UK water companies accused of tax avoidance

by Calum Fuller

More from this author

15 Feb 2013

  • Comments
glass-water

UK WATER COMPANIES are using debts listed on offshore stock exchanges as a device to avoid tax, it has emerged.

Six companies - Northumbrian, Yorkshire, Anglian, Thames, South Staffs and Sutton and East Surrey water - have been accused of using tax havens to exploit a legal loophole in order to avoid paying tax.

According to the report by Corporate Watch, the companies collectively borrowed around £3.4bn at high interest rates from subsidiaries of their owners based abroad. The owners then received the payments tax-free, issuing the loans through the Channel Islands stock exchange, listing them as 'quoted eurobonds'.

When UK companies pay interest to non-UK businesses, they normally have to withhold 20% of the payments and pass them to HM Revenue & Customs.

However, where loans are issued as quoted eurobonds on a recognised stock exchange, such as that in the Channel Islands, they are exempt.

Northumbrian Water was highlighted as "the most brazen case", paying around 11% interest on about £1bn of loans from its owner, the Cheung Kong group, a Hong Kong-based corporation run by Li Ka-shing, the ninth-richest person in the world.

The Treasury and HMRC are believed to have considered shutting down the loophole last year, but opted not to, despite concerns over the the way in which companies were using it.

The report also found the debt accrued by the industry was costing the UK consumer £2bn more than it would if it were publicly financed.

That figure was reached from the difference the government pays to borrow money and the rates that the water companies secure on the international markets. In all, the companies accumulated debt of £49bn and paid more than £3bn in interest payments in 2012, as well as £884m in dividends. Total revenue in 2012 stood at £10bn, the report claimed.

The water industry insisted consumers receive a "good deal". Cited in the Independent, the industry defended itself.

Director of economic regulation for trade body Water UK Paul McMahon said: "The tax framework has been put in place by the government and companies work within that regime. Clearly government debt is cheaper than private debt. But it's not free and the public sector is inheriting the risk that comes with that."

Anglian Water did not dispute the report's figures but said it contributed "£150m in other taxes" to the UK economy in the past year.

A Southern Water spokesman said it was "undertaking a major capital improvement programme from 2010 to 2015. The spokesman added: "At £1.8bn, it is the equivalent of spending nearly £1,000 for every property in the Southern Water region over the five-year period."

Northumbrian Water said it could not comment on the report until it had spoken to its shareholders. However, it argued that the figure for its tax payment was "unrepresentative" and that Northumbrian Water Ltd, one of the group's operating subsidiaries, paid £30m in tax in the 12 months to 31 March 2012.

Thames Water accepted that interest rates had effectively wiped out operating profits, but said a tax credit received for 2012 came from "previous years" and that investment was at its "highest-ever" level.

Sutton and East Surrey Water told Corporate Watch it could not comment because it was "up for sale".

South Staffordshire Water confirmed it had eurobonds in emails sent to Corporate Watch and also said it was investing heavily.

Ofwat told Corporate Watch it "does not have the power to prevent any change of ownership. However, following a change of ownership we consult on the ability of new owners to be the fit and proper owners of a regulated water company. We have made a number of amendments to the regulatory ringfence conditions in companies' licences to ensure we regulate companies within larger groups effectively".

Visitor comments

blog comments powered by Disqus
display:none

Add your comment

We won't publish your address


By submitting a comment you agree to abide by our Terms & Conditions

Your comment will be moderated before publication

Submit
  • Send

Financial Planning and Performance AnalystCabinet Office-Greater London-Competitive

 
 
 
 
 
 
 
 

 

Newsletters

Get the latest financial news sent directly to your inbox

  • Best Practice
  • Business
  • Daily Newsletter
  • Essentials

Careers

Search for jobs
Click to search our database of all the latest accountancy roles

Create a profile
Click to set up your profile and let the best recruiters find you

Jobs by email
Sign up to receive regular updates with the latest roles suitable for you

Briefings

budget-management

Why budgeting fails: One management system is not enough

If budgeting is to have any value at all, it needs a radical overhaul. In today's dynamic marketplace, budgeting can no longer serve as a company's only management system; it must integrate with and support dedicated strategy management systems, process improvement systems, and the like. In this paper, Professor Peter Horvath and Dr Ralf Sauter present what's wrong with the current approach to budgeting and how to fix it.

cchcover

iXBRL: Taking stock. Looking forward

In this white paper CCH provide checklists to help accountants and finance professionals both in practice and in business examine these issues and make plans. Also includes a case study of a large commercial organisation working through the first year of mandatory iXBRL filing.