Report of the Local Government Efficiency Review Group

13. Cost Recovery and Revenue Issues
13.1 Economic Cost Recovery
13.1.1 The Group considers that unless otherwise justified, local authorities should
be reimbursed for the economic cost of providing services for Government
Departments and other agencies and bodies. The normal principle that
should apply from an efficiency perspective is that the user pays for the cost
of the service. While full reimbursement might not be justified in certain
cases (for example, when dealing with disadvantaged groups or where
costs relate to the provision of general public good services e.g. public
parks), the guiding principle should generally be that the user pays for the
cost of the service provided, with the burden of proof falling on cases where
it may be necessary to depart from this principle. This premise is also
reflected in the polluter pays principle where through a direct link between
consumption of a service and payment, responsible environmental
behaviour can be incentivised.
13.1.2 The Group considers that this principle is relevant to the consideration of a
number of areas where charges are levied on service users, as well as
issues surrounding the commercial rates base and agency services carried
out by local authorities on behalf of central Government Departments.
Non-Domestic Water Charges
13.1.3 In relation to water, the Government’s Water Pricing Policy requires local
authorities to recover the cost of providing water services to the nondomestic
sector from users of these services. Full cost includes the
marginal capital cost, meter installation and ongoing operational and
administrative costs. The non-domestic sector includes all industrial,
commercial, agricultural and institutional users of water and waste water
services.
13.1.4 At present, the 34 councils are responsible for recovering the cost of
providing water services from the users of these services within their areas,
with the exception of households using the services for domestic purposes.
The water charges for their functional area are set annually by each local
authority and are based on metered consumption (the price is set per cubic
metre consumed). However, as the local authorities set their own prices,
there is no obvious incentive to provide for supply side efficiencies. There is
no independent regulation of the charges set by individual councils and this
has led to a variation in the charges being levied (for example, water
charges this year range from €1.49 per cubic metre to €3.04).
13.1.5 There is no mechanism to ensure that all local authorities are achieving cost
recovery as required by the Government’s pricing policy. Even though
commercial water charges in Ireland are on average considerably lower
than in other EU countries, the Commission on Taxation which reported in
161