Water companies pay zero tax

TapHow is it possible to make profits of the best part of £1.5bn but pay barely any tax to the Treasury? Hard questions are being asked after a rash of water companies, including Thames Water and Anglian Water, were found to have avoided paying any corporation tax during 2012.

Both companies, meanwhile, have warned that higher water bills are on the way.

Taxpayer drain

For example, Yorkshire Water paid, the Guardian reports, £2.9m last year in tax and £11.1m
the year before - despite an operational profit of £303m. Some of the water companies claim debt repayments and capital allowances allow them to defer tax payments.

"Under this system allowances," said Thames Water in a statement to AOL, "made for our £1bn-a-year (£4.9bn from 2010 to 2015) of essential improvements to our pipes, sewers and other facilities have added to corporation tax deferrals of nearly £1 billion - that is tax delayed not avoided."

But there is also plenty of cash siphoned back to shareholders, as well as the water companies themselves - it's estimated three quarters of the UK water industry is owned and controlled by private equity companies, often with well-developed offshore subsidiaries.

Financial engineering

For example, debt-laden Thames Water paid out £280m to shareholders during 2011/2012. That means a constant cash drain from utility companies back to shareholders. It also means that water companies have less to invest in infrastructure projects.

So the debt-burdened British taxpayer will be dipping its hand into Treasury coffers to support key water infrastructure projects, like the new super-sewer stretching across London, east-to-west. Thames Water will not be directly coughing up for this.

Contrast Scottish Water prices with much of the rest of the UK. Scottish Water is government-owned. Its average annual household charge from April remains at £324 - the same threshold it was in 2009-10 - and charges will remain at this level until March 2013, Scottish Water confirmed to AOL Money.

Banking on Thames

The bottom line is that utility companies increasingly resemble complex, sophisticated investment banks rather than basic utility companies serving a basic public need.

The issue of tax avoidance is resonant as a phalanx of executives from Google, Amazon and Starbucks are grilled on tax avoidance measures in Parliament this afternoon. Even the OECD has finally woken up to the issue and is tightening up intellectual property rules which should make it harder for companies to operate from tax havens.

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