Michael Gove hits out at UK water companies over ‘tax haven’ use

Michael Gove, the UK’s environment secretary, has hit out at the country’s privatised water companies over their use of offshore financial arrangements and “opaque financial structures”.

The UK’s Guardian newspaper – one of several media organisations to pick up on Gove’s letter to Jonson Cox, chairman of Ofwat, the water regulator – said Gove’s comments signaled a “crackdown on executive pay and offshore financial arrangements” of the water industry by the government.

In his letter, dated yesterday, Gove (pictured left) said the government was prepared to hand more power to the industry regulator if  this were felt necessary to rein in what he said were public concerns.

“The use by some water companies of opaque financial structures based in tax havens, and high gearing, is deeply concerning,” Gove wrote in his letter.

“I also share your concern that some water companies have for many years been making excessive profits.

“Concern about water companies’ behaviour will only deepen if the dry weather experienced in the autumn means that some water companies bring in hosepipe bans or other restrictions on customer use.”

Gove acknowledged that the water industry regulator had been working to urge the UK’s privately-held water companies to make changes, but said more could be done, particularly with respect to such matters as their offshore financial arrangements, securitisation, highly geared structures, excessive salaries and dividend payments.

Ofwat’s Cox responded to Gove’s letter, in a letter also dated yesterday, by noting that his organisation  was “pushing companies on a number of fronts, including engaging intensively with the most highly-leveraged companies” and “call[ing] on companies which have taken on aggressive financial structures to demonstrate that they are on a sustainable financial footing”.

“As we both recognise, there is more to do to ensure that we have a thriving water sector that can hold the trust and confidence of customers and wider society,” Cox concluded.

“I will revert to you by early April with an update on progress and our next steps.”

Thames Water has ‘taken steps’

In its report on the environment secretary’s letter, The Guardian noted that Thames Water, the UK’s largest water and waste water company, had already “taken steps to close its controversial Cayman Islands subsidiaries, accepting that it ‘just looks wrong'”, and that Gove had promised to report on whether further help was needed “by April”.

The publication noted that Gove’s intervention came as Water UK, which represents the water industry in Britain, had just released its latest data on UK water bills, which it said showed that the average household water and sewerage bill in England and Wales in 2018 -19 would rise by £9, to £405, or 2% – “so below inflation”.

Water UK responded to the content of Gove’s letter to Ofwat by noting that UK water companies “have been busy investing £8bn a year delivering world class services and addressing concerns raised by the regulator, so we look forward to the work by Ofwat bringing some sorely needed facts and balance to the debate”.

ABOUT THE AUTHOR
Helen Burggraf
Helen Burggraf is Chief Correspondent for International Investment. She is a US-trained journalist who has worked in Rome, New York City and London, covering among other things the fashion and retailing industries, the global drinking water and water-treatment sector, private equity, and most recently, the international cross-border financial services/advice industry.

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