I am grateful for the opportunity to respond to the debate on behalf of the Opposition, Madam Deputy Speaker, and I apologise for my slight tardiness at the start. I meant no disrespect to the Chair.
I congratulate the hon. Gentlemen on securing this excellent debate, although I suspect that their ministerial colleagues in the Department will be less keen to thank them after hearing some of the issues that they have brought to the House today.
Three and a half years into the life of the Parliament, and with the regulator expected to have completed its price review by the end of next year, it is well worth reviewing the track record of the coalition Government. It is regrettable that, having by general consensus inherited a substantial body of work from the previous Labour Government on how to reform the water industry, the coalition has frittered away so much of the past 40 months. I am at a loss to understand what, if anything, was done in the first year and a half of this Government. When they came to office in 2010, the new ministerial team inherited not one but two reports on the water industry from Anna Walker and Martin Cave. Both reports had been favourably received by consumer groups, customers, regulators, industry commentators and Parliament. The reports, which complemented each other, provided a clear framework for reform. In fact, the only organisations that did not welcome their recommendations were some of the water companies.
It is not surprising that those who were found to have let down their customers—whether domestic, in the public sector or in private business—were the ones who were less than enamoured with the possibility of reform. The stories of poor customer service are legendary—we have heard many such cases today—as are the dividend returns paid out by many of the water companies. The arrogance of the companies has been astonishing. The tax avoidance measures, coupled with a refusal to plough excess profits back into either infrastructure improvements or a lowering of bills, are simply unacceptable.
Even now, when household budgets are continuously squeezed by inflation-busting utility bill increases, many of the water companies show a breathtaking arrogance by refusing to pass back any of their profits to consumers. For example, Thames Water, having recorded eye-watering returns for its investment, now expects hard-pressed customers to foot the cost of the Thames tunnel.
Water companies are some of the most profitable in the utilities sector, earning even more than energy companies. Energy companies make operating profits
of approximately 9% whereas water companies make operating profits of approximately 30%. While shareholders have seen their dividends increase, families across the country have suffered. Last year, regional water companies made a pre-tax profit of £1.9 billion, paying out dividends totalling £1.8 billion to shareholders, yet they have not seen the need to pay their fair share in taxes. As The Sunday Times revealed, in 2012-13 Thames Water, which, as we have already discussed, has asked to increase bills by a further 8%, made £127 million of pre-tax profit and paid zero corporation tax.
There are further examples, as we have heard from the hon. Member for Skipton and Ripon (Julian Smith) and others. Yorkshire Water made £184 million and paid no tax, and Southern Water paid just £6.5 million tax on profits of £172 million.
Water companies have been able to reduce their tax liabilities to such tiny levels by substantially increasing their levels of debt. Some water companies have reduced their tax bills by offsetting the interest payments on debt, often inter-company and involving tax havens, while claiming allowances for spending on infrastructure. Shareholders and bosses, as we have heard, have benefited from that aggressive tax avoidance, with eye-watering salaries going to those at the top. Peter Simpson, chief executive of Anglian Water, received a package worth £1.27 million in the last year, up from a mere £1.06 million the year before. The complex nature of tax governance and the growth in debt has been recognised by Jonson Cox, the chairman of Ofwat, who described the ownership of these companies as complex and “opaque” structures.