Water Industry (Financial Assistance) Bill

That is exactly the point. I should have gone on for another paragraph before I let my hon. Friend intervene. I shall finish the figures on the toll and then address the point he makes. In 2006, Macquarie Infrastructure Group, the owners of the M6 toll, cashed in £392 million in profits despite contributing only £1.5 in equity to the scheme. The link is that Macquarie is behind Kemble Water, which owns Thames Water. My concern is exactly that alluded to by my hon. Friend. There is an incentive to build the biggest, most expensive tunnel because the largest amount can then be charged to get the maximum revenue stream indefinitely, and no incentive to have a cheap, good-value product at the end of the day. My question to my colleagues in government is this: are we asking the serious questions as to whether the taxpayer should be putting up any financial support for the scheme? Since 2003, RWE and Kemble have vastly increased the debt held by Thames Water. Debt has been taken out of the company not because of a vast capital renewal programme or investment in infrastructure. A normal company might take out debt to invest in capital, increase assets or pay down debt over time. Under those circumstances, we could expect to see a short-term increase in debt, which would fall over time as the debt is paid off, and expect shareholder equity to increase to reflect the value of the investments made. Thames Water, despite being a highly profitable company, has shown no increase in shareholder equity in almost a decade. That is demonstrated by the Thames Water balance sheet, which since 2003 has shown a fall in shareholder equity at a time when the company has taken out more than £5 billion in additional debt. Last year alone, the company increased its debt by £1.25 billion. The accounts of Thames Water show that it paid out £271 million in dividends and moved £685 million of loans to other group companies—almost £1 billion in assets were moved out of the company, to be covered by even more borrowing. Given that we now have a project estimate cost of £4.1 billion, Thames Water should be asked whether it would have been able to finance the tunnel project had it followed a different policy over the last decade. The policy has clearly had a serious impact on its ability to borrow. The company's corporate rating on the Standard & Poor's scale has gone from A plus with a positive outlook to a position in which some of its debt has been downgraded to triple B, which is just above junk bond status. What has the regulator done about that? Thames Water steadily degraded its credit rating to the point at which it does not have the capacity fully to borrow all that it wants, and has asked the Government for financial support. Ofwat regulates the industry to ensure that companies do not get themselves in a position in which they can no longer operate as going concerns. That is entirely right: water companies are local monopolies, and there would be devastating consequences for the local population were they to fail, because people cannot go anywhere else to get their water. Provisions include companies having to keep their investment grade status and the ring-fencing of capital assets. If the credit position of water companies falls below investment grade, a cash lock-up mechanism prevents them from paying dividends and ensures that profits are kept within companies. That mechanism is intended only to stop companies going bust; it is not intended to encourage prudential long-term financial management that allows companies the capacity to borrow to make large capital infrastructure investments when they need to do so. The case is perfectly demonstrated by Thames Water, which is currently right on the margin of losing its investment grade status despite the fact that it has known for many years that the tunnel is coming. I believe that that needs to be addressed as a matter of urgency. My last point is that the current system allows companies to move their money around. Among Thames Water's debts is a £4 billion debt to a post box in the Cayman Islands. The post box is called Thames Water Cayman Finance Ltd, which is based in Ugland House—I have never been to the Cayman Islands and cannot tell the House exactly where that is, but 18,000 other companies use it as their registered address. Thames Water Utilities Cayman Finance makes no profit because it owes £4 billion to its creditors. It might be a bit difficult to follow the trail of corporate involvement, but as my hon. Friend the Member for North Cornwall (Dan Rogerson) said, it does not seem like transparent public accounting in the interests of the taxpayer and water rate payer. This company, being a monopoly supplier of water to 20% of the UK's population, needs to be transparent. Furthermore, Thames Water can deduct its interest payments from its taxable profits, which is one reason that on the £600 million in operating profits that Thames Water made last year it paid only—wait for it—£16 million in tax. That was after a £400 million deduction for interest payments. And guess where they went! Most went to its subsidiary in the Cayman Islands. If we are about closing tax loopholes and dealing with tax avoidance, the regulators should not be condoning mass tax avoidance by companies providing a monopoly utilities service such as water to people in London and the surrounding counties. Ofwat's position paper on the Kemble takeover of Thames Water stated that tax efficiencies from capital restructuring should be passed on to consumers. I do not sense that consumers are getting the benefit, although I do not think they should get benefits as a result of a tax dodge involving huge sums of money that ought to be going into the UK Treasury to deal with the public financial crisis. A sensible gearing ratio of about 65% would also limit tax avoidance by limiting how much interest could be deducted from taxable profits. I am grateful for your indulgence, Mr Hoyle. I am sorry if it was a rather longer perambulation even than what people thought the ring main would have been had it been a ring main—although actually it is going to be a long pipe. There will be further debate next week on other issues, but I am keen that DEFRA, the Government and all other Departments focus on the need to end this scandal, which has existed for several years, and do not allow Thames Water to get away with what is probably the worst example of financial management leading to the worst exploitation of the consumer and the taxpayer. I hope that the Government will be robust in their response.