Environment secretary Michael Gove has signalled his intention to crackdown on water companies using offshore tax structures, suggesting they should take steps to ensure their tax planning arrangements meet the standards for responsible behaviour, or face further regulatory challenge
Gove said privatised utility companies must meet ‘high ethical standards’ and it was not ‘appropriate’ for water companies to use offshore firms to borrow billions of pounds while avoiding paying business taxes in an interview with the Sunday Times.
Thames Water, Anglian Water, Southern Water and Yorkshire Water all used offshore tax havens in 2016-17. All four firms set up subsidiaries in the Cayman Islands a decade ago to help them raise money on the bond markets. They each ended 2016-17 with a tax credit, and Thames Water has paid no corporation tax since 2006.
Gove said he had spoken to Jonson Cox, the chairman of the regulator Ofwat, about the issue.
‘I don’t think it’s right that privatised utilities, which have a natural monopoly, should use offshore tax structures which have rightly come under criticism from the public.
‘One of the things I have said to Jonson is that we need to make sure that everything associated with Defra meets high ethical standards.
‘Water companies have a responsibility not just to play their part in making sure we’re ready for floods but also to behave in a responsible fashion. I don’t believe it’s appropriate for companies to operate in the way they have in the past,’ Gove said.
Gove indicated he expects Ofwat to take action, and revealed that, if necessary, he would consider introducing new legal powers for the watchdog.
According to a study from the University of Greenwich, over the past decade, the nine main English water companies have made £18.8bn of post-tax profits in aggregate. Of this, £18.1bn has been paid out as dividends. Almost all capital expenditure has been financed by adding to the companies’ debt, which now collectively stand at £42bn.
Last year, Yorkshire Water indicated it was reconsidering its offshore arrangements. Thames Water has launched a review of the business and said it would close its Cayman Islands subsidiaries. It said the subsidiaries ‘have always been fully registered in the UK for tax purposes but no longer serve their original purpose of enabling smoother access to the global bond markets.’
Report by Pat Sweet
