Yesterday’s Independent had a headline on water charges. RTE ran with it too. The story is that a flat rate water charge will be introduced. Water charges are good in principle as they put a price on a scarce good. Flat charges — every household pays the same — are a bad idea. Flat charges do not incentivise water conservation. This is just a poll tax by a different name.
The Renewed Programme for Government also mentions water charges. It suggests a free allowance, and a proportional tax for any household that uses more than the free amount. This is much better than a flat rate, but still not perfect.
I would charge households for every cubic metre of water that they use. This is a consumption tax, and therefore regressive. I would repair the damage to the income distribution by increasing benefits and tax credits by an amount that is equal to the water tax rate times 100 litre per person per day — the amount of water needed to wash your clothes and flush the toilet.
Water charges require water meters. I would charge households without meters for the average water use of unmetered households (about 450 l/p/d) and households with meters for the actual water use. If the water charge is announced well in advance (say in Dec 2009 for Jan 2011), meters will rapidly be installed by those below average. This will drive up the average, so that more meters will be installed.
People on benefits would need a voucher for a meter.