Gove issues warning to water company bosses

Water firms have been warned they must clean up their act or face tougher regulation.

Environment Secretary Michael Gove told company bosses they have not been acting "in the public interest".

In a speech at an industry conference, Mr Gove accused water companies of "playing the system" at the expense of consumers and the environment.

In a strongly worded intervention, Mr Gove told the Water UK conference: "Far too often, there is evidence that water companies - your water companies - have not been acting sufficiently in the public interest.

"Some companies have been playing the system for the benefit of wealthy managers and owners, at the expense of consumers and the environment.

"Particularly in the last decade, some companies have not been as transparent as they should have been.

"They have shielded themselves from scrutiny, hidden behind complex financial structures, avoided paying taxes, have rewarded the already well-off, kept charges higher than they needed to be and allowed leaks, pollution and other failures to persist for far too long."

He said £18.1 billion was paid out to shareholders of the nine large English regional water and sewerage companies between 2007 and 2016.

Mr Gove said: "Of course, generous dividends can be justified if they've been generated by the lean and efficient running of an operation - and have been paid out after appropriate capital investment.

"But the £18.1 billion paid out in dividends was actually almost all of the profit made by water companies after tax - the total profit was £18.8 billion over the same period."

He continued: "Last year Anglian, Southern and Thames paid no corporation tax.

"Indeed Thames has paid no corporation tax for a decade.

"Ten years of shareholders getting millions, the chief executive getting hundreds of thousands, and the public purse getting nothing.

"And water companies have been able to minimise their tax obligations, even as many have failed to minimise leaks and pollution, because some of their best brains appear to as be intent on financial engineering just as much as real engineering."

In the speech on Thursday he said Thames, Southern, Anglian and Yorkshire make "particularly keen use of sophisticated financial engineering".

He said: "They have set up multi-layered corporate structures of dizzying complexity involving multiple subsidiaries, some based offshore.

"The use of these offshore entities makes company affairs more opaque and their financial activities less transparent, and customers have an absolute right to question their use."

Mr Gove said the way the industry had operated had led to growing support for renationalisation - which he warned would be a "terrible backward step".

He told company bosses: "I strongly believe that private markets are the optimum way to meet the ongoing needs of water customers and the environment when backed by strong regulation. And real behaviour change.

"Should companies continue to drag their feet, I have already said I am prepared to consider changes to the regulatory framework to ensure that consumers receive the service they deserve - and the natural world is better protected."