Gabhaim buíochas leis an Cathaoirleach agus na Teachtaí.
I welcome the opportunity to discuss with the select committee my Department's Supplementary Estimate for 2022. I am joined this afternoon by Ms Sinéad Kehoe, finance officer; Ms Sinéad O'Gorman, local government finance; and Mr. David Kelly, from the housing finance and delivery co-ordination unit in the Department.
In February, I met with the committee and discussed the 2022 Estimate for my Department in general. I thank Members for their engagement on that occasion. I also express my gratitude to the committee for facilitating this meeting at relatively short notice. That is appreciated. I will keep my introductory remarks as brief as possible and focused on the subject matter at hand.
The Estimate, which I presented to the committee in February, detailed my Department's budget for 2022. This totalled more than €5.9 billion for the year and comprised €2.5 billion in current funding and €3.4 billion on the capital side. This was supplemented by a €276 million capital carryover from 2021. In addition, my Department's housing programmes have benefited this year from non-Exchequer funding of €91.5 million that was made available from the proceeds of the local property tax, LPT. This represents a very substantial element of overall Government expenditure in 2022, and is instrumental in funding core areas of activity under the remit of my Department, not exclusively but in particular in the areas of housing, water, local government and heritage.
The technical Supplementary Estimate before the committee does not involve a net increase in the total level of spending, other than a token €1,000. It does, however, allow for the reallocation of funding within my Department's existing resources, which will permit funds not expected to be utilised this year to be moved from capital subheads to meet some current cost pressures arising within those capital subheads.
The technical Supplementary Estimate includes the following changes: €156.4 million in current funding from the Local Government Fund; €70 million in current funding for Irish Water; and €197 million capital funding under housing.
As Members will be aware, budget 2022 saw significant funds allocated to my Department to underpin a very ambitious set of deliverables across all programmes. With two years of pandemic interruptions behind us, all stakeholders were mobilised to make up lost ground and set a pathway for accelerated delivery. The onset of the war in Ukraine, coupled with global supply chain issues, recruitment challenges and a volatile inflation environment, had a major impact in the earlier part of the year, with the effects pushing delivery of some projects and, accordingly, expenditure into subsequent quarters. Working within the confines of the annual budgetary process means a need for alignment and reconciliation with multi-annual programmes.
The capital carryover facility is a key instrument in managing budgets across annual cycles to accommodate real-world schedules, which are not calendar-year driven. I have signalled to the Minister for Public Expenditure and Reform, Deputy Michael McGrath, that I will be relying on a full capital carryover into 2023 to ensure that any delayed delivery is funded without impact on already agreed activity next year.
The local government element of this Supplementary Estimate is focused on issues related to Covid-19, the cost of recent national pay agreements and supplementary support required for local authorities in 2023. For 2022, the Government is making a significant contribution of €395 million to support local authorities. A large portion of this figure will be used to assist local authorities with the cumulative effect on pay costs arising from the national pay agreements and the unwinding of the financial emergency measures in the public interest, FEMPI, legislation. The allocation of €47.7 million in the Supplementary Estimate is to ensure that the sector is adequately covered for the most recently ratified pay agreement, including the backdating of pay increases to February 2022. This brings the total allocation for the year to €209.6 million, a sizeable contribution to ensure that local authorities have the necessary resources, in particular in terms of people, to perform their functions and provide essential public services to citizens, of which there are in excess of 1,000.
The Government has provided unprecedented levels of support to local authorities in respect of the pandemic, including providing €1.2 billion for a commercial rates waiver for 2020 and 2021. That is a very important initiative to support businesses, but also to ensure there is no shortfall in funding for local authorities, with a 100% rebate and an additional €191 million in support towards lost income and expenditure in the same period. This support has been extended into 2022, with a more limited rates waiver for the first quarter of the year, at an estimated cost of €62.3 million.
Furthermore, the Government is very aware of the recent funding pressures facing the sector, and will continue to provide support for local authorities during this challenging time. In this regard, an additional €60 million supplementary support is being provided for local authorities in 2023. The purpose of this additional funding is to assist the sector in meeting the increasing costs involved in providing a wide range of services, in particular, rising energy costs. This support will be distributed to individual local authorities in a fair and equitable manner, based on each local authority's share of total energy costs of the sector. I am confident that this additional funding will provide much-needed support to local authorities to enable them to continue to provide their excellent services in 2023.
Moving on to Irish Water, it is important to note that the investment in public water services is vital to maintain and enhance water services infrastructure to ensure current levels of service, to safeguard public health and to ensure compliance by adequately treating wastewater to protect our environment. Irish Water is the biggest public sector consumer of energy in the country, and it will come as no surprise to anyone that the current inflationary crisis has had a significant impact on its operational costs. There are also increased design, build and operate, DBO, contract costs due to energy increases. Irish Water operates 265 sites through DBO contracts, a significant proportion of which refer to the electricity wholesale price index, with resulting increases. A further portion of contracts relate to the Consumer Price Index, CPI. These pressures, along with general inflation increases, have resulted in baseline costs forecasts to increase.
To mitigate this impact, Irish Water requires a virement of €70 million from capital to current funding in 2022. This consists of €20 million for increased costs in 2022, due to price increases in contracts tied to the electricity wholesale price index and €50 million of an invoice acceleration programme, bringing forward legitimate invoices for early payment in December 2022, to alleviate funding pressures in 2023. Capital investment in public water services is vital to support housing delivery and economic recovery and expansion, and for delivering environmental compliance. Irish Water has increased the capacity in its supply chain to continue to increase its delivery capability in 2023 and beyond. There will be continued investment in programmes such as main rehabilitation, find and fix, capital maintenance and lead programmes, along with a significant number of stand-alone projects ongoing or due to commence in 2023.
It has been yet again a year of volatility for the construction sector. The impact of the war in Ukraine, which I previously mentioned, construction products inflation, supply chain issues and rising energy prices have created a difficult delivery environment. This resulted in delays to some projects earlier this year as contractors dealt with the impact of construction costs. Measures introduced by this Government to address material inflation and energy costs, through the introduction of the inflation-supply chain delay co-operation framework, have resulted in an improvement in the delivery environment and supply chain issues have generally stabilised. My Department is now working closely with local authorities and approved housing bodies to maximise delivery this year and to continue to build the pipeline for delivery under future years of Housing for All. We have supported local authorities with the provision of additional resources for their housing teams and this recruitment is having a tangible impact as the posts are filled. Very strong delivery is forecast in the last quarter of this year and this will see an acceleration in the capital expenditure on housing programmes in the remaining weeks.
The housing element of this Supplementary Estimate is focused on additional capital assistance scheme, CAS, funding for 2022 and the establishment of a land acquisition fund. The A7 CAS subhead is one of the main sources within the Department’s Vote to provide funding to approved housing bodies for the construction and acquisition of homes for priority categories of housing need, including older people, homeless households, people with a disability and decongregation from institutions for persons with intellectual disabilities. Capital funding under this programme also supports delivery in emerging areas of housing need such as new refuges for victims of domestic, sexual and gender-based violence and the provision of emergency accommodation for single homeless individuals.
Additional CAS funding for 2022 of €72 million is required in light of a strong upswing in CAS activity and expenditure. This additional 2022 funding should see an increased delivery of approximately 600 units of accommodation under CAS for priority categories of housing need in 2022. This additional funding, if approved, will deliver additional units this year and will also support the progression of around 1,000 other CAS units at various stages of planning and design.
Housing for All includes measures to support local authorities to acquire suitable land to deliver the social housing programme and aims to deliver an average of 10,000 new build homes each year from now to 2030. It is now proposed to deploy the Department’s capital funding where it can be most impactful in supporting additional supply in the housing system through this land initiative, mindful of the need to use all policy and fiscal levers within my control at this time, when our housing system is under exceptional pressure. Housing for All includes measures to support local authorities to acquire the land that they require to deliver an average of 10,000 new build homes to 2030. The allocation of €125 million to establish a land acquisition fund under the Housing Agency is an important step in addressing this requirement.
This initiative is aligned with the priority actions in our plan and the first annual update, and given the urgency of the current accommodation shortage, also seeks to fast-track progress. The analysis of land available to underpin social housing delivery out to 2030 is well advanced under action 4.1 of Housing for All. It takes account of the data available from the local authorities' housing delivery action plans and identifies the land gap remaining. This initiative will allow acceleration of this action ahead of the planned timeline of quarter 3 2023 by identifying and beginning to acquire suitable land banks to support the ongoing social housing need. The sector will also be asked to focus to a great degree on modern methods of construction to accelerate the delivery of housing in line with the ambitions set out in Housing for All.
The availability of a land fund under the aegis of the Housing Agency, with commensurate expertise, would mean that individual local authorities are less reliant on seeking to scope out land opportunities, conduct negotiations and finalise deals within the calendar year. This will give greater flexibility on targeting suitable sites and enabling greater value for money to be achieved. The Housing Agency will work closely with the Department and the local authorities in relation to site selection, based on an agreed approval procedure and an agreed set of criteria.
My Department is also introducing other measures to activate land by addressing local authority land legacy loans. To unlock the potential of some of these sites to allow them to be made immediately available for social housing development, my Department will allocate up to €100 million to pay down land loans, which can then deliver social and affordable housing projects linked to accelerated delivery. To ensure this accelerated delivery, funding would be allocated to sites which could be immediately activated, commencing construction next year and early in 2024 at the latest and use accelerated delivery models, principally off-site and modern methods of construction.
My Department continues to work intensively with all stakeholders to maximise delivery for 2022. It is clear, however, that there will be a lower than anticipated expenditure, particularly on programmes which are construction focused. As noted, I have applied the maximum permissible carry-over of funds into the 2022 capital programmes. It is too early at this stage to quantify the exact out-turn for affected programmes, and the Department continues to work closely with the Department of Public Expenditure and Reform in this regard. I can confirm that there will be no capital surrender this year from the Department of Housing, Local Government and Heritage.
I have tried to keep my remarks as brief as possible, and focused specifically on the purpose of this meeting, namely, the technical Supplementary Estimate for local government, water and housing. I will, of course, be happy to deal with matters that members wish to raise and to revert to the committee regarding any queries we may not be able to answer.
