Water Industry

Debate between Julian Smith and Thomas Docherty

Tuesday 5th November 2013 Commons Chamber

[Thomas Docherty (Dunfermline and West Fife) (Lab)]

I am grateful for the opportunity to respond to the debate on behalf of the Opposition, Madam Deputy Speaker, and I apologise for my slight tardiness at the start. I meant no disrespect to the Chair.

I congratulate the hon. Gentlemen on securing this excellent debate, although I suspect that their ministerial colleagues in the Department will be less keen to thank them after hearing some of the issues that they have brought to the House today.

Three and a half years into the life of the Parliament, and with the regulator expected to have completed its price review by the end of next year, it is well worth reviewing the track record of the coalition Government. It is regrettable that, having by general consensus inherited a substantial body of work from the previous Labour Government on how to reform the water industry, the coalition has frittered away so much of the past 40 months. I am at a loss to understand what, if anything, was done in the first year and a half of this Government. When they came to office in 2010, the new ministerial team inherited not one but two reports on the water industry from Anna Walker and Martin Cave. Both reports had been favourably received by consumer groups, customers, regulators, industry commentators and Parliament. The reports, which complemented each other, provided a clear framework for reform. In fact, the only organisations that did not welcome their recommendations were some of the water companies.

It is not surprising that those who were found to have let down their customers—whether domestic, in the public sector or in private business—were the ones who were less than enamoured of the possibility of reform. The stories of poor customer service are legendary—we have heard many such cases today—as are the dividend returns paid out by many of the water companies. The arrogance of the companies has been astonishing. The tax avoidance measures, coupled with a refusal to plough excess profits back into either infrastructure improvements or a lowering of bills, are simply unacceptable.

Even now, when household budgets are continuously squeezed by inflation-busting utility bill increases, many of the water companies show a breathtaking arrogance by refusing to pass back any of their profits to consumers. For example, Thames Water, having recorded eye-watering returns for its investment, now expects hard-pressed customers to foot the cost of the Thames tunnel.

Water companies are some of the most profitable in the utilities sector, earning even more than energy companies. Energy companies make operating profits of approximately 9% whereas water companies make operating profits of approximately 30%. While shareholders have seen their dividends increase, families across the country have suffered. Last year, regional water companies made a pre-tax profit of £1.9 billion, paying out dividends totalling £1.8 billion to shareholders, yet they have not seen the need to pay their fair share in taxes. As The Sunday Times revealed, in 2012-13 Thames Water, which, as we have already discussed, has asked to increase bills by a further 8%, made £127 million of pre-tax profit and paid zero corporation tax.

There are further examples, as we have heard from the hon. Member for Skipton and Ripon (Julian Smith) and others. Yorkshire Water made £184 million and paid no tax, and Southern Water paid just £6.5 million tax on profits of £172 million.

Water companies have been able to reduce their tax liabilities to such tiny levels by substantially increasing their levels of debt. Some water companies have reduced their tax bills by offsetting the interest payments on debt, often inter-company and involving tax havens, while claiming allowances for spending on infrastructure. Shareholders and bosses, as we have heard, have benefited from that aggressive tax avoidance, with eye-watering salaries going to those at the top. Peter Simpson, chief executive of Anglian Water, received a package worth £1.27 million in the last year, up from a mere £1.06 million the year before. The complex nature of tax governance and the growth in debt has been recognised by Jonson Cox, the chairman of Ofwat, who described the ownership of these companies as complex and “opaque” structures.

[Julian Smith]

Will the hon. Gentleman give way?

[Thomas Docherty]

I will not, because there were so many speakers and we have very little time for the Minister to speak.

Ofwat has highlighted that the overall proportion of equity has diminished from 42.5% in 2006 to 30% of regulatory capital today, with some companies obtaining only one fifth of their financing from equity.

So why the delay in reform? Why has the coalition dragged its feet? Why have the coalition parties seemed so unwilling to champion the household customer, small businesses and the taxpayer? It is because this coalition Government serve the vested interests, not the interests of ordinary Britons. Ministers have done nothing to help hard-pressed small and medium-sized enterprises because they are too busy cosying up to their friends in the City. Labour understands that when small businesses are struggling to survive thanks to the failed economic policies of the Chancellor, the Government should be standing up for them, not their fat cat friends.

After three wasted years, we have no progress on social tariffs for those who are struggling the most and can afford to pay the least; no pressure brought to bear on water companies to adopt permanent solutions to flood insurance, without which hundreds of thousands of families up and down the country face uncertainty; and, as we heard earlier, no substantial progress on water competition—a series of measures that would help our cash-strapped businesses grow our economy.

It has been four months; 16 weeks; one hundred and sixteen days since the Secretary of State met the water companies. Last week, we had the unseemly spectacle of the Prime Minister briefing against his own Ministers and officials as panic set in on the Downing street spin operation, which reacted to the pressure placed on it by my right hon. Friend the Leader of the Opposition, and the Labour party, to stand up to the water companies. We had days of Downing street briefing that action would be taken, either through regulation or by instructing Ofwat to take action on water bills.

In short, we were all anticipating a big announcement from the coalition parties. And in the end, what did we get? A letter. One thousand words. A missive to the water companies from a Mr Paterson, of North Shropshire, which said, in effect: “Dear chief executive, Thanks for coming along in July for cream tea; our last discussion was so riveting that I clean forgot to write about it until now! I know that times are awfully hard for you at the moment, with your offshore investors demanding an even greater return on their money than last year, but it would be awfully splendid, as we’re all such good chaps, if you could not put your bills up by quite as much next year as you were thinking about doing. It would really help me out of this political pickle the Prime Minister has put me in, and I know that you’re all such good eggs. Best wishes, Mr Paterson.”

The Secretary of State’s letter is clear evidence that the Government do not understand the cost of living crisis here in Britain today. For 39 out of 40 months under this coalition, prices have risen faster than salaries. Until this weekend, water bills were not a priority for the Prime Minister or the Department. After three and a half squandered years, a hastily cobbled together statement of vague promises of future action is simply not enough. It is clear that the Prime Minister is unwilling or unable to stand up to the vested interests that have placed the needs of offshore tax haven investors ahead of those of hard-pressed householders and businesses.

Families deserve better than this; small businesses deserve better than this; Britain deserves better than this. Since privatisation in 1989, water bills have increased by almost 50% in real terms. The Secretary of State has the guile to call the water industry one of the great successes of privatisation. Madam Deputy Speaker, it is only a success story if you are fortunate enough to own shares in one of those companies.