The level of water charges proposed by the Government this week will not be sufficient to remove billions of euro of debt associated with Irish Water from the national accounts, as had been planned.

This is because the likely annual charge per household of €240 will not generate more than half of the income stream needed to fund the new utility, something that is necessary if the debts associated with the water and waste system are to be removed from the national accounts, water charges experts have told The Irish Times.

The creation of Irish Water could move billions of euro of national debt “off the books” and produce substantial benefits in terms of the cost of servicing Ireland’s borrowings, because it could feed into reduced interest charges.

However this will only occur when more than half of the new utility’s revenue comes from its charges, rather than from the exchequer.

It has been estimated that the cost of Irish Water will be equivalent to about €560 per household.

The average charge to households would have to be at least half that for the utility’s debts not to feature on the national accounts.

Missing half
However, Minister for the Environment Phil Hogan has said the charge will average €240 a year this year and in 2016, when the current Dáil comes to the end of its term.

The costs of Irish Water that do not come from charges will be paid out of general taxation.

The introduction of a so-called "free" annual allowance of 30,000 litres per household, as also announced by Mr Hogan this week, was criticised by the experts, who spoke to The Irish Times on condition of anonymity.

As the cost of running Irish Water has to be paid one way or the other, allocating a “free” allowance just increases the price to households of the water that is billed for, they said.

It means everybody pays for the “free” allowance, which is then received by everybody.

A more efficient and meaningful way of dealing with low income households would be to give them a water payment through the social welfare system, they said.

It is not known why the Government chose to ignore this option. There was no response yesterday from Mr Hogan’s department to a number of queries on the water charges issue.

Invisible payments
Payments to help people with water charges made through the social welfare system do not form part of the calculations of bodies such as Eurostat when they are deciding if a body such as Irish Water should have its debts included in the national accounts, on the basis of whether it receives more than 50 per cent of its income from the State.

The decision to allocate a free allowance, which would be increased for households with children, means a system will have to be devised that establishes how many children live in each house charged.

It will also most likely involve a system being devised for identifying and charging for all water supplied to holiday homes, as allocating an allowance to such houses would increase the cost of water for the general user.

Not having a standing charge for a utility was “very odd”, one expert said , who predicted that the pricing decisions announced this week would have to be reviewed by the next Government.