009, p.35) In evidence, the Department of Finance and Personnel confirmed that, if full charging is introduced, there will be a corresponding reduction in the regional rate, of approximately £109 million per annum, or an average reduction of £160 per household, per year. (Official Report, 11 November 2009, p.42)

20. The Committee continues to be of the view that the budgetary and financial implications of the Executive’s decisions on water and sewerage services should not fall on the Department for Regional Development, but should be addressed by the Executive.

Reclassification of Northern Ireland Water

21. In 2008/09, HM Treasury made known its view that, for public expenditure purposes, Northern Ireland Water (NIW) should be reclassified from a self financing public corporation (as a Go-co) to a body within central government as a non-departmental public body (NDPB), on the grounds that an insufficient amount of NIW’s income was derived from charges for it to be considered a self-financing public corporation.

22. This has a number of implications. As an NDPB, full resource consumption and capital expenditure of NIW scores in the DRD Resource and Capital DEL, in the same way as the Department’s own spending. In addition, the basis for valuing NIW’s assets reverts to depreciated replacement cost methodology, and these assets, totalling approximately £6 billion, score on DRD’s DEL, in the form of a cost of capital charge. In November 2008, HM Treasury provided DEL cover for the reclassification costs for the period 2008/09 and 2009/10. This temporary cover from the Treasury amounted to approximately £400 million per annum and would increase year on year as NIW invested in its assets. However, from 2010/11 Northern Ireland would have to find this cover from within the Northern Ireland block. This would represent a significant additional pressure on Northern Ireland’s budget.

23. In evidence to the Committee on 11 November 2009, an official of DFP indicated that the treatment of the cost of capital charges would change in the 2010/11 version of HM Treasury’s Consolidated Budget Guidance, and from 2010/11, the cost of capital charge would no longer score in the Department’s DEL. (Official Report, 11 November 2009, p.42) In addition, the Committee heard from DFP that DRD accountants remained confident that it was not necessary to restate the valuation of NIW’s assets from £1 billion to £6 billion, as NIW remained a Go-co. (Official Report, 11 November 2009, p.43)

24. The Committee recognises that these developments, in particular the anticipated changes to the Treasury’s Consolidated Budget Guidance for 2010-2011, change the order of magnitude of the costs of reclassification. Members remained firm in their view that these costs should be addressed by the Executive and should be fully discussed and debated in an open and transparent manner.

VAT treatment of Northern Ireland Water

25. In evidence to the Committee, the Department of Finance and Personnel stated that discussion of the VAT position of Northern Ireland Water was a matter for discussion between Her Majesty’s Revenue and Customs (HMRC) and Northern Ireland Water. (Official Report, 11 November 2009, p.42)

The role of the Regional Development Committee in any decision by the Executive on water and sewerage services

26. The Committee sought clarification from the Minister, in the evidence session of 21 October 2009, on the role of the Regional Development Committee in any decision by the Executive on the future of water and sewerage services. In response the Minister stated:

“I will be happy to discuss the timing with the Committee. If decisions are to be made, I will be happy to discuss the process with the Committee. It is our obligation to involve the Committee, and we have attempted to do so as much as possible …I want to involve the Committee fully in any process that develops from this. If the Executive make certain decisions, I will be happy to discuss the Committee’s position in the sequence of such a process." (Official Report, 21 October 2009, p.36-37)

27. The Minister went on to clarify that if the Executive takes a decision on how water and sewerage services are to be funded, the Executive’s decision would be in the context of the Independent Water Review Panel’s Report, and there would be a commitment to consult on that Report, and that the Committee would have a key role in the consultation process. (Official Report, 21 October 2009, p.38-39)

28. The Committee welcomes the commitment to consult on the outstanding issues from the Independent Water Review Panel’s Report, recognises the Minister’s involvement of the Committee in early consultations on the Strand One and Strand Two Reports in the past, and welcomes his ongoing commitment to consult with the Committee before decisions are taken on the future and funding of water and sewerage services.

[1] http://archive.niassembly.gov.uk/legislation/primary/2009/niabill3_09_efm.htm

APPENDIX 1

Minutes of Proceedings
(Extracts)

Wednesday 16 September 2009
Senate Chamber, Parliament Buildings

Present: Fred Cobain MLA (Chairperson)
Michelle McIlveen MLA (Deputy Chairperson)
Cathal Boylan MLA
Allan Bresland MLA
Willie Clarke MLA
Tommy Gallagher MLA
Danny Kinahan MLA
Raymond McCartney MLA
Ian McCrea MLA
George Robinson MLA
Brian Wilson MLA

In Attendance: Roisin Kelly (Assembly Clerk)
Colin Jones (Assistant Assembly Clerk)
Andrew Larmour (Clerical Supervisor)
Alison Ferguson (Clerical Officer)
Denis Arnold (Assembly Bill Office)

Apologies: None.

4. Water and Sewerage Services (Amendment) Bill

The Committee took evidence from John Mills; Paul McKenna and Ian Maxwell from the Department for Regional Development on the Water and Sewerage Services (Amendment) Bill, prior to its introduction in the Assembly. The session was recorded by Hansard.

Mr Boylan joined the meeting at 11.07 am.

The meeting continued in closed session at 11.25 am.

The Committee was briefed by the Assembly Bill Office on the Committee Stage of the Water and Sewerage Services (Amendment) Bill. Members agreed to schedule a further meeting at 10.00am on Tuesday 22 September 2009 to discuss the general principles of the Bill and a possible timetable for the Committee Stage.

[Extract]

Wednesday 30 September 2009
Room 21, Parliament Buildings

Present: Fred Cobain MLA (Chairperson)
Michelle McIlveen MLA (Deputy Chairperson)
Cathal Boylan MLA
Allan Bresland MLA
Tommy Gallagher MLA
Danny Kinahan MLA
Raymond McCartney MLA
Ian McCrea MLA
George Robinson MLA
Brian Wilson MLA

In Attendance: Roisin Kelly (Assembly Clerk)
Colin Jones (Assistant Assembly Clerk)
Andrew Larmour (Clerical Supervisor)
Alison Ferguson (Clerical Officer)

Apologies: Willie Clarke MLA

Members decided to commence the meeting at 10.40 am in open session.

10. Committee Stage of the Water and Sewerage Services (Amendment) Bill

Members decided that the briefing from Assembly Research in relation to the Bill will be scheduled for next week’s meeting.

Members agreed a public notice, publicising the committee stage of the Bill for publication in the Belfast Telegraph; News Letter and Irish News on Monday 5 October 2009.

Members agreed a timetable for the committee stage of the Bill and noted that this will be sent to the Assembly’s Bill Office and to DRD for information.

Members agreed that the Committee will seek written submissions and oral evidence from DRD; Northern Ireland Water; the Utility Regulator; the Consumer Council and the Department of Finance and Personnel. In addition, written submissions on the Bill will be sought from the Committee for Finance and Personnel; the Northern Ireland Committee of the Irish Congress of Trade Unions; the Northern Ireland Council for Voluntary Action; the Federation of Small Businesses and the Confederation of British Industry.

[Extract]

Wednesday 7 October 2009
Senate Chamber, Parliament Buildings

Present: Fred Cobain MLA (Chairperson)
Michelle McIlveen MLA (Deputy Chairperson)
Cathal Boylan MLA
Allan Bresland MLA
Willie Clarke MLA
Tommy Gallagher MLA
Danny Kinahan MLA
Raymond McCartney MLA
Ian McCrea MLA
George Robinson MLA
Brian Wilson MLA

In Attendance: Roisin Kelly (Assembly Clerk)
Colin Jones (Assistant Assembly Clerk)
Andrew Larmour (Clerical Supervisor)
Alison Ferguson (Clerical Officer)
Aidan Stennett (Assembly Research)

Apologies: None

Members decided to commence the meeting at 10.40 am in open session.

4. Committee Stage of the Water and Sewerage Services (Amendment) Bill

Members were briefed on a Bill paper provided by Assembly Research. Members decided to request further information from Assembly Research on the issue of the treatment of VAT.

Members agreed a revised timetable, with minor adjustments in scheduling, for the Committee Stage of the Bill and noted that this will be sent to the Assembly’s Bill Office and to DRD for information.

Members agreed a motion seeking an extension to the Committee Stage of the Bill to reflect the timetable agreed by the Committee.

[Extract]

Wednesday 14 October 2009
Room 21, Parliament Buildings

Present: Michelle McIlveen MLA (Deputy Chairperson)
Cathal Boylan MLA
Allan Bresland MLA
Tommy Gallagher MLA
Danny Kinahan MLA
Raymond McCartney MLA
Ian McCrea MLA
George Robinson MLA
Brian Wilson MLA

In Attendance: Roisin Kelly (Assembly Clerk)
Colin Jones (Assistant Assembly Clerk)
Andrew Larmour (Clerical Supervisor)
Alison Ferguson (Clerical Officer)

Apologies: Fred Cobain MLA (Chairperson)
Willie Clarke MLA

The meeting commenced at 10.46 am in open session.

4. Committee Stage of the Water and Sewerage Services (Amendment) Bill 2009

Members noted clarification from Assembly Research in relation to the VAT figures contained in the research paper considered by the Committee at last week’s meeting.

The Committee took evidence from Antoinette McKeown; Kathy Graham and Graham Smith from the Consumer Council. The session was recorded by Hansard. The Consumer Council stated that it was content with the clauses in the Bill and did not wish to propose any amendments.

The Committee took evidence from Mark Ellesmere; Michael Mulholland and Pat McParland from Northern Ireland Water (NIW). The session was recorded by Hansard. NIW stated that it was content with the clauses in the Bill and did not wish to propose any amendments.

Agreed: that NIW officials will provide a written response to issues raised by the Committee during the evidence session.

Members noted correspondence from the Northern Ireland Authority for Utility Regulation relating to the Committee’s invitation to give evidence on the Bill.

[Extract]

Wednesday 21 October 2009
Room 21, Parliament Buildings

Present: Fred Cobain MLA (Chairperson)
Michelle McIlveen MLA (Deputy Chairperson)
Cathal Boylan MLA
Allan Bresland MLA
Willie Clarke MLA
Tommy Gallagher MLA
Danny Kinahan MLA
Raymond McCartney MLA
Ian McCrea MLA
George Robinson MLA
Brian Wilson MLA

In Attendance: Roisin Kelly (Assembly Clerk)
Colin Jones (Assistant Assembly Clerk)
Andrew Larmour (Clerical Supervisor)
Alison Ferguson (Clerical Officer)

Apologies: None.

The meeting commenced at 10.35 am in open session.

3. Committee Stage of the Water and Sewerage Services (Amendment) Bill 2009

Mr Robinson joined the meeting at 10.45 am.

The Committee took evidence from the Minister for Regional Development, Conor Murphy, MP, MLA and from Andrew Grieve, Lian Patterson and John Mills from DRD. The session was recorded by Hansard.

Members noted correspondence from the Committee for Finance and Personnel stating that it had agreed not to make a submission to the Committee Stage of the Bill.

Members noted correspondence from the Department of Finance and Personnel, accepting the Committee’s invitation to give oral evidence on the Bill. Members noted that the evidence session had been indicatively scheduled for 11 November 2009.

[Extract]

Wednesday 4 November 2009
Room 21, Parliament Buildings

Present: Fred Cobain MLA (Chairperson)
Michelle McIlveen MLA (Deputy Chairperson)
Allan Bresland MLA
Willie Clarke MLA
Tommy Gallagher MLA
Raymond McCartney MLA
Ian McCrea MLA
George Robinson MLA
Brian Wilson MLA

In Attendance: Roisin Kelly (Assembly Clerk)
Trevor Allen (Assistant Assembly Clerk)
Andrew Larmour (Clerical Supervisor)
Alison Ferguson (Clerical Officer)

Apologies: Cathal Boylan MLA
Danny Kinahan MLA

The meeting commenced at 10.31am in open session.

4. Committee Stage of the Water and Sewerage Services (Amendment) Bill 2009

Members noted a tabled paper in relation to evidence as part of the Committee Stage of the Bill.

Agreed: Members also noted correspondence from NIPSA on the proposals in the Bill and agreed to receive a briefing from NIPSA on the issued raised in its correspondence.

[Extract]

Wednesday 11 November 2009
Room 21, Parliament Buildings

Present: Fred Cobain MLA (Chairperson)
Michelle McIlveen MLA (Deputy Chairperson)
Cathal Boylan MLA
Willie Clarke MLA
Tommy Gallagher MLA
Danny Kinahan MLA
Raymond McCartney MLA
Ian McCrea MLA
Brian Wilson MLA

In Attendance: Roisin Kelly (Assembly Clerk)
Trevor Allen (Assistant Assembly Clerk)
Andrew Larmour (Clerical Supervisor)
Alison Ferguson (Clerical Officer)

Apologies: Allan Bresland MLA
George Robinson MLA

The meeting commenced at 10.33am in open session.

4. Committee Stage of the Water and Sewerage Services (Amendment) Bill 2009

The Committee took evidence from Richard Pengelly and Adrian Arbuthnot from the Department of Finance and Personnel. The session was recorded by Hansard.

12.06pm Mr McCrea left the meeting

The Committee took evidence from John Corey, Peter Bunting and Damian Bannon from the Northern Ireland Committee of the Irish Congress of Trade Unions (NIC-ICTU). The session was recorded by Hansard.

The officials offer their apologies for any confusion caused by their correspondence which was sent as correspondence from NIPSA but should have been issued in their capacity as NIC-ICTU representatives.

[Extract]

Wednesday 18 November 2009
Room 21, Parliament Buildings

Present: Michelle McIlveen MLA (Deputy Chairperson)
Cathal Boylan MLA
Allan Bresland MLA
Willie Clarke MLA
Tommy Gallagher MLA
Danny Kinahan MLA
Raymond McCartney MLA
Ian McCrea MLA
George Robinson MLA
Brian Wilson MLA

In Attendance: Roisin Kelly (Assembly Clerk)
Trevor Allen (Assistant Assembly Clerk)
Andrew Larmour (Clerical Supervisor)
Alison Ferguson (Clerical Officer)

Apologies: Fred Cobain MLA (Chairperson)

The meeting commenced at 10.35am in open session.

4. Committee Stage of the Water and Sewerage Services (Amendment) Bill 2009

10.44am The meeting moved into closed session

The Committee considered the evidence to date on the Water and Sewerage Services (Amendment) Bill.

Members also noted correspondence from Northern Ireland Water in response to issues raised during its evidence session to the Committee on 14 October 2009.

11.13am Mr McCrea left the meeting

11.22am Mr McCrea returned to the meeting

Agreed: The Committee agreed to write to the Department for Regional Development in relation to issues raised.

[Extract]

Wednesday 25 November 2009
Room 21, Parliament Buildings

Present: Fred Cobain MLA (Chairperson)
Michelle McIlveen MLA (Deputy Chairperson)
Allan Bresland MLA
Willie Clarke MLA
Danny Kinahan MLA
Raymond McCartney MLA
Ian McCrea MLA
Brian Wilson MLA

In Attendance: Roisin Kelly (Assembly Clerk)
Trevor Allen (Assistant Assembly Clerk)
Andrew Larmour (Clerical Supervisor)
Alison Ferguson (Clerical Officer)

Apologies: Cathal Boylan MLA
Tommy Gallagher MLA
George Robinson MLA

The meeting commenced at 10.43am in open session.

4. Committee Stage of the Water and Sewerage Services (Amendment) Bill 2009

10.47am The meeting moved into closed session

The Committee considered a draft Report on the Committee Stage of the Water and Sewerage Services (Amendment) Bill, paragraph by paragraph.

The Committee agreed the body of the Report as follows:

Paragraphs 1 - 2, read and agreed.

Paragraphs 3 - 11, read and agreed.

10.49am Mr McCartney joined the meeting

Paragraphs 12 - 16, read and agreed.

Paragraphs 17 - 28, read and agreed subject to the amendment of paragraph 19.

Agreed: Members decided to take forward the clause by clause scrutiny of the Bill at the Committee meeting on 9 December 2009. Members also decided to consider a revised version of the report, taking account of suggested amendments, and the associated appendices, at the meeting of 9 December 2009.

[Extract]

Wednesday 9 December 2009
Room 21, Parliament Buildings

Present: Fred Cobain MLA (Chairperson)
Michelle McIlveen MLA (Deputy Chairperson)
Allan Bresland MLA
Willie Clarke MLA
Tommy Gallagher MLA
Danny Kinahan MLA
Ian McCrea MLA
George Robinson MLA
Brian Wilson MLA

In Attendance: Roisin Kelly (Assembly Clerk)
Trevor Allen (Assistant Assembly Clerk)
Andrew Larmour (Clerical Supervisor)
Alison Ferguson (Clerical Officer)

Apologies: Cathal Boylan MLA
Raymond McCartney MLA

The meeting commenced at 10.38am in open session.

4. Water and Sewerage Services (Amendment) Bill 2009: Committee Stage

The Committee commenced formal clause-by-clause consideration of the Water and Sewerage Services (Amendment) Bill.

Clause 1

Question: That the Committee is content with clause 1 put and agreed to.

Clause 2

Question: That the Committee is content with clause 2 put and agreed to.

Members noted correspondence from the Department for Regional Development on the estimated cost of water and sewerage services for the 2010/13 period and an update on the current VAT position at Northern Ireland Water.

Members also noted information from the Assembly Research and Library Service on the water component of the Regional Rate.

[Extract]

Wednesday 6 January 2010
Room 21, Parliament Buildings

Unapproved

Present: Fred Cobain MLA (Chairperson)
Michelle McIlveen MLA (Deputy Chairperson)
Allan Bresland MLA
Willie Clarke MLA
Danny Kinahan MLA
Raymond McCartney MLA
George Robinson MLA
Brian Wilson MLA

In Attendance: Roisin Kelly (Assembly Clerk)
Trevor Allen (Assistant Assembly Clerk)
Andrew Larmour (Clerical Supervisor)
Alison Ferguson (Clerical Officer)

Apologies: Cathal Boylan MLA
Tommy Gallagher MLA
Ian McCrea MLA

The meeting commenced at 10.35am in open session.

4. Water and Sewerage Services (Amendment) Bill 2009: Committee Stage

10.45am Mr Robinson joined the meeting

The Committee continued its consideration of the Report on the Water and Sewerage Services (Amendment) Bill.

Agreed: Members agreed the Membership and Powers section of the Report.

Agreed: Members agreed the List of Abbreviations and Acronyms section of the Report.

Agreed: Members agreed the Introduction section of the Report.

Agreed: Members agreed the Consideration of the Provisions of the Bill section of the Report.

Agreed: Members agreed the Other Issues section of the Report.

Agreed: Members agreed Appendix 1 of the report, “Minutes of Proceedings".

Agreed: Members agreed that the minutes of proceedings of this meeting be included at Appendix 1, as unapproved minutes.

Agreed: Members agreed Appendix 2 of the report, “Minutes of Evidence".

Agreed: Members agreed, subject to amendment, Appendix 3 of the report, “Written Submissions".

Agreed: Members agreed Appendix 4 of the report, “Memoranda and Papers from the Department for Regional Development".

Agreed: Members agreed Appendix 5 of the report, “Memoranda and Papers from Others".

Agreed: Members agreed Appendix 6 of the report, “Northern Ireland Assembly Research Papers".

Agreed: Members agreed Appendix 7 of the report, “Other Documents Relevant to the Water and Sewerage Services (Amendment) Bill".

Agreed: Members agreed that the Committee’s Report on the Water and Sewerage Services (Amendment) Bill be printed.

Agreed: Members also agreed that the Committee’s Report should be laid in manuscript in the Assembly Business Office and that a copy of the report be forwarded to the Minister for Regional Development in advance of its publication. Members will be informed via email when this has been done.

Agreed: That a copy of the Chairperson’s speaking notes for the remaining plenary stages of this Bill be circulated to Members in advance of plenary.

[Extract]

Appendix 2

Minutes of Evidence

16 September 2009

Members present for all or part of the proceedings:
Mr Fred Cobain (Chairperson)
Miss Michelle McIlveen (Deputy Chairperson)
Mr Cathal Boylan
Mr Allan Bresland
Mr Willie Clarke
Mr Tommy Gallagher
Mr Ian McCrea
Mr George Robinson
Mr Brian Wilson

Witnesses:

Mr John Mills Mr Paul McKenna Mr Ian Maxwell

Department for Regional Development

1. The Chairperson of the Committee for Regional Development (Mr Cobain): I welcome John Mills, Paul McKenna and Ian Maxwell of the Department for Regional Development (DRD). There will be a 10-minute presentation followed by questions from members.

2. Mr John Mills (Department for Regional Development): I fear that I am about to repeat the Chairperson’s brief to the Committee. The Minister wrote to the Committee early in September to advise it of the legislation. The Department subsequently provided a draft of what is a short Bill, and I will keep the briefing short.

3. The draft Bill will extend by three years the period during which DRD is required to subsidise Northern Ireland Water (NIW) in lieu of customer payments. If no change is made, the existing provision will expire on 31 March 2010. In technical terms, the Bill amends article 213 of the Water and Sewerage Services (Northern Ireland) Order 2006. It extends “the initial period" by three years. The “initial period" is currently defined as the three years from April 2007 to April 2010. Given the expiry of the existing subsidy provision by April 2010, we must replace it before that date.

4. The Department sent the Committee a copy of the indicative timetable for the draft Bill. Members are aware that the deadline, as the Chairperson pointed out, is tight, although the draft Bill is very simple. We want to work with the Committee to do everything that we can to meet the timetable. As the Chairperson noted, the current position is that, following Executive agreement, the draft Bill is scheduled to be introduced in the Assembly later this month, subject to the Speaker’s agreement. I should say that the extension of the subsidy provision is not a decision on the future of water funding.

5. The Chairperson: Thank you. Although the draft Bill is quite short, it has enormous ramifications for the Assembly, whether it introduces water charging or not. Will the Committee get answers to the questions that it has been asking for the past year about how charging or not charging for water will impact on the Budget; on issues around VAT; and whether Northern Ireland Water is to remain a public company? Will all of those issues be addressed as the Bill moves through its Committee Stage?

6. Personally, there is no way that I will agree to any extensions of anything until I know the potential financial ramifications of doing so.

7. Mr Mills: Those issues are wider than the draft Bill and are matters for the Executive. The draft Bill is merely a technical instrument to extend the requirement for DRD to pay a subsidy to Northern Ireland Water. It would be needed whether the Executive decide not to introduce, to defer, or to phase in payments for water. The amended provision would be needed in all circumstances, except if the Executive were to decide to introduce domestic and non-domestic payments in full from April 2010. It is not for the Department to decide on those more weighty matters.

8. The Chairperson: However, by agreeing to the draft Bill and extending that power, the Executive will be given the power to enact water charges or not, without coming back to the Committee.

9. Mr Mills: It is unlikely that the Executive would take a decision to enact —

10. The Chairperson: That is not a decision for the Committee; it is a decision for the Executive. The Committee does not conduct Executive business; it does DRD business. Therefore, if the Executive decide to charge for water, the Committee may be informed, but it would be an Executive decision.

11. All that I am saying is that it is not as simple as passing a Bill that gives an extension to a power. There are more issues involved. Once that extension is granted, the Executive are given the power to decide whether to charge for water. The draft Bill may be short, but before the Committee decides whether it agrees to it, it is important that unanswered, stalled questions of the past 18 months are answered before the matter goes any further.

12. Mr Mills: That may be your position, but I must emphasise that the Bill does not imply those decisions one way or another.

13. The Chairperson: Yes, but it may have ramifications. It gives power to the Executive to decide whether to charge for water or not. Is that correct?

14. Mr Mills: The Executive have ultimate policy power to decide what happens.

15. The Chairperson: Without the Bill they do not have the power to decide whether to charge for water. They will not have the power after 31 March 2010, is that correct?

16. Mr Mills: I guess one could argue that were the Committee to oppose —

17. The Chairperson: John, please answer the question. Is it correct that, after 31 March 2010, the Executive will not have the power to decide whether or not to charge for water? Is that not what we need the Bill for?

18. Mr Mills: No.

19. The Chairperson: Sorry?

20. Mr Mills: The Bill neither removes nor enables the Executive’s power to make a decision. It provides for subsidy to be paid to Northern Ireland Water to ensure that that company remains financially viable and is able to deliver water and sewerage services. That is what the legislation would effect. If the Committee were to oppose the legislation, it could be argued that there would be no means to fund water and sewerage services.

21. The Chairperson: That is the point that I am trying to make.

22. Mr Mills: One implication might be that charging would have to be introduced from April 2010.

23. The Chairperson: If water charging is not introduced by 1 April 2010, what are the financial ramifications of that for the Executive and the people of Northern Ireland?

24. Mr Mills: If there is continued public funding of water from 2010-13, as the Minister has said, the cost will be around £1 billion.

25. The Chairperson: But where will we get that from?

26. Mr Mills: From the Executive’s funds. Around 20% of Northern Ireland Water’s funding is raised from non-domestic payments, and the rest is made up of subsidy.

27. The Chairperson: We have asked these questions continually. If we are not going to introduce water charges after 1 April 2010, there will be a number of ramifications, which have already been signalled to DRD and to the Department of Finance and Personnel (DFP) by the Treasury. Is that correct?

28. Mr Mills: That is correct.

29. The Chairperson: Those ramifications will include the end of Northern Ireland Water as a private company. It will be taken back into the public sector. There are also issues concerning VAT, as the Government have provided a VAT subsidy for 2007. Is that correct?

30. Mr Mills: There has not been a subsidy for VAT, but there has been a concession.

31. The Chairperson: There has been a deferral of VAT since 2007, because the Department indicated that it would charge for water, and the Treasury decided that it would defer VAT. Is that correct?

32. Mr Mills: Northern Ireland Water has been allowed to reclaim VAT.

33. The Chairperson: Is that a yes or a no?

34. Mr Mills: If HM Revenue and Customs (HMRC) were to decide otherwise, then Northern Ireland Water would not be able to reclaim VAT, and that would have financial implications.

35. The Chairperson: It was also stated that HMRC might consider reclaiming the money from 2007.

36. Mr Mills: That is a possibility.

37. The Chairperson: Before we agree to this extension, is there any possibility of finding out from DRD or DFP what the financial implications might be of the extension of subsidies to Northern Ireland Water after 2010?

38. Mr Mills: Those decisions are matters for the Executive.

39. The Chairperson: Are they not matters for the Committee?

40. Mr Mills: As you know, Chairman, they are matters for the Executive to decide.

41. The Chairperson: Thank you. That is the point I am trying to make.

42. Mr Mills: I am sure that that will not happen without consultation with the Committee. I must return to my central point that the draft Bill does not imply those decisions, one way or the other.

43. The Chairperson: Yes, but does it not give the power to the Executive to extend the decision not to charge for water?

44. Mr Mills: The draft Bill provides for the funding of water and sewerage services.

45. Miss McIlveen: Given that the issue is so highly charged and contentious, is there any flexibility whatsoever in the Department’s very tight timetable of a 30-day Committee Stage?

46. Mr Paul McKenna (Department for Regional Development): A bit of slippage can be allowed. The timetable was proposed so that everyone would understand how tight time is. The Department is asking everyone to work with it to achieve its aims. Some slippage can be allowed, but not much. For instance, the Committee’s time is tight, but, if it helps or eases members’ concerns, more time could be allowed for the Committee’s report to be printed. At present, the Department has that stage ending on 27 November 2009; however, it could be pushed back to 7 December 2009. Therefore, there is some flexibility, but not a lot.

47. Miss McIlveen: The witnesses will realise from the Chairperson’s comments that there will be considerable interest in the Bill. The fact that it deals with water means that many people will want to express their opinions and make presentations to the Committee. What happens if Royal Assent is not given by April 2010?

48. Mr Mills: From DRD’s point of view, there will be no legislative provision for the funding of water and sewerage services. From a Northern Ireland Water perspective, there will be no guarantee that its funding is secure. From the Utility Regulator’s point of view, as the office which has a statutory duty to ensure that the company is viable, there will be no guarantee that that is the position.

49. Mr Gallagher: I agree with most of what the Chairperson said. To return to his line of questioning, the Committee has before it representatives of the Department. I do not wish to be disrespectful to anybody, particularly those who gave the presentation. However, as representatives of the Department, they are asking the Committee to stand down its current work programme to shoehorn the draft Bill, which is described as simple, into its work programme to accommodate the Department.

50. At the same time, the Department is telling the Committee that it really has nothing to do with the draft Bill — that it is an Executive decision. That is amazing. It has everything to do with the Department, which is responsible and answerable for Northern Ireland Water. The draft Bill has major implications. The Committee is entitled to a good deal more information from the Department than the witnesses are prepared to provide here.

51. If the Committee has to dig that information out of the Department, it will do so. That may delay the legislation, unless the Department adopts a more co-operative approach. The public purse is being discussed here, regardless of how Mr Mills tries to present matters to the Committee or whatever gloss the Department tries to put on it.

52. To some extent, members are the people who, on behalf of the public, also have a responsibility for the public purse. How much money is involved? How much will it cost to extend the subsidy provision for three years? Where will that money come from? Will it come from DRD alone or from other Departments as well?

53. Looking at it in another context, if the legislation does not go through — I have confused myself now. Is that how I put it initially? Looking at it from the other side, where is the money going to come from? There are big questions to be answered, and to enable us to approach our work with some sense of co-operation you should be providing that information for us this morning.

54. Mr Mills: You have made a number of statements that I cannot possibly let go. You say that the proposed legislation is to accommodate the Department. The decisions on water funding lie with the Executive; it is to accommodate the Executive, not the Department.

55. Mr Gallagher: I have listened to that argument, but who is responsible for water? Is it the Executive, or the Department for Regional Development? It cannot be both; it has to be one or the other.

56. Mr Mills: DRD is responsible for water, but the Executive are responsible for funding. As it is a cross-cutting issue, it would have to go to the Executive. Nothing in what I said was meant to imply that the Committee does not have a role in the matter. That would not acknowledge the efforts that we have made and the number of briefings we have provided to the Committee on the subject. Many of the decisions that you refer to are political decisions, which I cannot answer for. I think it is correct to say that those are decisions for the Executive. That, of course, does not mean that the Committee and other stakeholders are not intimately involved in, and consulted on, those decisions.

57. As for the costs, the legislation does not imply costs one way or the other. There is a separate issue between this legislation, which deals with technical issues about how water and sewerage services are funded — a very narrow subject — and the wider questions of water funding. If the Committee wishes us to come before it to discuss the wider issues, then we will put that to the Minister.

58. Mr Gallagher: I still do not understand. If we pass the legislation, money from the Assembly’s Budget will go towards paying Northern Ireland Water, whatever the figure is, over three years. Does nobody know what that is going to cost?

59. Mr Mills: That is the distinction. The legislation just technically enables that to happen. It does not state that it will happen. If the Executive decide to phase in some sort of payments for water, then perhaps only 1% of the money to fund water and sewerage would need to be provided by the Executive and 99% could be provided by customers. That is the wider policy decision, which the Committee rightly raises as a huge issue, but the proposed legislation that is under discussion is a narrow, technical mechanism to allow that to happen.

60. The Chairperson: We are not in conflict here, John. The Committee is trying to perform the role that its members were elected to perform, which is to scrutinise legislation. We are not in confrontation. These are issues that the Committee has raised with the Department over the last 18 months. You were here, and you have given us briefings about the financial implications of the continuation of subsidies for water, amounting to just over £1 billion over the three years. Even though the proposed legislation does not state that water charging will be introduced, it provides a mechanism for the Executive to do that. That is the point we are making. We are not saying that the Executive will charge for water, or that they will not. That is not the issue. The issue is that you are asking the Committee to give — should it be needed — the Executive permission to carry on giving a subsidy for water, without the Committee knowing what the financial implications of that may be.

61. We are looking at this from a completely different aspect from the Department. We know that it is an Executive decision, and that a political decision will be taken. All we are saying is that you are asking the Committee to give the Executive the power to continue subsidising water without knowing the financial implications. On behalf of the Committee, I am saying to you that that is unfair. As I keep repeating, we have asked about these issues for the past 18 months. We have figures on how much it will cost, but we have no idea where the money is going to come from. Huge amounts of money are involved: £1 billion or £1·5 billion over three years. We are stretched already.

62. All that I am saying to you is that, before a Committee gives permission to do anything, it is entitled to know the ramification of its decision. It may never be enacted, but we are giving agreement for the Executive to do that if it so wishes. That is what we are saying.

63. Mr B Wilson: I share your concerns about the whole uncertainty. We are really not clear about what exactly we are doing here. Can you clarify the legislation? Basically, the legislation is keeping all the options open. It is not committing us to any particular thing. The Executive will eventually make the decisions. However, if we withdraw this particular option, does Northern Ireland Water have any powers at present to raise money elsewhere?

64. Mr Mills: With the approval of the Utility Regulator, Northern Ireland Water can raise customer charges.

65. Mr B Wilson: On what basis?

66. Mr Mills: On a legal basis.

67. Mr B Wilson: Sorry, I mean would that be based on house size or something else?

68. Mr Mills: There has been no Executive agreement on the methodology for raising those payments. Therefore, one cannot say how that would happen if it was simply down to Northern Ireland Water. Northern Ireland Water and the Utility Regulator would not, of course, unilaterally introduce charges without the Executive’s say-so.

69. Mr W Clarke: I am trying to clarify this. If I am reading the situation correctly, the Executive took the decision on a review of water charges and said, as a whole, that it would subsidise NIW over that three-year period. The way I see it, we do not have a choice: the Executive either look at charging for water, or they continue to pay the money out of the block grant.

70. My concern is that, come the start of April 2010, the stability of the whole programme of work that NIW is carrying out, particularly on sewerage provision, and the amount of money that is being spent on that would be seriously hampered. We would then be under immense pressure from Europe, if it was not in place. Therefore, I do not think that we have a lot of choice; we have to get legislation into place, and we have to move as quickly as possible to do that. That is my understanding. There are no other options.

71. Mr Mills: I fear that I would be criticised for saying that the Committee has no choice were I to agree with that, but I think that that is an accurate analysis.

72. Mr W Clarke: On reading the draft Bill, I simply do not see another option.

73. The Chairperson: In order that we are absolutely clear, I repeat that the draft Bill is not the issue. It is the ramifications of the power that we are giving to the Executive. If we agree the Bill, which is a matter for the Committee and not for me, we are giving the Executive the power to extend subsidies for water after April 2010. Is that correct?

74. Mr Mills: Yes.

75. Mr W Clarke: On that point, it is my understanding that the Executive have always had that power. The Executive carried out the review of water charges, and they are paying the subsidy. Therefore, the Executive have collectively taken that decision and have always had that power.

76. Mr Mills: Yes; the legislation is there at the moment. The problem is that it will expire. Mr Brian Wilson put it succinctly when he said that the draft Bill is about keeping options open.

77. The Chairperson: The power extends to 31 March 2010.

78. Mr Mills: That is correct.

79. The Chairperson: The legislation needs to be extended to allow the Executive to have the power not to charge for water. That is what this is about.

80. All I am saying is that, if the Committee agrees that position, it will be doing so without being able to see the possible ramifications of the Executive’s deciding not bringing in water charges. That is my issue. It is not an issue about giving the Executive power. I would like to see what the ramifications of not charging for water will be, so that I can decide whether I am in favour of the legislation or not. The Executive are asking for the power, but they will not tell the Committee what the outcome will be or what the possible financial implications of having that power may be. They may never use that power, but it is not the draft Bill that I am concerned about. The draft Bill may be only three or four lines, but I am worried about the financial ramifications of agreeing it.

81. Mr Boylan: Following on from previous comments, doing nothing is obviously not an option. We have started a process, and work has continued on it. I mean no disrespect, and members have serious questions about finance, but we need to continue. The do nothing option is not on the table. I support my colleague Mr Willie Clarke’s opinion that we need to move the process on.

82. The Chairperson: There we are. Thank you very much, John. As the Bill goes through its Consideration Stage, we will have you back, and we will talk to you again. The Committee will agree a timetable and will inform the Department of it, and it will call you back if you are needed. Thank you.

14 October 2009

Members present for all or part of the proceedings:
Miss Michelle McIlveen (Deputy Chairperson)
Mr Cathal Boylan
Mr Allan Bresland
Mr Tommy Gallagher
Mr Danny Kinahan
Mr Raymond McCartney
Mr Ian McCrea
Mr George Robinson
Mr Brian Wilson

Witnesses:

Ms Kathy Graham Ms Antoinette McKeown Mr Graham Smith		Consumer Council
Mr Mark Ellesmere Mr Pat McParland Mr Michael Mulholland		Northern Ireland Water

83. The Deputy Chairperson (Miss McIlveen): We move into our evidence session on the Water and Sewerage Services (Amendment) Bill, which will be recorded by Hansard. Our first witnesses are from the Consumer Council, and they have provided a written submission. I remind everyone that since the meeting is being recorded by Hansard, mobile phones must be switched off completely. I welcome Antoinette McKeown, Kathy Graham and Graham Smith. You have 10 minutes in which to make a presentation, after which members will ask questions.

84. Ms Antoinette McKeown (Consumer Council): Thank you, Chairperson, for this opportunity to express our views on the deferral of water charges. The Consumer Council has no vested interest in the issue; its concern is to get the fairest deal possible for consumers, particularly in these hard times.

85. The council welcomed the temporary deferral of water charges, given the hardships faced by consumers during the recession; however, we are conscious that deferral has implications. We want to be clear, and we want consumers to be clear, of the effect on wider public services of any future deferral or any decision not to charge for water.

86. The PC10 process is vital to the deferral debate. The timescales for the deferral of domestic charges are such that we could not get billing and charging systems in place by April 2010. We should support the Bill. However, we should use the time wisely to have an open debate on the implications of introducing or not introducing additional household charges. The council needs clarity from Northern Ireland Water for consumers on that issue.

87. The discussion is timely, and the Consumer Council welcomed the debate in the Assembly on social tariffs some weeks ago. It is also favourable, since our research this year — the figures from which we have provided to the Committee — shows us that satisfaction with Northern Ireland Water is high. However, consumer expectations are much higher when they are asked to pay more. Therefore we want to be clear that consumer confidence continues at its present level, and, indeed, that it grows.

88. Whatever the Executive and the Assembly’s decision may be, it must be taken sooner rather than later. If charging is implemented, Northern Ireland Water must have time to introduce robust systems for billing, and the council wants those systems improved. More time would also enable consumers to prepare. If the Assembly decides not to ask domestic households to pay for water, there must be time to consider the implications for other public services.

89. We have given you information, which you may already have, on the Utility Regulator’s draft determination, and we are aware that the regulator will give evidence to the Committee on that issue. The preparation period for a final decision is vital, and the PC10 draft determination is a critical element of it.

90. The Consumer Council continues to call for a water service that is fair, affordable and sustainable, and we would like a full and open debate with consumers on what is meant by fair and affordable. We are clear from our research what that means, and the environment is very different from what it was even a few years ago. We want to understand the costs to a household of possible water charges and to get consumers’ views of what is tolerable and what is not.

91. We also want to have a debate with consumers about the cost to Northern Ireland of continuing to subsidise water, as that will have implications for other public services. There is a discussion on whether we top-slice from our schools and hospitals, since the most vulnerable need access to good-quality healthcare and education. The Committee knows that, and so do we.

92. We want to hear from consumers about the range of options that they think can be included in social and affordability tariffs. The council made a suggestion on affordability tariffs, but that is only one element; it is not the full answer. Therefore a wider debate is necessary.

93. That is one of the reasons that we set up community panels across Northern Ireland, which we will take forward later this month and in early November. We want to hear consumers’ views on how the recession is affecting their households; we want to build on our recent research and to augment it with further questions that we have for consumers; we want to test the fairness and affordability of water charges as well as look at fuel poverty, which I know is exercising many of us at present; and we want to find out where water charges sit in the wider context of fuel poverty and sustainability.

94. We want anonymity for the participants, most of whom will be private householders, as they will be most affected by the introduction of water charges. Therefore, it is vital that their voices be heard and that they feel comfortable about talking openly to us.

95. We have no choice but to a support the deferral of water charges because of the timescales involved. However, an early decision is vital to planning either for the implementation of water charges or for what the alternative would mean for consumers and the public purse. We must listen to consumers’ views on their confidence in the quality and sustainability of water services, as well as consider how to meet the needs of people now and in the future. That is why we are developing the community panels.

96. Mr Boylan: Thank you for your presentation. The Bill is principally about funding; however, I wish to raise the issue of rural connectivity. I welcome the introduction of community panels, and I hope that they will establish what is going on in isolated areas in particular.

97. The extension on subsidies that the Bill proposes and the question that it raises about funding give us an opportunity to address the issue of infrastructure. Has there been any feedback on infrastructure? If not, will you ensure that that is addressed through the community panels?

98. Ms McKeown: We were careful to set up a mix of rural and urban community panels so that we hear all voices; the community panels will discuss affordability and fairness. However, the issue of infrastructure is tied up in our consideration of the Utility Regulator’s draft determination on PC10, which we are working through at present. There is a range of very complex issues, including the Utility Regulator’s view and Northern Ireland Water’s view, so we cannot give the Committee our view today. However, are happy to come back at a later stage to do so.

99. Mr I McCrea: Thank you for your presentation. The debate on when the implementation of charging should happen is one that some people wish to have at a later date. It is, therefore, interesting to hear your request that a decision be taken sooner rather than later.

100. Metering has vexed people for some time. Many claim that a system based on the value of one’s home rather than on how much water one uses is unfair, and, to some extent, I agree. Have you held discussions with Northern Ireland Water or with focus groups on the need to implement metering across the board rather than have people pay a fee to use whatever amount of water they want without its being capped?

101. Ms McKeown: Regardless of the system that is implemented, an integral element of any decision that the Executive take on charging for water must be a social affordability tariff to protect the most vulnerable, who simply cannot afford to pay. Capping links into the sustainability debate: we want to see the responsible consumption of water and we want to play a role in that.

102. Ms Kathy Graham (Consumer Council): For some time, we have been calling for an open and public debate on metering. Metering is seen as the fairest way to pay for water because people will be paying for their usage. However, we have observed that quite a high proportion of a metered bill is based on a standing charge. If the standing charge is so high that no matter how much water usage is controlled it makes very little difference to the amount billed, that is not a fair system. The metering issue is very complex, and it is those complexities that need to be ironed out; we need to delve into it in much greater depth. The situation is not as straightforward as people perceive it to be.

103. Mr McCartney: You mentioned community panels. Will any work be done on the two documents that the independent water review panel presented in December 2007 and January 2008? Because of the deferral of water charges, much of the panel’s work has been left hanging. Will the Consumer Council examine the issues that the panel brought to public attention, particularly given the recession? Although the report was presented more than 18 months ago, will the Consumer Council use it in its research to build for the future?

104. Ms McKeown: We will use all the information available to us to inform our discussions on consumer panels. Community panels provide an opportunity for consumers to tell us what they think is fair, affordable and sustainable; they enable us to facilitate a more informed debate about what water charges may mean for consumers, and, equally, to discuss what the decision not to implement water charges would mean for the public purse.

105. We are in listening mode, and we will use the information available to us, including information from the independent panel. We are happy to report to the Committee on what the participants in the community panels are telling us about water charges.

106. Mr McCartney: Will you rely on what consumers tell you about the effect of deferral on public services, or will you carry out independent research?

107. Ms McKeown: We do not intend to do research into the implications that the deferral of water charges would have on public services; the Consumer Council does not have access to that information. That is an issue for the Government or for those Departments that will lose some of their budget if the Assembly makes that decision; it is up to them to do that work. We will be interested in getting access to such research and ensuring that consumers understand the issues.

108. Mr B Wilson: Thank you for your presentation. You might not have done much research into it, but have you any information on the cost of metering? A couple of years ago, Welsh Water addressed the Committee on the cost of billing, and it was very concerned about the cost of appeals and of monitoring meters. It felt that the cost of billing was disproportionate to the money that it brought in.

109. If metering reduced the use of water, would the cost be reduced by the same proportion? For example, cutting water use by 50% would not reduce its cost by 50%.

110. For the past two years, water has been subsidised while other services have been cut or resourced less fully than we would have liked. Has the Consumer Council conducted any research on that and on likely future costs?

111. Ms McKeown: To answer the last question first: no; we do not have the access to the departmental budgets that would enable us to do that. We are asking for that work to be undertaken so that consumers can have an informed debate about the implications of any decision that the Assembly takes.

112. The question on metering is one for Northern Ireland Water, but Kathy may want to respond.

113. Ms Graham: The independent water review panel reported that metering would add £40 to £50 to household bills. As part of the public debate on metering, the council wants to ask whether people are willing — should the Executive so decide — to pay that amount every year in order to be charged for a measured amount of water.

114. As Antoinette said, the question is one for Northern Ireland Water. However, Mr Wilson is right: the reduction brought about by metering would be disproportionate to the reduction in costs.

115. Mr Gallagher: The witnesses raised some interesting points, including the important issues of metering and the standing charge. It is important to feed into that discussion the likelihood of a standing charge being implemented, regardless of how consumption charges are levied. It will not automatically follow that the absence of metering means that there will be no standing charge. I thank the council for raising that important issue.

116. I welcome the council’s community panels, and consumers’ views were mentioned earlier. What range of consumers was contacted during the council’s research? Was the business community included? Were views sought from community organisations that are responsible for community halls? Have churches’ views been obtained and included in the section “Tapping into Consumer Views" in the council’s submission?

117. Billing was mentioned. Is there a concern that Northern Ireland Water could turn off the taps of people who were under financial pressure? Are there other concerns?

118. Mr Graham Smith (The Consumer Council): In the “Tapping into Consumer Views" research, we spoke to 1,000 households; it is their views that are represented. We also spoke to non-domestic and business water consumers from a range of sectors in rural and urban settings and of different sizes to get their views on the services that they receive from Northern Ireland Water and on areas in which improvements could and should be made.

119. Those views were included in the research report that was fed into the ministerial guidance, which is then provided to the regulator and we start the PC10 process. However, we want to do more with non-domestic consumers. The plan is to speak to householders about their budgets and about the possible effects on the affordability of utility bills, that is, energy and water. Therefore our focus at present is on the household budget.

120. That is not to say that we do not talk to a variety of consumers; we talk to people daily and ascertain information from household and non-domestic complaints. We use all that information when we talk to the company, the regulator and Department about what consumers say needs to be done to improve the services that they receive.

121. If we rushed into domestic billing now, the concern is that the present systems and data would not be robust enough to provide us with a satisfactory level of billing. Northern Ireland Water shares that concern about the data that it holds. It is not Northern Ireland Water’s data — it relies on others for data — but it needs to be improved.

122. Ms McKeown: There is a no-disconnection policy for customers who do not pay: Northern Ireland Water cannot simply turn off the taps of consumers who do not pay.

123. Mr Gallagher: Can it threaten to do so?

124. Mr Smith: It is against the law to disconnect a domestic customer.

125. Ms McKeown: We want to avoid that situation through a proactive implementation of affordability social tariffs if it is decided to charge for water, regardless of whether that is a standing charge or a consumption charge.

126. The Deputy Chairperson: The Committee welcomes your clarification on that point.

127. Mr Kinahan: I congratulate the Consumer Council on a very good report, and I look forward to finding out what it hears from everyone because that is vital for all future decisions. In the past, meters were installed on the properties of some people who lived in the countryside. The meters were installed on the outside of farms, which created a cost for the farms for all the piping, the water and getting it to the house. It is not just the cost of a meter; sometimes, it is the cost of completely redoing everything that feeds water to a house. That should be kept in mind because it could be a huge cost for farmers who do not have the necessary money.

128. I am intrigued to find out how we know the estimate of the overall cost because that is the figure that we will have to share out. I look forward to hearing from you.

129. Mr G Robinson: My question is brief and perhaps a wee bit hypothetical. From the consultation with various community groups, what is the picture from people who know that, sooner or later, they will probably have to pay for water because of the poor infrastructure? The Executive cannot defer water charging for ever. Has there been hostility to the prospect of water charging, or has there been common sense and a realisation that consumers will probably have to pay sooner or later?

130. Ms McKeown: In a nutshell, respondents, by and large, accepted that they may have to pay water charges, but they wanted them to be fair, affordable and sustainable. That is why we are going, in a new environment, to test what “fair and affordable" means to consumers so that we are clear when we represent their views. There is an acceptance that water charges may be coming. However, as I said, we want to test that.

131. The Deputy Chairperson: Thank you for your presentation and for answering such a broad range of questions. Do you want to propose any amendments to the Bill?

132. Ms McKeown: No.

133. The Deputy Chairperson: Thank you very much for attending today.

134. Our next evidence session is with Northern Ireland Water, and I refer members to the written submission. I welcome Mark Ellesmere, Michael Mulholland and Pat McParland. Gentlemen, you have 10 minutes in which to make a presentation.

135. Mr Mark Ellesmere (Northern Ireland Water): We have not prepared a presentation because we do not have much to add to the comments in our letter. We regard the deferral of water charges as a policy issue and, therefore, not one for the company. We will abide by the Assembly’s decision on the Bill. However, at present, in the absence of domestic charging, the company relies on subsidy from Government.

136. The Deputy Chairperson: Do you have anything further to add?

137. Mr Ellesmere: We are happy to take questions. We sit in the middle; we do not have a position one way or the other, other than to say that the company is dependent on subsidy at the minute.

138. The Deputy Chairperson: The Committee understands that, particularly the fact that it is a technical amendment to the Bill.

139. Mr I McCrea: Is it fair to say that if the Bill is not passed, there will be no body to provide water to our homes? What would happen if the Government did not provide a subsidy to Northern Ireland Water?

140. Mr Ellesmere: In simple terms — Michael will correct me if I am wrong — the company would not be able to continue to trade; it would be insolvent. In addition, it would be in breach of its operating licence. It could not provide water and sewerage services to the people of Northern Ireland.

141. Mr Kinahan: I am fairly new to the Committee and am therefore unsure whether my question has been answered before. Do we have a system to work out how much it will cost us to introduce charging? Is that your role? Are you making estimates?

142. Mr Ellesmere: I will give an initial answer and then ask Michael from the financial side to step in. The Committee has heard the Consumer Council and our representatives talk about the price control process, PC10. In theory, that will set our budget for the next three years, from April 2010 to 2013. In that budget, a capital works programme will build the infrastructure that will be needed in Northern Ireland.

143. Mr Kinahan: Do you have an estimate of the cost from 2013 onwards?

144. Mr Ellesmere: It is based on the system in GB. Three years is a relatively short time; it is usually a five-year programme. We envisage using a five-year plan from 2013.

145. Mr Kinahan: Do you have figures?

146. Mr Michael Mulholland (Northern Ireland Water): We have. However, it is important to note that the plan that we submitted for PC10, which covers the three years from 2011 onwards, does not include any of the costs associated with domestic billing. Metering would incur a cost, and there would be a bad-debt charge arising from non-payments. Those costs are not included in the current plan.

147. Mr Pat McParland (Northern Ireland Water): This approach was taken on the advice of the Department.

148. Mr Kinahan: Do you have figures that exclude those costs?

149. Mr Mulholland: The figures are included in our business plan, which was published and provided to the regulator. The regulator responded in his draft determination, so those figures are being reviewed and will be agreed by December.

150. Mr Gallagher: You referred to the concerns expressed by the Consumer Council, and the issue of costs arose. Many of my constituents live in the countryside and replace their homes or build new ones when they receive clearance to do so. Normally, water connexion costs about £300 or £400. The road has to be opened, but that is sorted out with Roads Service.

151. I have been told that Northern Ireland Water’s policy has changed and that it now costs a minimum of £1,700 to get a water connexion to a new or renovated house. A builder with a digger on site is no longer allowed to strip the water main, as was the practice under the Water Service. Someone with a digger might do damage; however, that is the exception rather than the rule. Why has there been a change in policy by Northern Ireland Water? That change places a heavy financial burden on people who are building or repairing a house and who are trying to get a water connexion.

152. Mr Mulholland: I am not aware of a change in policy. The charge for Northern Ireland Water making a connexion from a house to the main is approximately £200; there is also an infrastructure charge of about £250, which is a requirement of our licence. Additional costs would be incurred if a main has to be requisitioned for houses in rural areas that are not served by a main. That is charged on a full cost-recovery basis.

153. Mr Gallagher: I am not talking about the charge for that service; I am talking about prices that were quoted by Northern Ireland Water where there was an existing main. I was made aware of two examples last week in which the charges were of the order of £1,700 and £1,800. Those people were told that they must not strip the water main because that is now done by Northern Ireland Water.

154. The Deputy Chairperson: That is a specific issue. Can you deal with it at a later date?

155. Mr Mulholland: Yes.

156. Mr Gallagher: I would like the matter resolved. However, the issue is not specific, as I have been made aware of a couple of examples. I am concerned that there is an expensive new policy.

157. Mr McParland: We are happy to pick that issue up separately and clarify the policy.

158. The Deputy Chairperson: If there is an issue with the policy, it could be brought back to the Committee as it has been highlighted here. Are members content with that?

159. Members indicated assent.

160. Mr Bresland: I want to back Tommy Gallagher up on that: the policy has changed in the past few months.

161. Mr McParland: We will issue clarity on the policy to the Chairperson for distribution to members.

162. The Deputy Chairperson: That would be helpful. Thank you very much.

163. Mr Boylan: The Bill provides for continued subsidy to NI Water. How far down the road are we with the infrastructure projects, and how far are we from a proper fit-for-purpose service?

164. Mr McParland: We are coming to the end of the strategic business plan period, and we have achieved good capital efficiency and performance on the plans indentified in it. The answer depends on the outcome of the regulator’s determination process. We set out in the business plan the capital priorities for the coming three years based on the research that the Committee heard about earlier from the Consumer Council and on the social and environmental guidance from the Department. The priorities have been identified and are being examined by the regulator. We will know by mid-December which of the priorities have been accepted and the funding that the regulator recommends being made available for them.

165. The consultation period is open, and we encourage all those with an interest in water reform to become involved and make their views known.

166. The Deputy Chairperson: Do you have an estimate of the cost of the system for domestic billing and how long it will take for it to be in place? Is your data for domestic users still current?

167. Mr Mulholland: Costs include bad debt and metering; I do not have those costs to hand but they can be estimated. The data, which came from Land and Property Services, is not current; it was last refreshed in 2006-07 in preparation for the introduction of domestic billing and has not been refreshed since. Legislation was enacted that allowed data to be shared between various organisations and Northern Ireland Water. The legislation lapsed on 31 March 2007.

168. The Deputy Chairperson: Therefore it will have to be revisited.

169. Mr McParland: It will. We discussed the matter previously with the Committee. The current data is not of a quality to allow us to introduce reliable domestic billing. Another transfer of that data will require further legislation.

170. The Deputy Chairperson: How long would it be likely to take?

171. Mr McParland: The timeframe that we talked about in the past was a minimum of seven months. However, as the Consumer Council said earlier, the longer we have, the better.

172. The Deputy Chairperson: Although you stated that you had very little to say specifically about the Bill, I must ask you whether you have any amendments to propose to it.

173. Mr Ellesmere: No.

174. The Deputy Chairperson: Thank you very much for fielding questions.

21 October 2009

Members present for all or part of the proceedings:
Mr Fred Cobain (Chairperson)
Miss Michelle McIlveen (Deputy Chairperson)
Mr Cathal Boylan
Mr Allan Bresland
Mr Willie Clarke
Mr Tommy Gallagher
Mr Danny Kinahan
Mr Raymond McCartney
Mr Ian McCrea
Mr George Robinson
Mr Brian Wilson

Witnesses:

The Minister for Regional Development (Mr Murphy)
Mr Andrew Grieve Mr John Mills Ms Lian Patterson		Department for Regional Development

175. The Chairperson (Mr Cobain): Good morning, Minister.

176. The Minister for Regional Development (Mr Murphy): I thank the Committee for its invitation to discuss the Water and Sewerage Services (Amendment) Bill, which has been laid before the Assembly. I also thank the Committee for its support during the Second Stage, where the Chairperson and Deputy Chairperson spoke in favour of the principles of the Bill.

177. As members are aware, the Bill is not lengthy. It is a technical matter to extend the ability to put the payment for the investment in water and sewerage services on a sound footing. As I said to the House during the Second Stage, there are no implications for decisions taken about funding water and sewerage by the Executive in the longer term, but it was necessary to continue the provision for the payment of a subsidy. The only circumstance in which the Executive would not have to pay a subsidy on behalf of customers of Northern Ireland Water (NIW) is if full payments were to be introduced from April 2010. I do not believe that that is the right decision in the current economic climate. I assume that that view is shared, given the support from the Committee.

178. During the Second Stage debate, the Chairperson said that the Committee would seek clarification on the financial impact of ongoing deferral. We are happy to provide that clarity today. Naturally, there is an acceptance both at Committee and Executive level that the level of investment in water and sewerage services is necessary. That was verified by the Independent Water Review Panel report that was produced some time ago under Professor Paddy Hillyard. If customers are not meeting that cost, it falls to the Executive to do so. The alternative is to stop funding the service, which is neither acceptable nor realistic.

179. The cost to the Executive of subsidising customers depends on decisions that are taken. Assuming that things stay as they are, costs will be around £1 billion. We can give a more accurate breakdown of the figure if the Committee so wishes. The figure is contingent on a number of things. There is a drive for efficiency savings in the service, an ongoing discussion as part of the PC10 process, and other issues with the Treasury relating to the ongoing deferral, all of which may have an impact on the cost. At the moment, the estimated cost roughly divided over the next three years is £1 billion. We can provide a breakdown of the figure, with the caveat that there are other issues that may have a more negative or positive impact on the cost.

180. We are also engaged with ministerial colleagues. One issue to be discussed at the Executive meeting tomorrow is the Budget for 2010-2011, and the cost of water and sewerage services is one of the issues that will be raised. I will set out the funding required to maintain and improve the services to customers, to keep the infrastructure up to date, and to invest in order to meet mandatory standards. Failure to do so could impact on many other services.

181. The final allocations and decisions on how water and sewerage services will be funded is a matter for the Executive; it is not the purpose of the Bill, as I said during the Second Stage debate. Questions will inevitably arise regarding the financial aspects, but the clear purpose of the Bill is to allow us to continue to provide the subsidy to NIW. I welcome the support of the Committee to carry out that process.

182. The Chairperson: The Committee recognises that this is enabling legislation. However, the Committee is concerned about the downstream consequences of enabling the Executive to defer water charging, possibly to the end of the mandate. We have previously asked questions on issues such as funding, VAT, NIW, and the financial consequences of the Treasury’s threat to take NIW back into the public sector. We asked John Mills those questions a couple of weeks ago, and we would like some clarification. If the enabling legislation is passed, all of those issues will need to be addressed, so the Committee needs clarification on them.

183. The Minister for Regional Development: One of the Department’s difficulties in providing clarity on those issues is that we have to talk to the Treasury through the Department of Finance and Personnel (DFP). The Treasury took a certain position on the initial deferral decisions made by the Executive. It did so on the basis that it believed that customers would have to pay for water at some stage.

184. I do not know the Treasury’s current position, because I have not been speaking to it directly. DFP speaks to the Treasury, and DRD works closely with DFP, because we want the Executive to take decisions on water and sewerage policy rather than have negative consequences coming from the Treasury. Perhaps John or Lian can provide the Committee with an update. I know that the Committee has invited DFP officials to talk about the matter, but, unfortunately, the Treasury’s current position is unclear.

185. The Treasury’s position will not depend on the outcome of the Water and Sewerage Services (Amendment) Bill, because it is technical and allows the current situation to continue. The Treasury’s position will probably depend on the decision made by the Executive on the funding of water and sewerage services. Obviously, we want clarity from the Treasury, because that will inform the Executive’s decision. However, I have not received clarity from the Treasury, because I have not spoken to it directly; DFP has been speaking to the Treasury, and my Department has been speaking to DFP.

186. Ms Lian Patterson (Department for Regional Development): The situation is as the Minister described. We are working closely with DFP officials on the matter, but, ultimately, the direction that the Treasury takes on that and on reclassification will be driven by the final that decision that the Executive take on the wider policy on water charging. In many ways, that is a separate issue to the narrowness of the Bill. It is linked to the wider picture of water policy.

187. The Chairperson: The Committee knows that this Bill is a piece of enabling legislation; we are agreed on that. We are concerned that, once the power is given, it cannot be taken back: once the Bill goes through the Assembly, the power will pass to the Executive. We are concerned about the ramifications.

188. The purpose of the Bill is to give the Executive the power to defer water charges. If the Bill is enacted, water charges will be deferred. There are financial consequences involved, and the Committee wishes to know what those consequences will be if the Bill is enacted. I do not agree with giving someone power to do something without knowing what the outworkings will be. That is the clarification we seek. Let us work from the premise that the Executive will defer water charges. Based on that, what will be the financial outworkings?

189. Ms Patterson: Returning to the Bill as empowering legislation, the only reason that the Bill would not be needed would be if 100% water charging were to be introduced from April 2010. That is clearly not the Executive’s position. Since last year, it was always intended that water charging would be phased in, so the only condition that would mean that the enabling power would not be needed would be if 100% were to be introduced. Any other option or consequence to be debated by the Executive would require the enabling power to be made.

190. The Minister for Regional Development: That is correct; this Bill enables and gives freedom to the Executive to take a decision on how water and sewerage services will be funded. However, to take that decision, the Executive will need to be aware of the implications. The Treasury has not told the Department for Regional Development what implications there would be if the Executive were to decide to defer charges for the foreseeable future. We have not received a clear statement from the Treasury on how it would view that aspect. However, for the Executive to take that decision, they will have to be clear as to the consequences, and I appreciate that that leaves the Committee in the position of not being entirely sure.

191. Practically all of the Committee’s members are from parties that are represented on the Executive, and the Executive will have to be clear about the financial consequences. Our job, in bringing the matter to the Executive will be to bring a clear sense of the costs and financial implications of certain decisions.

192. The Chairperson: Will the Committee have an insight into the matter before the Executive make their decision? What will be the role of the Committee when the decision is made to either defer or implement water charges?

193. The Minister for Regional Development: I will be happy to discuss the timing with the Committee. If decisions are to be made, I will be happy to discuss the process with the Committee. It is our obligation to involve the Committee, and we have attempted to do so as much as possible. At all stages, the Department has allowed officials to come to the Committee, and I have come here whenever I have been invited to discuss issues.

194. The Chairperson: We appreciate that.

195. The Minister for Regional Development: When we have made significant decisions or have consulted on significant decisions, I have made statements to the Assembly and answered questions. I want to involve the Committee fully in any process that develops from this. If the Executive make certain decisions, I will be happy to discuss the Committee’s position in the sequence of such a process.

196. Miss McIlveen: Part of my question was about the Committee’s position in the procedural sequence of events if the Executive make a decision on the introduction of water charges. The Minister has gone some way towards answering that.

197. Last week, NIW gave evidence to the Committee, and we tried to tease out the cost billing. Do you have a current best estimate for that?

198. The Minister for Regional Development: Do you mean a best estimate for the cost of introducing billing?

199. Miss McIlveen: Yes.

200. The Minister for Regional Development: Andrew or John may have an estimate for that.

201. Obviously, there was a cost from the Executive’s decision to introduce 50% charges for non-domestic customers. That has not gone up to 100%, because we decided to defer that rise. I am not sure of the estimated cost for billing.

202. Mr John Mills (Department for Regional Development): I am not sure whether the question relates to the actual cost of introducing a billing regime.

203. Miss McIlveen: It does.

204. Mr Mills: The cost will depend on what type of billing regime is introduced. The independent review recommended billing on the basis of capital values. As there is already a capital-values system for rates, billing on that basis would be less costly than billing on the basis of the surface area of a house. Assuming that billing were to be introduced in line with the Independent Review Panel’s recommendation, there would be costs in the order of £5 million to £10 million.

205. Miss McIlveen: There was also an issue about data sharing and a worry that your current data is no longer accurate. Is there a lead-in time before anything can be done on that?

206. The Minister for Regional Development: Again, that depends on the Executive’s decision. Indeed, there would be a series of decisions. If the Executive decide to ask for household contributions, the basis on which people will contribute will have to be decided. As John said, it could be on the basis of capital values, which is firmly linked to the current rate collection approach, so links would have to be established with Land and Property Services. If contributions were calculated on another basis, different links would have to be established.

207. There are issues with the data that NIW inherited from the Water Service, and those have caused problems. There is a continuing process to try to make the data as accurate as possible, and it is incumbent on NIW to do that.

208. If the Executive decide that they will continue to pay the subsidy to NIW for the foreseeable future, those issues will not arise. Much depends on the sequence of decisions.

209. Mr Gallagher: I understand that the Department is working with DFP, which, in turn, is working with the Treasury. From what the Minister said, I take it that his preferred position is to continue paying the subsidy to NIW after April 2010. If the Executive take that decision, will that be all right with the Treasury? What I want to be clear about is as follows: if the Executive take the decision to defer water charging until after 2010, is the Treasury going extend that facility beyond 2010?

210. The Minister for Regional Development: The Executive’s last decision on the matter was based on discussion with the Treasury, and on the agreement that the Treasury would accept deferment for the period that the Executive had indicated. If we get into a situation of further deferring water charges, we will obviously have to speak to the Treasury again. I am not sure whether the Treasury would insist on the introduction of charging or recognise that we are, like every other area and system of government, struggling with budgetary issues.

211. There is no clarity, because no proposal has been put to the Treasury yet. It has not been told that the Executive are minded to continue with another deferral, or that they are minded to take another approach, and it has not been asked for its view in relation to that. All we can do is work closely with DFP to ensure that we get a proper sense of how that is viewed and to ensure that, whatever decisions the Executive take in relation to that, they are properly informed. However, no one has proposed a further deferral to the Treasury or asked for its views on that. The Treasury has given its view on how it would approach that up to a certain point, but not beyond that.

212. The Chairperson: I would like to press you on that point, because it is something on which I would like clarity. The Bill is giving power to DRD; is that correct?

213. The Minister for Regional Development: The Bill actually gives power to the Executive, because it is the Executive who will pay the subsidy. The subsidy is paid through DRD, but it is the Executive who pay the subsidy.

214. The Chairperson: Is the power for DRD?

215. Mr Mills: Technically it is actually a requirement on DRD to make a subsidy available to NIW that is equivalent to the amount that customers would have paid had they been paying.

216. The Chairperson: Therefore, the Bill is enabling DRD; is that correct?

217. Mr Mills: It is requiring DRD.

218. The Chairperson: I am speaking from the Committee’s point of view, because, obviously, this is a matter for your Department, Minister. Let us run through the sequence. The enabling power is passed, and the Executive decide that they are going to defer water charging until 2011. That decision will be taken by the Executive, and we are happy, from a financial point of view, that it will be done in that way. Will you outline how the Committee for Regional Development fits in to that process, and how it can hold the Department to account over the consequences of that decision?

219. The Minister for Regional Development: I am not sure whether your concern is that DRD may be left carrying the can.

220. The Chairperson: No: I have a concern that, if the Executive take a decision to defer water charging until 2011, there will be major consequences for the DRD. Although the decision will be for the Executive to take, and the Executive may find the finance from somewhere, the outworkings of the decision will have an impact on DRD. Where is the Committee’s role in that? If the Executive take the decision, then who will hold the Executive to account for that decision, and how will the Committee for Regional Development play its role in scrutinising the Department? The issue of VAT will be one for the Department. Whether NIW reverts back to the public sector is a matter for this Committee. There is a dichotomy of issues that I am not absolutely clear about.

221. The Minister for Regional Development: In relation to costs, I have always argued, and will continue to argue, that any costs that flow from an Executive decision will be consequences for the Executive, although technically there is no such thing as an Executive cost. I will continue to make that argument, and I have been largely successful in making it to date. If there is a cost implication of the Executive’s decision, whether in relation to VAT or anything else, it should not be left to DRD to bear that cost. If the Executive takes a decision in the foreseeable future on how water and sewerage services are to be funded, it would be the final decision made in relation to the panel’s report, and there would be a commitment to consult on that. Obviously, the Committee would have a key role in the consultation process on the panel’s report.

222. We have consulted on some aspects of it but not on others, including how water and sewerage services are paid for. If the Executive’s decision is to continue to pay for those services for whatever period in the future, and that has implications for the status of the company, it will become part of the consultation process on the panel’s report in which the Committee would have a key role.

223. The Chairperson: Would the Committee come into play, along with the Department, at the consultation stage?

224. The Minister for Regional Development: Yes; I imagine that it would. It becomes part of the consultation that flowed from the Hillyard report, because it would be the final set of decisions in relation to that. Obviously, the Committee has a key role in that.

225. The Chairperson: Therefore, as regards all the issues around — and I am sorry for labouring the point, Minister, but I think that it is important —

226. The Minister for Regional Development: That is fine. I appreciate that there is a degree of uncertainty. The Committee is entitled and expected to play its role, and it wants to play its role.

227. The Chairperson: It is our view that the Executive will carry the financial burdens for issues around the reclassification of the company, VAT and so on. Naturally, the Committee will be involved in the consultation and then with DRD and DFP about how the outworkings of the Executive’s decision —

228. The Minister for Regional Development: Yes; I would expect that.

229. The Chairperson: Is that before the decision is actually made?

230. The Minister for Regional Development: I would expect that that would be the case. As I said, the Committee is one of the key consultees — if not the key consultee — in a consultation process. At the end of that process, decisions will be taken on the basis of the outcome of the consultation.

231. The Chairperson: That is reassuring. I am sorry for labouring the point.

232. No one else has any more questions, Minister, so I thank you very much for your time.

11 November 2009

Members present for all or part of the proceedings:
Mr Fred Cobain (Chairperson)
Miss Michelle McIlveen (Deputy Chairperson)
Mr Cathal Boylan
Mr Willie Clarke
Mr Tommy Gallagher
Mr Danny Kinahan
Mr Raymond McCartney
Mr Ian McCrea
Mr Brian Wilson

Witnesses:

Mr Adrian Arbuthnot Mr Richard Pengelly

Department of Finance and Personnel

233. The Chairperson (Mr Cobain): The meeting will consist of two evidence sessions; one from the Department of Finance and Personnel (DFP), and one from the Northern Ireland Public Service Alliance (NIPSA). Included in members’ packs is a letter from NIPSA — which the Committee looked at during its meeting on 4 November — detailing its concerns about the Bill, and requesting an opportunity to give evidence to the Committee. No written submissions have been received from either DFP or NIPSA.

234. I remind witnesses and those in the Public Gallery that the session is being recorded by Hansard, and, therefore, mobile phones must be switched off completely and not running on silent.

235. With us today is Richard Pengelly and Adrian Arbuthnot. Richard, perhaps you can make your presentation and then I will open up the meeting to questions.

236. Mr Richard Pengelly (Department of Finance and Personnel): The Committee has helpfully forwarded me a list of some of the issues that it wants to explore. Given that time is short, perhaps we could move straight to the questions rather than delay proceedings with a long opening statement.

237. The Chairperson: Yes, that would be helpful.

238. The Department for Regional Development (DRD) is asking the Committee for permission to extend the period of the non-payment of water rates. As you know, the non-payment period runs out on 31 March 2010, and the Department needs additional powers from 1 April 2010. To give the Committee a feel for the background to that, can you give us some indication of the financial outcomes if the Department exercises that position?

239. Mr Pengelly: The power that will be conferred by the Bill is an enabling power, and, as such, does not preclude the introduction of water charges at some point. However, any previous plans by the Executive to introduce water charges were on a phased basis. The original plan would have had full charging in place at a designated point in time, but that will no longer be the case.

240. You asked about the financial implications. A key point is that expenditure plans exist only up to 2010-11. Therefore, we can talk with any certainty about numbers only until then. Beyond that there needs to be a further Budget process and further work with DRD and Northern Ireland Water (NIW) to quantify the precise cost implications.

241. We are going backwards to go forward. The three-year Budget, which was approved by the Executive and the Assembly in January 2008, covered the period 2008-09 until 2010-11, and assumed that the phased introduction of water charges would be in place from April 2009. Subsequently, in November 2008, the Executive decided to defer water charges. The cost implications for 2009-2010 were dealt with as part of the in-year monitoring process.

242. We are at the stage in which, in reality, water charges will not be in place in 2010-11, and that has as much to do with logistical reasons as it does with the Executive’s position. Indeed, the Executive have still to debate that issue.

243. The financial implications for 2010-11 for current expenditure will be £120 million, and, for capital investment, £93 million. That is revenue that we had assumed would be available and which will not be because water charges are not in place. In the absence of charging, the financial implications will be of that magnitude rolling forward into 2011-12 and beyond. Until the Budget process is refreshed, we do not have those funds.

244. I know that DRD has talked about a figure of about £1 billion during the period 2010-13. That is internal work that the Department has done based on NIW’s business plan; however, as yet, it has not formally presented us with a figure.

245. The Chairperson: The introduction of water charges was to be done through a phased process, beginning with one-third charging, two-thirds charging and then full charging. Do you know how much the subsidy for the one-third and two-thirds charging was?

246. Mr Pengelly: I do not have the exact figure.

247. The Chairperson: The figure that you mentioned of about £100 million does not bear any relation to what the Department is telling us about the full implications of non-charging.

248. Mr Pengelly: Is that by reference to the £1 billion?

249. The Chairperson: No. The Department has not mentioned the figure of a £100 million subsidy for Northern Ireland Water to cover the complete non-charging of water. We were told that that subsidy would be about £250 million.

250. Mr Pengelly: The assumption was that one-third charging would be in place in 2009-2010; two-thirds charging in 2010-11; and full charging in 2011-12. That was the original plan. Another complication about 2010-11 is that, in parallel with the phased introduction of water charges, there was to have been an offset to the regional rate, because there was to have been full recognition of the contribution to water and sewerage charges through the regional rate. The decision not to introduce water charging would have reduced the regional rate, but the regional rate will not now be reduced in 2010-11, as was originally planned.

251. The Chairperson: Sorry, explain that to me. Will there be no reduction in the regional rate in 2010-11?

252. Mr Pengelly: No, because that reduction was to recognise and offset the introduction of water charging. It was to have recognised the contribution to water charges made through the regional rate. If water charging is not in place in 2010-11, there need not be a reduction that year.

253. The Chairperson: I do not think that the public will understand that sleight of hand, Richard. I thought that the Minister of Finance and Personnel told everyone that they were going to be £161 better off, which was the notional amount that they pay for water in the regional rate.

254. Mr Pengelly: The average contribution to water through the regional rate is about £160 per household.

255. The Chairperson: A lot of people were told that they were going to be better off by that amount. No one mentioned that if water charges were not introduced that the £160 saving would be taken back off them. When was that decided?

256. Mr Pengelly: It was part and parcel that at the point that water charges were introduced, there would be a reduction in the regional rate offset by that introduction, so the two were very much paired.

257. The Chairperson: Therefore, are you saying that no water charging equals no rate reduction?

258. Mr Pengelly: Yes.

259. The Chairperson: OK. That clears that up. Those are the financial issues. What about the negotiations that the Department is having with the Treasury about VAT and the reclassification of Northern Ireland Water? What are the financial implications of those issues?

260. Mr Pengelly: VAT is not a Treasury matter; rather, it is an issue between Northern Ireland Water and Her Majesty’s Revenue and Customs. We are not engaged in that at all. That is an issue involving DRD and Northern Ireland Water. They periodically update my Department on that.

261. The Chairperson: So, it is not a Treasury issue?

262. Mr Pengelly: That is correct; it is a matter for Revenue and Customs. The classification is determined by the Office for National Statistics (ONS). The original classification as a Government-owned company (Go-co) was predicated on charging being applied. A Go-co must generate its own revenue stream, which was fine when water charging was planned. With the deferral of charging, ONS revisited that and determined that Northern Ireland Water was not a Government-owned company; it is, effectively, a non-departmental public body (NDPB). That will remain the case unless and until the introduction of water charging.

263. The Chairperson: What are the financial implications of that?

264. Mr Pengelly: The main issue involves what we call non-cash costs — the cost of capital and depreciation. The cost of capital is by far the most significant element of that. In parallel, the Treasury has reviewed the overall public expenditure framework, and from 1 April 2010, it is abolishing cost of capital. Therefore, after 31 March 2010 that issue goes from being very significant to disappearing. Although the classification exposes Northern Ireland Water to cost of capital, because that issue is being abolished by the Treasury —

265. The Chairperson: Are there any residual costs up until 2010?

266. Mr Pengelly: The previous agreement was that the Treasury would absorb the cost of capital implications for 2009-2010.

267. The Chairperson: Therefore, are there no financial implications at all involved in reclassification?

268. Mr Pengelly: Not for cost of capital. The main implication of the classification is the creation of some flexibility. What scores in the Executive’s Budget for a Go-co is the amount of money that DRD would pass to Northern Ireland Water. As a non-departmental public body, what scores is the amount of money that Northern Ireland Water spends on providing services. There is significantly more flexibility in that, as a Go-co, the company could build up some reserves that would provide it with the flexibility to deal with exceptional circumstances. As an NDPB, even if it accumulates reserves, at the point that it spends them it would have an effect on public expenditure.

269. The Chairperson: Basically, there are no financial implications.

270. Mr Pengelly: Now that we have addressed the cost of capital —

271. The Chairperson: Are there any physical costs to Northern Ireland?

272. Mr Pengelly: The balance between current expenditure and capital expenditure changes, but in global terms, it is broadly the same. There are some tweaks around the margins, but —

273. The Chairperson: Are we talking about what happens around the margins? We are not —

274. Mr Pengelly: We are not talking about fundamental change. The linked issue is the asset valuation, that is, the valuation of Northern Ireland Water’s asset base.

275. The Chairperson: Was it £700 million, and we are now up to £5 billion?

276. Mr Pengelly: It was £6 billion when it was an agency, before it became Northern Ireland Water. At that point, it was classified as a Go-co. In technical terms as an agency, the asset base had to be valued by reference to depreciated replacement costs, that is, how much it would cost to recreate the water and sewerage infrastructure. As a Go-co, the model is valued by how much cash the assets can generate, which is the charging stream. It originally reduced, at the point of the creation of Northern Ireland Water, to £850 million. That has crept up to approximately £1 billion because of the investment programme that has been put in place.

277. My colleagues in DRD who are accountants, and who are examining that issue, are still confident that the £1 billion valuation is correct. We still the view the classification as an NDPB as an interim measure. We do not want to carry out a wholesale revaluation of Northern Ireland Water until there is a formal Executive consideration of the way forward for the company. My DRD colleagues are content that, in accounting terms, the £1 billion remains valid.

278. The Chairperson: Is the Treasury happy with that?

279. Mr Pengelly: We have not discussed the issue in detail with the Treasury. There is no need to seek Treasury approval at this time. The valuation is one that the Northern Ireland Water and DRD accounting officers came to, and which is subject to audit.

280. The Chairperson: I want to be absolutely clear about that. Are you saying that the Treasury has not been consulted about any of this?

281. Mr Pengelly: That is correct. The work that is being done is undertaken in the context of the framework that was established by the Treasury.

282. The Chairperson: So, there has been no direct contact with the Treasury?

283. Mr Pengelly: There is no need. We would speak to the Treasury only to seek an exemption.

284. The Chairperson: I just wanted to get the point absolutely clear that there have been no discussions with the Treasury.

285. Mr Pengelly: The last discussion involving the Treasury and Northern Ireland Water took place around November 2008, when the Treasury agreed to pick up the burden of the cost of capital. There has been no direct engagement since then.

286. The Chairperson: OK. Good.

287. Mr Gallagher: I want to look to April 2010 and onwards, and to the possibilities that the legislation might cater for. We can go on as we are, or make a decision to introduce direct charging. If charges were to be introduced in April 2010, how would they be set? Would it be at the one-third level or the two-thirds level, since we are a year late? Could charges be set at the full value? Links were being made between the two levels anyway. There is the possibility of a rates discount in lieu of customer charges. If charges are brought in at that level in April 2010, will there be a corresponding discount in the rates from April 2010?

288. Mr Pengelly: The short answer is that the decision on when and how to introduce water charges in the future is for the Executive to determine. The Executive have not yet received a paper. Looking backwards —

289. Mr Gallagher: Many things are happening in the background. The Minister for Regional Development has not ruled that out, and the Minister of Finance and Personnel indicated that he cannot run his Department without the introduction of water charges.

290. Mr Pengelly: I cannot say for certain what the Executive may do in the future. However, I can clarify the clear principles that the Executive established in January 2008 when they took the decision to introduce water charges. One principle was that the move to water charging would happen on a phased basis. Given that, it is exceptionally unlikely that we will move from no charging to full charging. The transition would be managed over a period of years. The Executive will determine whether to charge one or two thirds of the full charge or whether to extend the phasing period.

291. Furthermore, the Executive took a clear decision to fully recognise the existing contribution to the provision of water and sewerage services through the regional rate. When water and sewerage charges are introduced, there was to be a compensating reduction of about £160 per household to the domestic regional rate.

292. Mr Gallagher: Perhaps I did not pick you up correctly; I thought that you said that the rates are already fixed for April 2010 to March 2011? Can they be changed?

293. Mr Pengelly: The Assembly passes a piece of legislation annually in January or February that strikes the rate. The Executive have planned for that as part of the Budget process. In January 2008, the plan was to offset the reduction in the regional rate, because water charges were supposed to be in place in 2010-11. However, the legislation for that year needs to go through in early 2010. Given that there are no water charges, the compensating reduction is not required. That will not impact on household bills or the amount of money that is available to the Executive for public services; we will remove a plus and a minus to leave a neutral position.

294. The Chairperson: Have you taken the notional figure of £161 reduction in the regional rate back in? That will not cover the costs of Northern Ireland Water. Who will cover the shortfall?

295. Mr Pengelly: The Executive will need to find that shortfall.

296. The Chairperson: How much is the shortfall?

297. Mr Pengelly: I do not know the exact figure. However, I think that, in broad terms, the full cost of water and sewerage services per household is in the region of £330. A recognised contribution of about £160 is made through the regional rate. The Executive will need to find the difference.

298. The Chairperson: It will be even more than that, because if you put the money back into the regional rate, people who claim passport benefits will pay nothing. They will pay something towards water charges. How much will they pay?

299. Mr Pengelly: There is a differential impact at household level. The £160 per household translates into about £109 million of total revenue. That £109 million, which is the existing contribution through the regional rate, will not cover the full cost of running Northern Ireland Water. The balance would have been funded through charging.

300. The Chairperson: It is about £200 million?

301. Mr Pengelly: Yes, that is the ballpark figure. Given that charging is not in place, the Executive need to make a contribution.

302. The Chairperson: A contribution of £200 million.

303. Mr Pengelly: I quoted £120 million and £93 million because a subsidy was intended to be in place in 2010-11 to account for the lack of full charging. Those two figures represent the additional provision that is needed to reach that sort of figure.

304. The Chairperson: You said that charging will be phased in. Even if we charge one third of the overall charge, people who are on passport benefits will not pay anything.

305. Mr Pengelly: That is right.

306. The Chairperson: Therefore, not everyone will pay regional rates, but everyone will pay water charges. The Executive need to find £200 million or more.

307. Mr Pengelly: In the context of no charging, that is correct.

308. Mr Kinahan: I am not sure that I fully understand. How much lead-in time is required before charging can be introduced? Is it a year or six months?

309. Mr Pengelly: I think that it will take between six months to a year; however, that is really a question for Northern Ireland Water and DRD, because will they manage the introduction.

310. Mr B Wilson: I have been trying to reconcile the figures that you provided with the previous figures that we received, and I am beginning to get clarification. You said that the Executive’s current expenditure in 2010-11 will be £120 million plus £93 million and that they will get £109 million in revenue from the regional rate. Therefore, had the original plan been in place, would the total revenue for 2010-11 be £109 million plus the amount generated from two-thirds charging?

311. Mr Pengelly: It is much easier to talk in broad terms. In 2010-11, the sums of £120 million and £93 million for current expenditure and capital investment respectively relate to the ongoing running costs of Northern Ireland Water and a capital investment programme. It costs approximately £300 million to run Northern Ireland Water. Therefore, the plan was for two-thirds charging to be in place by 2010-11 to generate approximately £200 million in revenue and for the Executive to provide £100 million in existing financial cover.

312. Mr B Wilson: Is that revenue from the regional rate?

313. Mr Pengelly: Of the £200 million in revenue from charging, £100 million is the offset from the regional rate and about £100 million is from additional bills to households. Even if there is no charging in 2010-11, that £100 million Executive contribution will already have been made. Given that the regional rate has not been reduced, we are still receiving that revenue. That leaves a balance of about £120 million, which is the additional subsidy that needs to go to Northern Ireland Water that year.

314. Mr B Wilson: What about the capital costs?

315. Mr Pengelly: Some of the revenue from charging would have been used to cover the capital investment programme. Therefore, there is a need for revenue because charging is not in place. It is hugely technical. Part of the water bill covers non-cash costs for operating costs that do not have a cash outflow so that that money is available to finance capital investment. It is easier if we focus on the current expenditure side to get a sense of what is happening.

316. Mr McCartney: The Bill has been described to the Committee as a technical Bill. Does the Bill interfere with or have any implications for the procedure to provide funding to the company?

317. Mr Pengelly: The Bill is technical in nature, because it provides the legislative authority for DRD to continue to make a payment to Northern Ireland Water in the absence of charging. The substantive consideration for the Executive and the Assembly is whether charging should be in place. The Executive made a formal decision in November 2008 not to proceed with charging. There has not been a formal consideration of the position for 2010-11; however, given that it is November 2009, it will not be logistically possible to have bills in place for 2010-11. That is a financial issue.

318. The Executive have been discussing the financial position for 2010-11 over the past couple of weeks. Making good that shortfall is one of the key considerations for the Executive. There will be a Budget process next year, and the question over the introduction of water charges will once again be a substantive issue for the Executive to consider and to work through with members at Assembly Committees and plenary sessions.

319. Mr McCartney: The Bill, as framed, will not —

320. Mr Pengelly: It certainly will not preclude the introduction of water charges.

321. Mr McCartney: What I am trying to say is that you do not wake up one day and decide that the only thing to do as a result of the Bill is —

322. Mr Pengelly: No, not at all.

323. Mr McCartney: Are you, therefore, saying that the Executive makes that decision?

324. Mr Pengelly: Absolutely.

325. Mr McCartney: If the Bill is agreed to, is there any timeline for when a decision on VAT must be made, or is that an issue that the water company must consider?

326. Mr Pengelly: That is something about which the water company is speaking to Revenue and Customs.

327. The Chairperson: I want to make sure that we are absolutely clear about this: is it too late to charge for water in 2010-11? Are we past that stage?

328. Mr Pengelly: That is what colleagues in DRD tell us.

329. The Chairperson: That is what they tell us also. I wanted to get that absolutely clear. Will the Bill give power to the Executive to introduce water charges in 2011-12?

330. Mr Pengelly: Yes.

331. The Chairperson: This is all hypothetical, and we are not holding you to this. Do you think that it is unlikely that in 2011-12, the Department will go from no charging to full charging?

332. Mr Pengelly: Based on what the Executive have done in the past, I think that that is correct.

333. The Chairperson: So, will it probably be a phased approach?

334. Mr Pengelly: Yes.

335. The Chairperson: If it will be a phased approach, we are talking about more than £200 million. Say we charge one third, two thirds and then the full amount, which could be in 2014-15 or 2015-16. In the first instance, if the plan that as set out is adopted in 2011-12, which is to charge one third and then two thirds, will the Department or the Executive provide two thirds of the costs of water, with the third coming from customers?

336. Mr Pengelly: Yes.

337. The Chairperson: Would that be more than £200 million?

338. Mr Pengelly: Yes.

339. The Chairperson: Is the capital cost on top of that?

340. Mr Pengelly: Yes.

341. The Chairperson: If there is no water charging, will the notional figure of £161 that is deducted from the regional rate be recharged?

342. Mr Pengelly: Yes. That has continued to be charged. It was originally due to be offset in 2009-2010. That was the first year that water —

343. The Chairperson: Is it correct that if there is no water charging, there will be no reduction in the regional rate?

344. Mr Pengelly: That is correct.

345. The Chairperson: OK. Thank you very much.

11 November 2009

Members present for all or part of the proceedings:
Mr Fred Cobain (Chairperson)
Miss Michelle McIlveen (Deputy Chairperson)
Mr Cathal Boylan
Mr Willie Clarke
Mr Tommy Gallagher
Mr Danny Kinahan
Mr Raymond McCartney
Mr Ian McCrea
Mr Brian Wilson

Witnesses:

Mr John Corey		Northern Ireland Public Service Alliance
Mr Damian Bannon		Northern Ireland Public Service Alliance
Mr Peter Bunting		Irish Congress of Trade Unions

346. The Chairperson (Mr Cobain): Thank you very much for coming. Do you want to lead off, John?

347. Mr John Corey (Northern Ireland Public Service Alliance): I thank the Committee for the opportunity to offer some views and comments in relation to this Bill. I think that we may be listed as representing NIPSA, but we are representing the broader trade union movement. Peter is here from the Irish Congress of Trade Unions, as well as our representing the NIPSA interest because of the large number of water service staff whom we represent.

348. I will start with an apology to the Committee. If members have a NIPSA letter in front of them, it is probably confusing. It was an error on our part because when we examined this Bill, we also looked at the Water and Sewerage Services (Northern Ireland) Order 2006, which is the major piece of legislation that is being amended. Therefore, there were references to a “substantial Bill" and “part II of the Bill", but that should have said “Order" rather than “Bill". I apologise for that confusion.

349. We want to make a number of key points to the Committee today. First, we record in the letter that we accept that the proposed amendment is required, for the simple reason that it is necessary so that the Department can extend the period for grant payments that cover the cost of householders contributing water charges. We cannot see any practical alternative to accepting that this very short Bill is necessary. However, having made that point, we recognise and acknowledge the Committee’s strong concerns that the amendment Bill does not tackle or address the big issue of how water and sewerage services are going to be funded in the future. We also appreciate the Committee’s view that, although it is a minimal, technical amendment Bill — probably one of the shortest Bills you are ever likely to see as an Assembly Committee — it has very significant implications.

350. The point has already been made that, if the Bill is not enacted, it could conceivably force householders in Northern Ireland to pay water charges from April 2010, because otherwise Northern Ireland Water would be short of financing for operations. It is very difficult to predict what the consequences of that would be.

351. I must be clear about where the trade unions stand on the possibility of forcing householders in Northern Ireland to pay separate water charges. As we have stated previously, we strongly oppose that.

352. We are concerned that we have again reached the point where we are facing the question of water charges — it is in the public arena, and is spoken about constantly — but we went through a process three years ago. Almost two years ago, two reports from the independent review committee were made available to us, which addressed many of the relevant issues, yet there has been no outworking of those reports, as far as we can see. There has been no public consultation on the wide range of recommendations that they made.

353. This Committee spent considerable time on those reports and produced comprehensive responses to them to the Minister, but now, two years later, we can find no evidence of the Department giving any serious consideration to that whole raft of recommendations, specifically, to how householders are going to contribute to water charges in Northern Ireland. That is something that we feel strongly about, which is why we felt that it was important to take this opportunity to speak to the Committee when considering the short amendment Bill.

354. A gap has now appeared; we think that an opportunity to deal with the issue has been missed during the last two years, or year and a half. We have opposed householder water charges — without wishing to repeat something that you are all familiar with — on two straightforward grounds. First, householders already pay. The independent review panel confirmed that householders at that point were contributing an average of £160 per household per year for water. Secondly, we do not think that there is any necessity for separate household water charges. On the basis that householders already pay, we think that it cannot be beyond the capacity of the Northern Ireland Administration to organise a financial system under which householders can contribute toward the cost of water and sewerage through the regional rates system, and contribute on a fair basis. We do not think it is impossible or that there is a barrier to doing that if there is a will to do so.

355. The point that we are anxious to make today, which we would like the Committee to consider and take on board, is that the Department had ample opportunity over the last two years to do that; to consult the public, develop proposals and seek to put arrangements in place so as to establish once and for all what the future is going to be in Northern Ireland in relation to payment for water.

356. We also think that it is reasonable and fair that, under such a system, the determination of what is a fair contribution should become a political matter, not a matter for the Utility Regulator. It should be a political matter to be determined by the Minister, with a role for this Committee, and ultimately, the Assembly. It would be a debate that would have to take place each year, but the people of Northern Ireland should contribute. As far as we are aware, none of that work has been taken forward, unless someone has other information. That is a major point that we wish to make.

357. Although our letter implied that those actions should be implemented through the amendment Bill, we accept, on reflection, that that is not practical politics, and is unlikely to happen. Nevertheless, the points should be made.

358. The third issue identified in our letter concerns the independent review panel’s report, which addressed issues relating to privatisation of water, issues of governance, and the role of the regulator. All of those matters remain to be addressed. For example, although the current Minister gave firm statements on his opposition to privatisation of water, the earliest opportunity should have been taken to secure that through legislation. That has not happened, and is still not happening. We are not convinced that we should remain reliant on the so-called triple lock system only — the assurance given by the previous direct rule Administration. That should be encompassed in legislation. Those are points that we felt we should make to you.

359. At the end of the day, NIPSA wants to see Northern Ireland move to a future where we have clearly established that water and sewerage services will be a public service, and have established the mechanism through which householders contribute fairly to those costs, taking all factors into account, including the long-standing neglect of previous Governments and the lack of investment in the infrastructure. That is what we want to see in the future. We recognise that the amendment Bill will not bring about the changes to deliver all of those things, but we are anxious to make the point to the Committee — and hope the Committee will express it to the Assembly — that those are the issues that need to be addressed in public consultation with those affected, and that that should have happened before now.

360. In summary, we want to determine once and for all that our water and sewerage services are a public service. In fact, the current structures have added to bureaucracy in relation to the way in which Northern Ireland Water operates, not taken away from it. Householders should continue to contribute to water through the domestic rates system, and the fair determination of that contribution should be a political issue to be determined each year. Those are the things that we would have liked to have seen incorporated in an amendment Bill. We recognise that that is a tall order, and will not be achieved in the position that we are in today, as we accept that the amendment Bill has to be implemented in order to avoid the introduction of household water charges from next April.

361. We hope that the Committee, when addressing the Bill in the Assembly, will take on board the points that we have made, and that the Minister will be pressed to undertake the public consultation on the issue that has been outstanding for so long.

362. The Chairperson: We are restricted by the fact that this is a one-clause Bill that enables the Executive to further defer water charges. The Minister has given the Committee an assurance that water charging will be introduced only after a full public consultation process involving bodies such as the Northern Ireland Public Service Alliance and the Committee. We already have an assurance that the matter will be discussed at the Committee and in the Assembly.

363. Mr McCartney: I echo the Chairperson’s comments that this work concerns the Water and Sewerage Services (Amendment) Bill, which is being presented to us as a technical Bill. The wider issues that you spoke about, and the concerns that are reflected in the Committee’s work, go right back to the independent panel. It recommended that the issue should be dealt with by the Executive, rather than by a single Department. That approach would bring plusses and minuses to the way in which the matter is presented and argued in public.

364. The Committee has been advised that the Bill ensures that the Department will have the legal power to pass on the money from April 2009. Another vista is that people will be forced to pay for water. Another is that there will be no money to allow the water subsidies to go forward. That is the spirit in which we are approaching the Bill.

365. Mr W Clarke: I echo Raymond’s comments that the purpose of the Bill is to allow the Minister to defer any water charging. The deferral of water charges until 2010-11 will create a big funding gap. Have you given consideration to how that gap can be closed without jobs being lost in other bodies? We are very limited, because we do not have tax-raising powers; it may not be a good idea to raise taxes in a recession anyway. Therefore, we need either the block grant or an increase in regional rates. Do you have any other ideas on that?

366. Mr Corey: We recognise that this is a technical Bill to give the Department for Regional Development power to continue to meet the cost of household water charges through grants. Like the Committee, we accept that that is a necessity in the current circumstances. However, we have fears, groundless or otherwise, that the public could be bounced into paying water charges because financial constraints make that imperative. We are concerned that it has been presented as the only option. We are concerned that, over the last 18 months, opportunities to get the issue sorted, and to let everyone in Northern Ireland know where they stand, have not been taken.

367. You asked where money can be found to make up a funding deficit brought about by the deferral of water charges. We are not averse to someone conducting a fair examination of the costs of public services here, how money is used, and how it could be used more efficiently. We have plenty on ideas of how the funding gap could be closed. A brake must be put on Departments’ use of external consultants. Virtually every day, Departments send us reports on a wide range of administrative issues that have been prepared by external consultants. That accounts for significant expenditure, and money could be saved in that area.

368. You also mentioned rates and the difficulties in raising taxes in the current climate. However, we have concerns about whether the arrangements are fair. We are concerned about whether those who can afford to pay are paying fairly, compared to those who cannot. We have issues about the use of the capital limit of £400,000. We are concerned by the fact that the regional rate increases have been frozen for a number of years. Those are issues that must be addressed seriously, so that those who can afford to pay do so. It might be claimed that that will not completely bridge the gap in the alleged funding shortfall, but those are issues that should be addressed. Trade unions have never been against efficient public services.

369. Mr Peter Bunting (Irish Congress of Trade Unions): We would be reluctant to oppose a particular measure to make up the funding deficit in water. There are a range of economic arguments that we would put forward about how to make savings right across Northern Ireland, about making up funding and about where funding should go, other than just this. Therefore, there is a bit of reluctance on our part, because it is an economic view of Northern Ireland, as opposed to focusing on water alone.

370. It is imperative to separate elements of the rates bill so that everybody knows exactly what they are paying for water. That is crucial to building confidence. If people are to be convinced that they must pay x amount for water, it is important that it is accounted for separately on the rates bill to enable changes over the years to be seen. Water charges should not be subsumed into a single bill that rises every year and that could lead to money that is allegedly for water going somewhere else.

371. The Chairperson: That is a debate for another day.

372. Mr Damian Bannon (Northern Ireland Public Service Alliance): We have been engaged with a number of Departments on looking at efficiencies across their corporate services, particularly in DRD. To date, some efficiencies have been identified. For example, money has been directed into public transport. We expect other Departments to follow suit.

373. That engagement is ongoing and throws into stark relief the costs of services that have been provided. For instance, NIW alone is meeting the cost of its pensions administration, communications, finance and legal services. The thrust of what the Department is doing involves looking at whether centralising those services would deliver them more efficiently. Yet, NIW pays for all those services at a very significant cost.

374. Clearly, that does not represent a nil cost to the Department. However, the cost of NIW providing its own services when they could be provided by the Department is worth considering. John made the point that it might be difficult to bring NIW back into the Department, but he also said that we would like to start the process of looking at alternative models and the financial implications. Thus, in answer to the question about the wider economic situation: we are engaged with the Department in looking at what efficiencies can be delivered.

375. Mr Boylan: I do not want to deflect from the Bill, but I have another question.

376. The Chairperson: Does it concern the Bill?

377. Mr Boylan: It is relevant.

378. The Chairperson: I have allowed a wide-ranging discussion, but as the member keeps reminding me, we are talking about a technical issue.

379. Mr Boylan: It is important, because, ultimately, it is all about economics and we are going to pay. I have two quick points to make. First, a pound-by-pound breakdown of exactly what is paid for in rates cannot be obtained. My other point concerns consultants. The witnesses described how the Department paid for redundancies and spent money on consultants. Does the Department have staff with the expertise to do that work, rather than employing consultants and paying their fees?

380. Mr Corey: Various expertise is available. All that I will say is that we receive many consultants’ reports that contain blindingly obvious answers that were clear before those consultants ever examined the issues involved. What is more, those answers were available in the Department and could have been produced by a few civil servants very quickly.

381. The Chairperson: There is good news and bad news. The good news is that there will not be any water charges in 2011; the bad news is that you will not get a £160 rates rebate, if there are not water charges.

382. Mr Corey: We think that there is a better system, and we should get to it.

383. Mr McCartney: Perhaps we could come back to your last point on the use of consultants. The Committee has received presentations from the Roads Service, which employs consultants because they, apparently, are necessary for road building. We are keen to hear of examples of areas in which it is blindingly obvious that the work can be done within the system, rather than with the assistance of consultants. We have every desire to ensure that money is not wasted, particularly on consultants.

384. Mr Corey: There are significant sums of money being spent on consultants and the review of public administration.

385. The Chairperson: Thank you for attending today’s Committee meeting.

9 December 2009

Members present for all or part of the proceedings:
Mr Fred Cobain (Chairperson)
Miss Michelle McIlveen (Deputy Chairperson)
Mr Allan Bresland
Mr Willie Clarke
Mr Tommy Gallagher
Mr Danny Kinahan
Mr Ian McCrea
Mr George Robinson
Mr Brian Wilson

386. The Chairperson (Mr Cobain): Good morning, members. We come to our clause-by-clause scrutiny of the Water and Sewerage Services (Amendment) Bill, after which we will deal with the Committee report.

Clause 1 (Grants to water and sewerage undertakers: extension of initial period)

387. The Chairperson: Clause 1 deals with the extension from three to six years of the initial period for which the Department for Regional Development is required to make grants to Northern Ireland Water equal to the amount of discounts provided to customers in the initial period. Do members agree clause 1?

Question, That the Committee is content with the clause, put and agreed to.

Clause 1 agreed to.

Clause 2 (Short title)

388. The Chairperson: Clause 2 is the short title of the Bill. Do members agree clause 2?

Question, That the Committee is content with the clause, put and agreed to.

Clause 2 agreed to.

The meeting was suspended.

On resuming (The Chairperson [Mr Cobain] in the Chair) —

389. The Chairperson: Our second item of business is the Committee Report on the Water and Sewerage Services (Amendment) Bill. I will ask members whether they agree the paragraphs as we go through them.

Introduction

Paragraphs 1 and 2 agreed to.

The Committee’s Approach

Paragraphs 3 to 11 agreed to.

Consideration of the Provisions in the Bill

390. The Chairperson: Paragraphs 13 and 14 deal with clause 1, to which the Committee agreed earlier. Do members agree paragraphs 13 and 14?

Paragraphs 13 and 14 agreed to.

391. The Chairperson: Paragraph 15 deals with clause 2, to which the Committee agreed earlier. Do members agree paragraph 15?

Paragraph 15 agreed to.

392. The Chairperson: Do members agree paragraph 16?

Paragraph 16 agreed to.

Other issues

Paragraphs 17 to 31 agreed to.

393. The Chairperson: Are members content that the changes discussed at today’s meeting be made and that a revised report and the associated appendices be included in members’ papers for 6 January 2010 for final consideration and approval?

Members indicated assent.

Appendix 3

Written Submissions

The Consumer Council for Northern Ireland
14 October 2009

Northern Ireland Water
6 October 2009

Our Ref: CP0030
Committee for Regional Development
Committee Office Room 402
Parliament Buildings
Belfast
BT4 3XX

Date: 6 October 2009

Re: Water and Sewerage Services Bill

In response to your email of 2nd October, thank you for your invitation to provide written and oral evidence to the Committee on the Water and Sewerage Services Bill.

As an issue of water policy this is outside our area of responsibility. However, we would take the view that passage of the Bill is essential in order to provide assurance of ongoing funding for our organisation and in turn, therefore, to provide water and wastewater services to Northern Ireland’s homes and businesses over the next three years.

We will be pleased to accommodate your request to attend the Committee meeting on 14th October. The names of those attending on behalf of NI Water will be provided separately.

Yours sincerely

Pat McParland
Director of Corporate Affairs

Northern Ireland Authority for
Utility Regulation
8 October 2009

Northern Ireland Committee of the Irish Congress of Trade Unions
11 November 2009

YOUR REF

OUR REF A/JC/KB

By Email John Corey General Secretary

Committee Clerk
Committee for Regional Development
Room 402, Parliament Buildings
BELFAST BT4 3XX 23rd October 2009

Water and Sewerage Services (Amendment) Bill

You wrote to Peter Bunting ICTU on 5th October 2009 about the Committee’s consideration of the above Bill. On behalf of ICTU and NIPSA we do wish to register with the Committee our direct interest in this matter and make the following general comments.

First, while it is a very substantial Bill its main purpose is limited to extending from 3 to 6 years the provision for the shareholder (DRD) to intervene in water charges up to 31st March 2013. To that extent we welcome the amendment to facilitate this extension to cover the cost of water charges.

Second, as your Committee will be aware this is only one element of the major public debate that needs to take place about the future provision of the public Water Service and water charges. As confirmed by the Independent Review Panel’s reports the public are already paying for water charges in domestic rates. There needs to be a proper public debate on how the Water Service is to be funded for future years.

Third, in addressing this Amendment Bill, we consider there is an opportunity for the NI Assembly to include clear provisions to ensure that the Water Service will not be privatised. This would then enable further amendments in respect of the role of a Regulator (to be replaced by normal scrutiny of a non-privatised utility) – Part II of the Bill refers.

We would welcome the opportunity to give further evidence to the Committee on these matters.

Yours sincerely

John Corey

General Secretary

Appendix 4

Memoranda and Papers from the Department for
Regional Development

Proposed Water and Sewerage
Services (Amendment) Bill

Minister to brief the
Committee for Regional Development

Cost of Water and Sewerage Services for the 2010/2013 period and an update on the current VAT position of Northern Ireland Water

Appendix 5

Memoranda and Papers
from Others

Correspondence from the
Committee for Finance and Personnel
9 October 2009

Committee for Finance and Personnel
Room 419
Parliament Buildings

From: Clerk to the Committee for Finance and Personnel (CFP)

Date: 9 October 2009

To: Clerk to the Committee for Regional Development

Water and Sewerage Services (Amendment) Bill

At its meeting on 7 October 2009 the Committee for Finance and Personnel considered your memo of 6 October and the attached invitation for officials from the Department of Finance and Personnel (DFP) to give evidence on the deferral of water charges.

The Committee agreed that it would not respond to the Committee stage of the Bill, but is content for DFP officials to give evidence as requested and has therefore forwarded your correspondence to DFP.

Response from the
Department of Finance and Personnel
14 October 2009

Assembly Section

Craigantlet Buildings
Stormont
BT4 3SX

Clerk
Committee for Regional Development
Room 402
Parliament Buildings
Stormont

14 October 2009

Thank you for your 6 October letter inviting Departmental officials to the Regional Development Committee meeting on 21 October to give evidence on the current financial implications of the deferral of water charges.

Officials are content to attend a session on this topic however are unavailable on the 21 October.

If you would like to schedule a session on a different date please feel free to contact me.

Yours sincerely,

Appendix 6

Northern Ireland Assembly Research Papers

Research Paper 466 25 September 2009

The Water and Sewerage
Services (Amendment) Bill 2009

Paper outlining the legislative changes which would be introduced with the passing of the Water and Sewerage Services (Amendment) Bill and the possible implications of those changes.

Library Research Papers are compiled for the benefit of Members of The Assembly and their personal staff. Authors are available to discuss the contents of these papers with Members and their staff but cannot advise members of the general public.

Summary of key points

The Water and Sewerages Services (Amendment) Bill 2009 enables the Department for Regional Development to extended the subsidy of Northern Ireland Water beyond 31 March 2010 cut-off point stipulated in the Northern Ireland Water (NIW) and Sewerage Service (Northern Ireland) Order 2006 (the Order).

The Bill, if passed, will enable the Department to subsidise NIW “where the full economic cost of water and sewerage services is charged not directly to consumers in the 2010-2013 period".

At present “no Executive decision has been taken about the future funding of water and sewerage services". However, if the subsidy is used to fund NIW estimates place the cost at approximately £1bn over the three year period.

NIW’s current funding arrangements have led the Office of National Statistics to conclude it can no longer be considered a “self-financing" public body. The extension of the subsidy implies NIW will continue to be considered non-self-financing going forward.

Two issues, arising from the reclassification of NIW remain unresolved at the time of writing, which form part of the wider debate surrounding the Bill. These are:

• The impact it has on how NIW’s finances are recorded, notably the relocation of the capital asset to the Departments books at its original value (£6n) and the resulting per annum capital charge of £400m. This capital charge has been waivered during 2008/09 and 2009/10 but is predicted to have “significant impacts" in 2010/11;
• The possibility of HMRC not allowing NIW to recover VAT in the future as has been the case up to this point. The resulting VAT bill, should current arrangements cease is estimated to be approximately £60m. The possibility of HMRC retrospectively reclaiming VAT recovered by NIW since 2007/08 remains a potential outcome.

Royal Assent

The Bill, involving, as it does, significant levels of public financing, will not be an appropriate case for Department of Finance and Personnel guidelines on public resources ahead of royal assent (contained in the Managing Public Money document). However, the Bill Office has advised that measures within the Standing Orders may be relied upon to facilitate the expedient passing of the Bill if required.

Contents

1. Introduction

2. Background and Purpose of the Bill

3. Implications of Bill

3.1 Financial Implications

3.2 Reclassification of NIW and Related Issues

3.3 Royal Assent

1. Introduction

This paper outlines the legislative changes which would be introduced with the passing of the Water and Sewerages Services (Amendment) Bill 2009 and the possible implications of those changes.

2. Background and Purpose of the Bill

The Water and Sewerages Services (Amendment) Bill 2009 (the Bill) enables the Department to prolong subsidy of Northern Ireland Water Ltd (NIW) in the continued absence of funding through customer payments.[1]

The Bill amends the Northern Ireland Water (NIW) and Sewerage Service (Northern Ireland) Order 2006 (the Order), specifically Article 213 of the Order. Article 213 (1) enables the Department to cover any costs and any losses incurred by NIW, while Article (4) states that this will apply for a period of three years following the order coming into force (2007). The Bill extends this three year period to six, effectively securing the subsidy until 2013 as opposed to 2010 as was previously the case.[2]

In short:

The Bill will effectively enable DRD to meet any gap in NIW’s funding requirements where the full economic cost of water and sewerage services is not charged directly to consumers in the 2010-2013 period.[3]

The Bill is expected to secure Royal Assent by 31 March 2010, the cut-off point of current subsidy arrangements.[4]

3. Implications of Bill

There are a number of implications associated with the Bill; these concern its financial implications, linked with the reclassification of NIW, and the potential impact of the Bill not receiving Royal Assent prior to the 31 March 2010 cut-off point.

3.1 Financial Implications

As stated above, the Bill enables the Department to continue its subsidy of Northern Ireland Water in the event of no income being generated from customer payments. The Ministerial statement on the deferral of water charges, 22 October 2009, stated that:

“The Executive have accepted the recommendation that, from 2008-09, there should be full recognition that domestic regional rates revenue makes a contribution to the funding of water and sewerage services… In 2008-09, that will be the only household contribution to those services, the balance being paid from the Northern Ireland block grant."[5]

It continued:

“The Executive have recognised that and agreed that, from 2009-10, there will need to be additional contributions from householders. The panel has suggested that these additional contributions should come into effect in full for domestic households from 2009-10. We have concluded instead that they should be phased in, with domestic households paying two thirds of their full liability in 2009-10 and the full liability the following year."[6]

In addition the Executive announced, on the 20 November 2008, that water charges would be deferred for the financial year 2009/10.[7]

Further to the above, it is evident that “no Executive decision has been taken about the future funding of water and sewerage services".[8]

Departmental Accounts for the financial year 2007/08 show a subsidy of £296.8m.[9] Subsidy requirements for the financial years 2009/10 and 2010/11 have been estimated at £500m per year[10], whilst the financial implications of the continuation of subsidies for NIW have been estimated to amount to approximately £1bn over the three years (2010-2013).[11] The Bill itself does not stipulate that such money should or will be spent; rather it allows the Department to make available funds should they be required. The Department has stipulated that this money will come from executive funds.[12]

3.2 Reclassification of NIW and Related Issues

In 2008 the Office of National Statistics concluded that an insufficient level of NIW’s income was derived from customer charges and as such it could no longer be considered a “self-financing" public body[13] - to be considered self-financing, a public body must cover 50% of its production cost through the sale of goods and services.[14] The extension of the subsidy, should the enabling powers facilitated by the Bill be enacted, implies NIW will continue to be considered non-self-financing going forward.

At the time of writing two issues surrounding this reclassification process remain unresolved.

Capital Charges

Firstly, the reclassification of NIW requires that, for technical public expenditure purposes, the body be treated as if it were a central Government body, this in turn impacts on how NIW’s finances are recorded.[15]

As a self-financing public corporation, capital charges where scored in Annual Managed Expenditure. For NIW, this charge was offset by a return consisting of a shareholder dividend and interest payment. NIW return was calculated on its Regulatory Capital Value, and set at 5.25%. Initially, in 2006, NIW was valued at £6bn, this was, however, written down to £1bn, effectively reducing the rate of return.

Upon the reclassification of NIW the capital asset was returned to the Department’s books with its original value capital (£6bn) restored. The result of this is that the Executive is now responsible for a capital charge to the Treasury, which is not to be recovered from NIW. This capital charge does not take the form of a cash payment, but factoring it into Northern Ireland’s overall Departmental Expenditure Limits is required. The capital charge, which amounts to £400m per year, was waivered by the Prime Minister for the 2008/09 and 2009/10 financial years, but not thereafter.[16] The Department has stated that:

“If the impact on the Executive’s overall resources has been covered for these years, significant impacts may occur from 2010/11."[17]

VAT

A further issue emerging from the reclassification process, namely that of VAT recovery, remains unresolved at the time of writing. This issue is summed up as follows:

“The existing agreement with HM Revenue & Customs (HMRC), which allows NIW to recover VAT, is on the basis that the subsidy represents third party consideration with household payments being introduced in 2009/10".[18]

The Department state, in light of no decision on water charges being made beyond 2009/10, that it is difficult to predict the view HMRC may take on VAT payments going forward. They do however estimate that additional VAT cost may be in the region of £60m should the existing arrangements cease.[19] They have also not ruled out the possibility that HMRC might consider retrospectively reclaiming VAT payments recovered by NIW in 2007/08.[20]

3.3 Royal Assent

Concern has been expressed over the possibility of the Bill not securing royal assent prior to the cut-off date (31 March 2010). Department of Finance and Personnel guidelines contain measures for using public resources ahead of royal assent however these may only apply in cases were the Bill being passed is uncontroversial[21] and legal advice has confirmed that the level of spend is below £1.5m.[22] As such, these mechanisms are not appropriate in this case. However, the Bill Office has advised that measures within the Standing Orders may be relied upon to facilitate the expedient passing of the Bill if required.[23]

Northern Ireland Water – VAT

The following is answer to question raised by the Committee for Regional Development on October 7, 2009.

Existing VAT arrangements between HMRC and Northern Ireland Water are on the basis that “the current subsidy paid on behalf of domestic customers represents third party consideration with household payments being introduced from 2009/10".

Northern Ireland Water – VAT

The following is in answer to a question raised by the Committee for Regional Development on October 7, 2009.

Existing VAT arrangements between HMRC and Northern Ireland Water are on the basis that “the current subsidy paid on behalf of domestic customers represents third party consideration with household payments being introduced from 2009/10".

Since the Executive has stated that there will be no water charges for 2009/10 and since no decision has been made going forward, no discussions have occurred between the Department and HMRC. As such, the future of VAT arrangements remains unresolved.

The Department has however estimated that additional VAT cost for 2009/10 could be up to £60m for that year, if current arrangements cease. They have also stated that if HMRC sought to recover VAT payments for 2007/08 and 2008/09 the total bill (for the two years) could be up to £130m

Research & Library Services
October 09, 2009

[1] Letter from the Minster for Regional Development to the Chair of the Committee for Regional Development , 2 September 2009 p1

[2] S.I. 2006/3336 (N.I 21) Water and Sewerage Services (Amendment) Bill – Explanatory and Financial Memorandum (Annex B) p3

[3] Ibid p4

[4] Letter from the Minster for Regional Development to the Chair of the Committee for Regional Development , 2 September 2009 p3

[5] Northern Ireland Assembly Official Report (Hansard) Monday 22 October 2007

[6] Ibid

[7] Northern Ireland Executive, Executive Statements, Executive back in business and making a difference 20 November 2008, http://www.northernireland.gov.uk/executive-statements-index/executive-statement-20-november-2008.htm

[8] S.I. 2006/3336 (N.I 21) Water and Sewerage Services (Amendment) Bill – Explanatory and Financial Memorandum (Annex B) p3

[9] DRD Resource Accounts for the year ending 31 March 2008 http://applications.drdni.gov.uk/publications/document.asp?docid=14166 (accessed 22/09/09)

[10] Research & Library Services Reclassification of Northern Ireland Water March 2009 p4

[11] Committee for Regional Development, Official Report (Hansard), Water Policy: Provisional Legislation 16 September 2009 p11

[12] Ibid p6

[13] Letter from the Department for Regional Development, to Clerk to the Committee for Regional Development: Status of Northern Ireland Water – Request for Briefing, 15 December 2008

[14] ONS, U National Accounts Sector and Transaction Classification: A summary of the classification process

[15] Letter from the Department for Regional Development, to Clerk to the Committee for Regional Development: DALO 218 Status of NIW – Request for Briefing, 06 March 2009

[16] ERINI - Mitigating the Recession: Options for the NI Executive, March 2009, p10

[17] Letter from the Department for Regional Development, to Clerk to the Committee for Regional Development: Status of Northern Ireland Water – Request for Briefing, 15 December 2008

[18] Ibid

[19] Ibid

[20] Committee for Regional Development, Official Report (Hansard), Water Policy: Provisional Legislation 16 September 2009 p7

[21] Department of Finance and Personnel Managing Public Money http://www.aasdni.gov.uk/frab/browse.asp?branch=1&category=43&maxres=20&start=0&orderby=3 (accessed 23/09/09)

[22] Conversation with the Bill Office 28/09/09

[23] Ibid

The Water Component of the Regional Rate 24 November 2009

The Department [for Regional Development] have replied giving the figures as detailed in the Land and Property Annual Report. Therefore [Research & Library Services] can only offer approximate answers to [the] query regarding the percentage of rates identified as being allocated to water charges.

1. The Independent Water review panel has estimated that for 2008/09, £109m, should be taken as a contribution to water and sewerage services.

Recommendations

3.9 We recommend that from 2008/9 an annual sum of around £109m should be taken from the domestic regional rates in recognition of ratepayers’ historic contribution to water and sewerage services. In 2008/9, this should be households’ only contribution: the balance should be paid from the NI Block. www.iwrp-ni.org.uk/iwrp_strand_1_report.pdf

2. The Land and Property Services Annual Report gives the total amount collected by 31 March 2009 as £1,027.742m being 92.4% of the Northern Ireland total. We can therefore extrapolate the 100% figure as £1,112.275m.

£109m as a percentage of these figures is therefore 10.6% and 9.8%.

3. Given the time frame it has not been possible to ascertain the amount of the total rates collected which can be attributed to the ‘Regional’ rate. However, Minister’s answer to AQO 1431/09, states “In the Budget 2008-11 the projected income from regional rates for 2008-09 was set at £525 million."

Using this figure for an approximation, the £109m represents 20.76% of the projected Regional Rate.

I emphasize that these are very broad approximations, and without accurate data from the department should be treated with extreme caution.

[Research & Library Services] will formally request details from the Department and will up-date this response in due course.

Research & Library Services
November 24, 2009

Further Information on the
Water component of the Regional Rate
3 December 2009

[Research & Library Service has] received an update of the information regarding rates requested previously.

[Research & Library Service has] been in correspondence with DFP, who have stated the following:

“Total cash collected in respect of rates in 2008-09 was £942.2 million. The rate levy account does not split this amount between district and regional rates.

Payments to councils in respect of District Rates are not based on cash collected but on a Penny Product calculation. District Rates for 2008-09 based on the Estimated Penny Product were £433.3m and this amount was paid over to councils throughout 2008(09). On completion of the Actual Penny Product in May 2009 actual payment due to councils was calculated as £425.4m, leading to claw-back of £7.9m being due from the council’s .A package was then agreed with the Finance Minister and councils were able to defer some of the claw-back reducing the in year claw-back to £4.7m."

Research & Library Services
December 03, 2009

Appendix 7

Other Documents
Relevant to the
Water and Sewerage Services (Amendment) Bill

Water and Sewerage Services
(Amendment) Bill as Introduced

Explanatory and Financial Memorandum

Transcript of First Stage
21 September 2009

Executive Committee Business

Water and Sewerage Services
(Amendment) Bill

First Stage

The Minister for Regional Development (Mr Murphy): I beg to introduce the Water and Sewerage Services (Amendment) Bill [NIA 3/09], which is a Bill to enable the Department for Regional Development to continue to make payments to water and sewerage undertakers for a limited period.

Mr Deputy Speaker: That constitutes the Bill’s First Stage, and it shall now be printed. The Bill will be put on the list of future business until a date for its Second Stage is determined.

Transcript of Second Stage
29 September 2009

Executive Committee Business

Water and Sewerage Services
(Amendment) Bill

Second Stage

The Minister for Regional Development (Mr Murphy): I beg to move

That the Second Stage of the Water and Sewerage Services (Amendment) Bill [NIA 3/09] be agreed.

The Bill amends the Water and Sewerage Services (Northern Ireland) Order 2006 to extend by three years the period during which my Department is prepared to subsidise NI Water (NIW) in lieu of customer payments. If the change were not made, the existing provision for the payment of a subsidy would expire on 31 March 2010.

In wider terms, the effect of the Bill is to provide for the continuance of a sound legal basis on which the Executive can pay domestic customers’ bills on their behalf. It gives financial stability to NIW and ensures that the funding to allow the delivery of services is provided.

I appreciate that much wider questions exist about how the Assembly should deal with the future funding of water, but the Bill does not address those: that is a matter on which the Executive must decide. The three-year extension of the subsidy simply provides for the continuance of current funding arrangements.

I have set out the principle that underlies the legislation and what will be achieved by its introduction, the necessity for which is self-evident. I commend the Bill to the Assembly.

The Chairperson of the Committee for Regional Development (Mr Cobain): As Chairperson, I welcome the opportunity to contribute to the debate on the Second Stage of this important Bill. The issue today is whether the Assembly is content to endorse the principles of the Water and Sewerage Services (Amendment) Bill 2009. In the absence of funding through payment by customers, the Bill aims to ensure the continued provision of a subsidy to Northern Ireland Water.

Under article 213(3) of the Water and Sewerage Services (Northern Ireland) Order 2006, the Department for Regional Development (DRD) is required to make grants to Northern Ireland Water equal to the amount of discounts provided to customers in the initial period. The 2006 Order defines the initial period as three years from the coming into operation of the Order. During that three-year period, the direct rule Administration had intended to phase in charges for water and sewerage services. That initial period expires on 31 March 2010, and the Department has stated its willingness to make grants to Northern Ireland Water after that date.

As the Minister said, the Executive have yet to make a decision on the future funding of water and sewerage services. Even if a decision were to be taken next week, the indications are that Northern Ireland Water would not be in a position to issue bills and collect revenue by April 2010 as there would not be sufficient time.

The Committee for Regional Development is mindful of the need to progress business in an efficient and effective manner while discharging its responsibility for scrutiny to the entire Assembly thoroughly and conscientiously. The Committee will take that approach with the Bill.

12.00 noon

The Committee does not intend to oppose the principles of the Bill. It is important that Northern Ireland Water operates within a stable financial environment to ensure that the much-needed sewerage infrastructure investment programmes make progress and that the planned efficiencies and service improvements are delivered.

However, significant financial implications for Northern Ireland arise from the deferral of charging for water and sewerage services. This Bill creates the mechanism to put into action a decision by the Executive to continue to defer water and sewerage charges. Recently, there have been some discussions in the media about the impact on the Northern Ireland block grant of deferring water and sewerage charges. The Committee explored some of those issues with DRD officials during pre-introduction briefings and over the course of the previous session as the issues emerged.

At Committee Stage, we will seek clarity of the costs of continued deferral, including the costs that are associated with the reclassification of Northern Ireland Water for public expenditure purposes, the basis for valuing Northern Ireland Water assets and the ongoing ability of Northern Ireland Water to reclaim its input VAT. The Committee will also seek clarity of the financial impact that ongoing deferrals may have on the Northern Ireland block grant as a whole, the DRD budget and the budgets of other Departments. The Committee looks forward to receiving this Bill at Committee Stage. I assure the House and the Minister that this Bill will be treated by the Committee as a matter of priority.

Miss McIlveen: As the Chairman of the Committee for Regional Development indicated, the Committee discussed the principles of the Water and Sewerage Services (Amendment) Bill and has agreed to support them.

It is a very short Bill that appears to be mainly technical in nature, the purpose of it being to continue the customer subsidy to Northern Ireland Water (NIW). As was indicated, the power that was given to the Department under the Water and Sewerage Service (Northern Ireland) Order 2006 to pay the grant equal to the amount of discounts to customers comes to an end on 31 March. Obviously, the direct rule Administration had anticipated that the phasing in of charges for water and sewerage services would have been complete at that stage. Members are clearly aware that that is not the case and that water charges have been deferred, hence the requirement for this legislation.

It is my understanding that if the payment does not continue from 1 April 2010, Northern Ireland Water will be unable to pay for the delivery of what we very much take for granted; that is, water and sewerage services. Due to a legacy of many years of underinvestment in our infrastructure, Northern Ireland has lagged behind the rest of the United Kingdom. Only in recent years have we started to see the benefits of investment. I know that in my constituency, a substantial number of infrastructure programmes are being carried out and are planned for. Future investment in water is critical from an environmental and a health perspective.

The issue of water and how it is paid for is hugely emotive. The Chairman highlighted the issues around the continued deferral of water charges. However, it would probably be mischievous and unwise for us to deviate from the principles of the Bill that is before us today. At this stage, I am content to accept the principles of the Bill. I look forward to the Committee Stage.

Mr McCartney: Go raibh maith agat, a LeasCheann Comhairle. Ar dtús, ba mhaith liom a rá go mbeidh Sinn Féin ag tacú leis an Bhille, agus táimid ar son leanúint ar aghaidh leis an obair seo.

Sinn Féin will support the taking forward of this Bill. The Water and Sewerage Services (Amendment) Bill is designed to ensure the continued provision of a subsidy to NIW by the Department. Therefore, as has been stated, it is very much a technical Bill.

The current situation is that the Department’s ability and legal competence to pay a subsidy to NIW expires on 31 March 2010. That was a condition that was laid out in the Water and Sewerage Services Order 2006, which, in essence, established the company on 1 April 2007. If that Order expires, there will be no provision for the Department to provide grants or subsidies to NIW. Therefore, the company’s ability to exist and its ability to continue with the provision and management of our water and sewerage system will come to an end. This Bill will provide the basis to move forward and allow NIW to continue with its investment programmes and related works.

I welcome the decision, as outlined by the Chairperson, that the Committee for Regional Development supports the principles of the Bill. We look forward to working with it. Irrespective of decisions that were made in the past by previous Administrations — all of us have our own views of those decisions — as the Chairperson pointed out, it is incumbent on all of us to ensure that NIW operates within a financially stable environment and to allow the continuation of its work. The Bill allows that to happen.

We also support the Bill because it creates a mechanism by which the Executive can continue to defer water and sewerage charges. I agree with the Chairperson that it will be important to seek clarification at Committee Stage of the direct and indirect costs of deferral. Those issues have been discussed on many occasions at the Committee and will, undoubtedly, be revisited at Committee Stage.

I welcome the commitment of the Chairperson, the Deputy Chairperson and the Committee to prioritise the Bill. I assure the Minister of the full co-operation of Members on this side of the House as he takes the Bill forward. Go raibh maith agat.

Mr Gallagher: I apologise to the House, and to the Minister in particular, for being a few minutes late for the debate; I was delayed at a meeting of the all-party Assembly group on learning disability.

The SDLP has serious concerns about the Bill. For one thing, the full financial implications have yet to be debated fully and openly. We are being asked to support a Bill that, we are led to believe, will give the Executive the option to continue to fund Northern Ireland Water through the payment of a customer subsidy. However, neither the Department for Regional Development nor the Department of Finance and Personnel (DFP) will state convincingly that they will use that option if the Bill is approved by the Assembly.

Members should remind themselves that, at present, the public are worried, mainly about their jobs, mortgages and impossible increases on rates bills. The shadow of potential water charges now hangs over that. Only last week, the Minister for Regional Development said that he was unable to rule out the introduction of water charges during this Assembly’s lifetime. Around the same time, the Minister of Finance and Personnel said that he may be forced to introduce water charges because of pressures on the block grant. Indeed, his Department’s costings for previous years included allowances for payments through water charges.

Those comments and documents from the heart of Government, some of them leaked, tell us that, despite the absence of debate, the public are completely bewildered about water charges, particularly in relation to the positions of Sinn Féin and the DUP. Prior to elections, those parties told the public that they would stop the introduction of water charges. That is not what happened.

Mr Hamilton: My party’s position is perfectly clear; the position of the Member’s party, on the other hand, is a little more confused. If he is so opposed to the introduction of water charges at any stage and under any circumstances, will he explain why his colleague the Minister for Social Development, Margaret Ritchie, voted in the Executive for a Budget predicated on the introduction of water charges by now?

Mr Gallagher: We all understand very well that we have a strange democracy here, in which, under a ministerial code, Ministers are required to support Executive decisions. [Interruption.]

I am outlining the party’s position, and I referred to the position of Mr Hamilton’s party because it is so well known.

Despite all the promises to which I referred, what happened in 2008? Water charges for businesses were introduced at a 50% rate, and, in April 2009, they were increased to full charges. How do we explain that to the public? The best way is to have a full and open debate in the Assembly, and that has not happened. We have never been afforded that opportunity.

Yet serious problems in relation to Northern Ireland Water emerge almost every week. Recently, the Utility Regulator published ‘Water and Sewerage Service Price Control 2010-2013: Draft Determination Summary Report’. It rightly raised the infrastructural problems which we have inherited and which have to be tackled. It also showed that Northern Ireland Water had bid for £136 million more than the Utility Regulator deemed necessary. In July, Northern Ireland Water admitted that it had been overcharging some business customers. There is a great deal that is not right within the system, and in the way that we are taking forward the Bill, we are not facing up to that. Let us see what happens when the Bill gets to Committee Stage. We all know that there has been no public consultation prior to the introduction of the Bill, so there is a great deal of work to be done as it progresses through the Committee. There is a very short time frame, and we are all being put under pressure to pass the Bill.

I have referred to the infrastructural problems. There is no doubt that the public wants to see a water service that works efficiently and provides for the utilities as it is supposed to. Behind all of this lies the question: has the Treasury put the Executive on notice that it will not allow us to continue subsidising Northern Ireland Water? That question needs to be answered. When it is answered, there will be a wider debate on how the issue is going to be handled. At the Committee Stage, the SDLP will continue to express very grave concerns about that. At least, we will try to open up a debate about it.

Mr B Wilson: I reluctantly support the Bill. It is disappointing that, after two years, we have not yet resolved the issue of how to pay for our water, and it is now necessary to rush this Bill through the Assembly to ensure that Northern Ireland Water can have funding in the new financial year. However, I recognise that we must keep that option open and we have to pass the Bill. If we fail to pass it, Northern Ireland Water could be left in April without funding. However, even if we pass the Bill, we should not assume that Northern Ireland Water will be funded automatically from the block grant in the next financial year.

I am opposed to water charges based on property values, which is the obvious alternative. They are grossly unfair and they fall heavily on the elderly and those on fixed incomes. However, I recognise that we must find an alternative means of funding the water and sewerage services. It cannot continue to be met from the block grant, as that would be at the expense of other services. Under the Barnett formula, there is no provision for water in the block grant. In the rest of the UK, consumers pay the charges directly to water companies and there is no call on public finance. Therefore, we get no money for the funding of Northern Ireland Water.

Northern Ireland Water must be funded from existing sources. The alternatives are to fund it from the regional rate or from the block grant. If the Executive decide to continue funding it from the block grant, it must inevitably mean a reduction in the resources available for other services such as housing, health and education. I highlighted that issue in my Budget speech in November 2007, when I pointed out that, because there was no alternative funding for water, the budget for the Health Service would have to be reduced — and that that would inevitably lead to cuts in service and significant redundancies. I pointed out at the time that the increase in the health budget was only 2·6%, which was the lowest for 10 years, and that, in practice, because of demographic trends and because NHS inflation is significantly higher than basic inflation, the 2·6% increase for the Health Service represented at best a freeze in overall expenditure, compared to a 4% increase in real terms for the Health Service in England. Funding our water means that there is less funding available for the Health Service.

12.15 pm

The Budget also referred to new demands that we had to meet, such as those of the Bamford review. I was just at the learning disability —

Mr Deputy Speaker: Order. Mr Wilson, the debate is about the Water and Sewerage Services (Amendment) Bill; please stick to the issue at hand.

Mr B Wilson: Yes; I am sorry, Mr Deputy Speaker. The Bill proposes that water and sewerage services be funded from the block grant. If that is done, there will be an impact on all other services. I feel that that is a perfectly legitimate argument to use.

The Independent Water Review Panel, which was chaired by Professor Paddy Hillyard, examined in detail the question of the funding of Northern Ireland Water. The Green Party welcomed that report. We had always argued that water services should be funded from general taxation, and, therefore, we supported the recommendation that there be no separate water charges. In accepting the report’s main recommendation, which is that the regional rate be frozen for two years, the Executive gave the impression that the problem of paying for water and sewerage services had been resolved. In fact, nothing had changed. Any public celebrations were premature. The issue has not gone away, and, as we now see, the money is not available for next year because we did not take any action on the Hillyard report.

Mrs Long: Does the Member agree that an opportunity to study in more depth ways to levy separate water charges fairly and affordably has also been missed? The assumption was that, because the charges were being deferred, they would not be implemented. We could now be facing a situation in which they are implemented in what is not a fair, affordable and transparent way, despite the fact that there has been a deferral.

Mr B Wilson: I thank the Member for that intervention. She raised one of the major points that I was going to discuss. We had the situation whereby we were going to introduce the charges based on property values. That would have been grossly unfair, because it would have hit the poor, the elderly, and those who are on fixed incomes. We should have been looking at alternative forms of funding at that stage. The fact is that the opportunity to find fair and alternative forms of funding has been overlooked. We are now left, in the few months that remain before the funding runs out, with having to rush this legislation through the Assembly. We should have been looking at other forms of taxation that are based on the ability to pay.

We should be looking at the Lyons and Burt reviews from Scotland and England on other forms of local government finance, for example. We should be considering options such as a local sales tax, a service tax, and green taxes that would help the environment as well as raise revenue and that would be based on the principle that the polluter pays. We should also be looking at something such as a land value tax. For the past two years, we have not taken the opportunity to consider the alternatives, and we are now being pushed into accepting that the charges will come out of the block grant. If that happens, it must inevitably be at the expense of other services. Therefore, we will see a reduction in those other services.

Therefore, although I support the Bill, I feel that we should not be rushing it through the Assembly. I hope that the —

Mr Weir: I am curious about the Member’s assertion that the Bill is being rushed through the Assembly. There is no accelerated passage, and the Bill will have a full Committee Stage. How is it being rushed through the Assembly?

Mr B Wilson: As far as the business of the Committee for Regional Development is concerned, everything else has been set aside for the next month. I assure the Member that the parliamentary timetable is extremely tight.

In conclusion, I support the Bill, but I hope that we will find alternative ways of funding the services in question, because the present method of funding from the block grant or from property taxes is unacceptable.

Mr Bresland: Although the issue of water charges is one that gives rise to strong views and often heated debates, it is important to remember that the Water and Sewerage Services (Amendment) Bill is technical in nature and that we are debating its Second Stage. We are considering the principles behind the Bill. Those principles are concise and clear. We need the Bill if Northern Ireland Water is to be able to continue to provide a water and sewerage service and maintain its networks beyond next April.

If the Bill is not passed, we will have a real crisis, and water charges will have to be introduced from next April. There will be many more opportunities for a full and frank discussion on the future funding of water and sewerage services, but, this morning, we must control ourselves and limit our debate to the Bill that is before the House.

I support the Second Stage of the Bill, and I hope that the rest of the Assembly will do likewise.

Dr Farry: I am happy to support the Second Stage of the Bill. However, I want to follow up on some of the comments that were made by Mr Cobain, the Chairperson of the Committee for Regional Development, and by my friend Brian Wilson about the context in which the Bill is being progressed. There is a financial crisis facing Northern Ireland, and the Executive need to find major efficiency savings. Furthermore, it is clear that the Exchequer will call for further cuts at some stage in the future.

A lot of parties are engaging in cheap populism over the issue; they are taking stands and saying that there will be water charges in Northern Ireland over their dead bodies. I am not sure whether that approach is realistic and whether they are being frank with the people of Northern Ireland. In fact, one can foresee a situation in which we will be forced, under European Union directives, to introduce separate water charges. Leaving that aside, our current financial context may well mean that it is something that the Executive have to consider.

The Alliance Party has been consistent and straight with people on the issue. We have not ruled out a situation in which water charges may have to be introduced, and we were clear on that in our 2007 manifesto for the Assembly elections. The Executive have a duty to find efficiencies in what they are doing now, before they go down the path of water charges.

The Alliance Party stresses the importance of addressing the cost of division, and other parties have their hobby horses with regard to efficiencies. Therefore all those issues are in the mix, but one must be realistic and recognise that that may not be enough. The Executive will be faced with a choice. Put simply, and as Brian Wilson outlined, the Executive will have to consider whether to go for deeper cuts in public services or look towards the introduction of a form of water charging.

A lot of people talk about water charges affecting people who are in need or who are on the margins of society. That brings us to the whole issue of affordability and ability to pay: a water charge that is based upon the value of property will not properly reflect that. Neither would such a system reflect the relative usage of households. For instance, a situation could arise in which a single pensioner is living next door to a family of four adults who all earn a wage and who use a lot more water. It would be unfair to base the water charges for both households on the value of property. However, if we can find a fairer way of imposing water charges, it will be a progressive way of raising revenue.

On the other hand are people who are in difficulty because of their need for access to public services. They are often the most needy and disadvantaged people in our society, and they would not be eligible to pay water charges, if they were introduced. If steep cuts are imposed on the Health Service, those are the people who will suffer the most. When people talk about suffering and the disadvantaged in society, let us not focus entirely on the charges that the Assembly may or may not pass on to individuals; let us look at the nature and quality of the public services that we are funding and bear in mind that people are dependent on those and on a high quality of service.

If water charges are introduced, there is the issue of people paying twice for water, as part of the regional rate already covers water. If water charges are introduced, these Benches expect a proportionate reduction in the regional rate to account for the element that is currently being paid into the regional rate being transferred into any future water charges.

In broader terms, the deferral of water charges could be costing the Executive approximately £200 million a year, which is a considerable sum. It is the democratic choice of a devolved Executive to defer water charges, because, as Brian Wilson said, it does not form part of the Barnett formula. Therefore, the Executive are essentially taking money from the block grant to fund that deferral and are forgoing the opportunity of spending resources elsewhere.

The Assembly passed a Budget that was based on the initial deferral of water charges, but water charges have continued to be deferred without that Budget being modified to take into account the cost of that deferment. Therefore, decisions and announcements on water charges are now being made in advance of the budgetary and financial framework having caught up, and the Executive are having to find money in different areas to plug the gaps. That is not an appropriate or mature approach to the financial management of Northern Ireland’s scarce resources.

I appreciate that the Bill is designed to give options. I am happy for everything to remain on the table, but we must be realistic about where we are heading as a society. If the introduction of water charges is being considered, we must be straight with people; we must not lead them up the garden path by telling them that those charges will be withheld at all costs. Furthermore, if water charges are introduced, we must ensure that the system of charging used reflects people’s ability to pay and is based on their usage rather than on the value of their property. That system is a very blunt and, frankly, regressive form of taxation, which I hope all Members would reject; although I have my doubts.

Mrs Long: I concur with everything that my colleague said, and I will not repeat the points that he made.

The Water and Sewerage Services (Amendment) Bill, if passed, will allow the Department for Regional Development to continue to fund water and sewerage services, and the Alliance Party has no objection to that. What is now termed “water and sewerage services" was for a long time called public health engineering, and that was for good reason. The biggest improvement that we, as a nation, have witnessed in public heath came as a result of the introduction of proper water and sewerage services. Indeed, the introduction of those services probably made the biggest contribution to increased length and quality of life. Therefore, it is absolutely critical that we continue to fund that service appropriately for the future and to ensure that there is no regression.

Water charges, particularly separate water charges, are required under the EU water framework directive. That directive not only requires that separate charges be introduced, but the ethos behind the directive is that those charges should encourage water conservation. One of the problems with the previously envisaged structures to levying water charges here was that they were based on the price of a property, which has no reflection on the amount of water used. Therefore, water charging in that form does not fulfil the requirements of the directive. From the perspective of the Alliance Party, the question is not whether we pay for water but how we pay for water: charging must be fair, transparent, affordable, and also preferably and, importantly, it must be linked to usage.

The continuing deferral of water charges has created a sense among the public that the introduction of charges is not on the agenda. Therefore, I am glad that the Bill has come to the House, because it demonstrates that the Executive are not in a position to make the decision to defer water charges indefinitely at this time and in the current financial circumstances. I hope that it raises public awareness of the fact that the debate is ongoing.

12.30 pm

The deferral has not, as I had hoped, bought time so that alternative approaches to levying fair charges could have been considered. Instead, it has simply put the issue on the back burner to be dealt with at a later stage, with no particular improvement to the kind of charges that are envisaged. That is an unfortunate wasted opportunity. As we agree the Second Stage of the Bill, I hope that work is ongoing in NI Water and in the Department for Regional Development to look at how charging — if it has to be introduced — is made fair, affordable and transparent and linked to usage. No one wants to pay taxes, but when we have to pay taxes — and we all recognise that we have to fund our public services — we want to know that those moneys are being dealt with affordably and accountably.

I want to raise one other issue, which relates to today’s Adjournment debate: the need for continued investment in water and sewerage services. We will be discussing the flooding that took place in my constituency and the investment required to deal with that. No doubt the Minister will be harangued by many Members at a constituency level for what are seen as the failings of the Department to deal with those issues. We have to be realistic and say that, without significant investment in the next five to 10 years, it is conceivable that the problems that we are experiencing locally will be more widespread and continue to cause problems.

There are difficult financial decisions ahead. However, we need to prioritise the issue of water and sewerage. Although it may not be one of the more glamorous aspects of our work, it is absolutely fundamental to public health, and it is important to focus investment in that area. As my colleague has stolen most of my thunder, I am happy to concur with what he has said and not repeat anything.

Mr Deputy Speaker: The Business Committee has agreed to meet immediately upon the lunchtime suspension. I therefore propose, by leave of the Assembly, to suspend the sitting until 2.00 pm, when the Minister will conclude and wind up the debate.

The sitting was suspended at 12.32 pm.

Motion for Extension of Committee Stage
2 November 2009

Transcript of Motion for Extension of Committee Stage - 2 November 2009

Committee Business

Water and Sewerage Services (Amendment) Bill:
Extension of Committee Stage

Mr Speaker: The first item of business is the motion on the extension of the Committee Stage of the Water and Sewerage Services (Amendment) Bill.

The Chairperson of the Committee for Regional Development (Mr Cobain): I beg to move

That, in accordance with Standing Order 33(4), the period referred to in Standing Order 33(2) be extended to 19 January 2010, in relation to the Committee Stage of the Water and Sewerage Services (Amendment) Bill (NIA Bill 03/09).

The Committee Stage of the Water and Sewerage Services (Amendment) Bill began on 30 September 2009. Members will be aware that the Bill aims to ensure the continued provision of customer subsidy for Northern Ireland Water in the absence of funding through payments by customers. Under article 213(3) of the Water and Sewerage Services (Northern Ireland) Order 2006, the Department for Regional Development (DRD) is required to make grants to Northern Ireland Water equal to the amount of discount provided to customers in the initial period.

The Order defines the initial period as three years from the coming into operation of the Order. The initial three-year period is the period during which the direct rule Administration intended to phase in charges for water and sewerage services, and it runs out on 31 March 2010. DRD states that it has no means to make grants to Northern Ireland Water after that date.

The Committee for Regional Development has taken evidence from the Consumer Council and Northern Ireland Water, both of which stated that they are content with the Bill. On 21 October 2009, the Minister for Regional Development and supporting officials gave evidence to the Committee on the principle of the Bill and the financial aspects of the deferral of water and sewerage charges. Although there is a fair degree of uncertainty about the cost of further deferring water charges, the Minister estimated that it would be about £1 billion over the next three years, should the Executive decide to defer charges for that period. Therefore, significant financial implications for Northern Ireland arise from the deferral of water and sewerage charges, and the Bill creates the mechanism to implement any decision by the Executive to continue to defer such charges.

To date, DRD officials have been unable to provide further clarity on the cost of continual deferral, including the costs associated with the reclassification of Northern Ireland Water for public expenditure purposes, the basis for evaluating Northern Ireland Water’s assets and the ongoing ability of Northern Ireland Water to reclaim its input VAT. The Committee was informed by DRD that the Department of Finance and Personnel had responsibility for negotiating with the Treasury on those issues, and DFP officials are to give evidence to the Committee on 11 November 2009. At that meeting, the Committee will seek clarity on what potential financial impacts ongoing deferral may have on the Northern Ireland block as a whole, DRD’s budget and the budgets of other Departments.

I have stated before that, in approaching any Bill, the Committee is mindful of the need to progress business efficiently and effectively, while discharging its scrutiny responsibilities to the Assembly in a thorough and conscientious manner. As is common practice, the Committee published a public notice inviting written submissions on the Bill’s clauses, and the Committee agreed to a two-week deadline for submissions to ensure that the Bill could pass through the Assembly and be in place by April 2010. The deadline for submissions was 23 October 2009, and one submission was received from NIPSA. The Committee will meet again this Wednesday, 4 November 2009, to consider NIPSA’s submission on the way forward.

At the Committee meeting on 7 October 2009, members signed a motion seeking an extension to the Committee Stage until 19 January 2010. The Committee has stated its support for the principles of the Bill and will endeavour to report to the Assembly on the Bill as soon as possible. In the interim, I commend the motion to the House.

Question put and agreed to.

Resolved:

That, in accordance with Standing Order 33(4), the period referred to in Standing Order 33(2) be extended to 19 January 2010, in relation to the Committee Stage of the Water and Sewerage Services (Amendment) Bill [NIA Bill 03/09].

Public Notice