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Mike O’Brien on the Water Industry and Water Rates

Mike O’Brien says

“Ask anyone in North Warwickshire and Bedworth. They will say that at a time when family incomes are being squeezed, increasing water bills are adding to cost of living crisis.

“The water industry that emerged from a botched privatisation has enabled a handful of companies to walk away with hundreds of millions of pounds while households face some of the highest bills in Europe.  It’s clear that many companies are using complex and opaque ownership and financial structures, including worryingly high levels of debt, to minimise tax in the UK while still managing to pay out huge dividends to shareholders.

 

“Water companies make operating profits of approximately 30%, whereas in comparison energy companies make 9% and the major supermarkets a couple of per cent. Last year the regional water companies made £1.9 billion (pre tax profit). Last year the regional water companies paid out £1.8 billion to shareholders. 

“Water bills have increased by almost 50% in real terms since privatisation in 1989. Ofwat, the water company’s economic regulator, estimate that 11% of households currently spend more than 5% of their income on their water and sewage bill. That means 2.26 million households across England and Wales live in households that spend more than 5% of their disposable income on water and sewage bills that includes 730,000 pensioners and 540,000 families with children.

 

“The ownership of the industry has been radically reshaped since privatisation in 1989 and the majority of companies are now in the hands of private equity consortia, many of which are foreign owned and have complex financial structures, including off-shore tax regimes. 

 

“Ofwat is not doing enough to ensure that risk is minimised. Public interest rightly expects the economic regulator to ensure that vital public services today and the ability to fund investment in future are not put at risk by corporate structures. 

“Some of the serious concerns raised about the new financial models is a considerable lack of transparency in the multitude of on- and off-shore holding companies. Water Companies are able to cut tax bills by off-setting capital they invest in infrastructure.  Water Companies can also reduce tax bills when they pay interest on loans.

“Pay for bosses has also soared, Peter Simpson, chief executive of Anglian Water, received a package worth £1.27m in 2012-2013, up from £1.06m in 2012-13. The cost of water and waste in the UK is one of the highest in Europe (Global Water Intelligence).

“So what do I want to do about it?  Well, at a time when water bills are adding to the cost of living crisis facing many families, this level of irresponsibility and greed must now come to an end.  Labour must develop a package of reforms to the water industry focused on achieving a fairer deal with the water companies in terms of taxation, investment and crucially the affordability of bills.

 

“Labour should require Ofwat to reintroduce a rigorous targeted annual report on financial efficiency programme, dividends and capital structures which will enable people to form a better view on the sectoral risks. Ofwat should reintroduce its targeted annual comparative appraisal of financial performance, structure and risks.  And the Government must take a view – on behalf of the customers of this monopoly public service business – as to whether the remuneration of management puts the right emphasis on customer outcomes as well as on shareholder success.

 

“We must clamp down on aggressive taxation policies which manipulate and exploit national tax law and explore how effective Ofwat is at regulating water prices. We need a system that resolves household/consumer disputes with the water companies. This are minimum changes.  We cannot renationalise because of the cost to the taxpayer, the pension funds and banks but we can put in place more effective regulation which recognises the consumer interest.”

 

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