Water Industry

Debate between Simon Hughes and Frank Dobson

Tuesday 5th November 2013 Commons Chamber

[Frank Dobson]

Does the right hon. Gentleman not agree that it would be ludicrous to expect the British taxpayer to bail out a company that was partly owned by Chinese taxpayers? If Chinese taxpayers want to invest in Thames Water, they should bear the brunt of any charges that the company might incur. The scheme is going to cost £4 billion, but Thames Water’s shareholders have already benefited from £6 billion of dividends. None of that money came to the people of London.

[Simon Hughes]

I take a similarly hard line on this issue. If Thames Water does not have the money in its own coffers to do what it wants, it should not be doing the job, and it certainly should not be asking the taxpayers of the United Kingdom for help to do it.

I also want to flag up some proposals that I hope the Government will take on board. I do not expect my hon. Friend the Minister to provide an immediate response of yes, yes, yes, but I know that he is alert to the questions I am going to ask about what Ofwat and the Government can do. I pray in aid a useful pamphlet, which I am happy to promote, that was recently published by CentreForum, a Liberal think-tank. It was written by George Turner, who used to run my office here. He became interested in the water industry during his time here because of the Thames Water issues. His pamphlet has the additional commendation of having had its foreword written by Sir Ian Byatt, the well-regarded first regulator at Ofwat.

I shall quote briefly from the pamphlet, then set out my recommendations for what I hope the Chancellor will say in his autumn statement on 4 December. The pamphlet refers only to England; Wales and Scotland have entirely different arrangements. It states:

“Water is one of the essential industries. We literally cannot live without it…There are allegations of widespread tax avoidance. The level of corporate borrowing is becoming unsustainable. The ownership structure means that there is very little public accountability. Most of our largest companies are owned by private equity funds and there are no public meetings where management can be held to account. The ownership structures are murky to say the least with strings of companies dotted around the world’s island secrecy jurisdictions and tax havens. This makes it difficult for the public to know what is going on with its water suppliers.”

The problem has come to a head in relation to Thames Water, which has got itself into this position over the proposed tunnel. I suggest that some of the ideas in the pamphlet should be picked up by the Government, Parliament, Ofwat and the Select Committee. First, we could introduce a water levy on highly geared water companies, which would take away the incentive to introduce risk by increasing gearing and removing financial flexibility. This was mentioned by my right hon. Friend the Member for Wokingham (Mr Redwood) and my hon. Friend the Member for Newbury (Richard Benyon).

Secondly, we could ask the Government to look at—I ask them to do so now—the tax treatment of debt in highly geared companies and to consider economies and systems such as the German ones, where there are earnings-stripping rules that prevent companies from taking out excessive loans with the intention of avoiding tax.

Thirdly, we could legislate—I hope the Minister will be sympathetic when the Water Bill goes through its stages—to make sure that water companies make the interests of the consumer much more central in their organisations, either through a consumer representative on the board or by placing a duty on the non-executive directors to report on how best to serve the consumer interest, or both.

Fourthly and importantly, we should amend the Bill to introduce mandatory annual customer meetings, where customers can hold management to account in companies that do not currently have annual general meetings in the UK. I would also hope to change the law through the Bill, so that, when restructuring companies which have gone into special administration, the regulator must always first consider non-profit companies, rather than putting them straight back into the private sector, as we saw in a recent example in the railway industry. I hope that the Government will also look at how different models of corporate ownership have impacted on the water industry, as they have not all been satisfactory.

I hope that Ofwat will also do four things—and soon. First, I hope it will report on all the companies in England, not just Thames Water, to establish whether more modest dividend and financial policies would have allowed them to have enough money to spend and to reduce bills. Secondly, it should look at how price cuts could be implemented at the next price review. Thirdly, it should change the licence conditions of companies to impose London stock exchange disclosure requirements on non-stock market-listed companies. Lastly, picking up the point made by the right hon. Member for Holborn and St Pancras, Ofwat should change the licence conditions to require public disclosure of all intermediate holding companies, ultimate controlling companies and all the beneficiaries of those companies, so that we know exactly where the benefits that go in dividends to shareholders end up in those many companies behind many of this country’s water companies.

We may have the best drinking water quality in the world, and we are soon to debate changes in the structure of the industry. I hope the Government will be responsive to amendments designed to enhance the interests of the consumer. I hope the water companies will understand that it is now time for them to stop stacking up money for profits to be paid out in dividends, and to put the interests of the consumer and the consumer’s bills first.