Construction industry is ‘key to resolving NI water crisis’

Construction specialists Catherine Burns and Jennifer Lee were commenting on the findings of a recent report addressing the ongoing water crisis in Northern Ireland.

Laying bare the challenges facing the country’s water industry, the report (38 Pages/6.4MB) highlights an unsustainable funding model that is overly reliant on government subsidies, significant governance challenges and a continued lack of political consensus that have led to a “patchwork solution that has proven inadequate to the scale of the task.”  

Based on current estimates, the study identifies a potential £2.03bn shortfall in funding for wastewater infrastructure in Northern Ireland between 2027-33 – the next price control period (PC28). This equates to 51% of the total estimated critical infrastructure investment.

The research was carried out by Grant Thornton and Turley Economics on behalf of the Northern Ireland Chamber of Commerce and Industry (NI Chamber), Construction Employers Federation (CEF) and Northern Ireland Federation of Housing Associations (NIFHA). It said that the crisis has arisen because of several interlinked factors most significantly, chronic underfunding in NI Water.

Since 2007 NI Water has been funded through a mix of user charges, borrowing and public subsidy, designed to balance fairness with fiscal responsibility. Northern Ireland is the only part of the UK where households do not pay directly for their water. Instead, NI Water receives a government subsidy which diverts more £397.7 million annually from the Northern Ireland Executive's budget.

As the company is reliant on continuing subsidies from the Department for Infrastructure, its finances are subject to the limitations and uncertainties of the Executive’s budget, Burns and Lee said. Both this underfunding, and the inadequate funding in previous price controls, have resulted in wastewater capacity issues not being addressed in previous periods, and these remaining needs being rolled over into PC28.

Burns said: “this historic lack of investment has led to a deterioration in the wastewater infrastructure across Northern Ireland”. Currently, the wastewater systems in many towns across the country are either at or near full capacity. These factors have halted construction in 23 towns across Northern Ireland, including areas which are facing wastewater capacity constraints. This means that new plans for new housing, schools, and commercial and industrial developments cannot proceed because they can’t be connected to the sewer network.

Without the necessary funding, more infrastructure projects will be at risk, said Lee. “It is predicted that the  failure to bring forward the necessary wastewater infrastructure projects within the next three years will result in a 4% reduction in the overall construction sector workforce in Northern Ireland by the end of 2027 – similar to the impact of Covid-19,” she said.  

“Where infrastructure delivery is constrained, it is common to see an increase in disputes, both contractual and judicial review. Contractors and employers should be mindful of the potential implications of litigation risk when negotiating contracts in this arena,” said Lee.

As the country’s water industry faces a “crossroads”, the report sets out several practical proposals to alter its current trajectory. These include introducing developer contributions to help fund critical upgrades to wastewater infrastructure; utilising Sustainable Drainage Systems (SuDS) to reduce the volume and speed of surface water entering sewers; creating an infrastructure transformation fund that will boost the industry's capacity to supply more homes and other developments; and developing an alternative fiscal model to fund the delivery of critical wastewater infrastructure.

However, the paper notes that although the introduction of voluntary developer contributions would help fund critical upgrades to wastewater infrastructure, there are concerns this may fall short of generating the billions of pounds required, and could result in two-tier housing delivery, where social and affordable housing schemes risk being most affected by the levy applied on top of the final value of housing.

It also stresses that the forthcoming Water, Flooding and Sustainable Drainage Bill – which will modernise how Northern Ireland manages its water resources and responds to flooding – will have an extremely limited effect on industry’s wastewater capacity crisis as it will only apply to the drainage on new housing sites, and not retroactively.

The alternative fiscal model links NI Water to water rates by creating a “hypothecated infrastructure levy”. This will involve a dedicated charge, which will likely be added to household rates, and specifically earmarked to fund water and wastewater infrastructure upgrades. This model envisages the continued support that NI Water receives from the Department for Infrastructure through its annual subventions.

However, political parties in Northern Ireland remain largely opposed to the idea of introducing direct water charges or levies, saying they risk unnecessarily burdening households. Sinn Fein, the largest party in the province, has voiced concerns about placing additional financial burden on consumers during the cost-of-living crisis, and instead favours public investment.

In order to help break the political deadlock and rebuild public trust in the industry, the paper calls for a public campaign and consultation on the funding, governance and sustainability challenges facing NI Water.

"Solving the NI Water funding issue has been top of the agenda within the construction industry for years,” said Burns. "The industry has recognised for a long time that it needed to be part of the solution, and this paper is demonstration of that commitment. A solution must urgently be found and the NI executive need to engage in realistic dialogue with industry and the general public about what is achievable.”