Down the plughole
It poisoned our rivers while its vulture owners made millions. How Thames Water went...
OFWAT has finally awoken from a long stupor and recognised a scandal at Britain’s biggest supplier of water and sewerage services.
Writing in the sheltered environment of Utility Weekly, the water regulator’s chairman Jonson Cox says Thames Water must speedily change the way ‘it operates and behaves’ and provide more clarity on its outsize payments to investors, most of which are foreign institutions that do not pay UK taxes.
The belated intervention comes amid rising public hostility about the way Thames, with more than 15m customers, has abused a privileged position.
Privatised by the Thatcher government in 1989, the company was allowed by successive governments to fall into the hands of different overseas firms.
First it was bought by the giant German power utility RWe, and then by Australian investment bank Macquarie – known as The Vampire Kangaroo – for £8bn. It has now fallen into the hands of a group of overseas investors – including the Abu Dhabi Investment Authority, the China Investment Corporation, and the Kuwait Investment Authority.
As the ownership of Thames Water has become ever more remote from those who pay for its services through their water bills, so the contempt Thames shows for customers has become increasingly plain. Last week it emerged the company faces a fine of £8.5m from ofwat for an ‘unacceptable failure’ to control leakages.
earlier this year it was fined a record £20.3m for a grotesque example of corporate vandalism in which it allowed nearly 308,000 gallons of raw sewage – the equivalent of 1,700 olympicsized swimming pools – to pour into the upper reaches of the Thames at six sites in oxfordshire and Buckinghamshire.
Thousands of fish and birds died while residents fell ill.
In December, hundreds of people were evacuated after pipes burst and caused floods in three London boroughs.
Meanwhile, the company awarded its overseas investors a dividend of £100m, adding to the staggering £1.6bn of cash dividends that it has sent overseas in the past decade.
Unfortunately, the behaviour of Thames Water – along with other privatised utility firms – lends credence to Labour leader Jeremy Corbyn’s demands that public service providers should be renationalised.
Yet that would be a huge mistake, not least because it would cost taxpayers an estimated £300bn, which we don’t have.
The privatisation of Britain’s water companies – one of the last acts in Margaret Thatcher’s drive for a popular capitalism – was the right thing to do. The noble aim was to impose private-sector discipline on out-ofdate and under-funded industries. And as ordinary citizens bought a stake, and the ten big regional water companies and corporate investors ploughed in their money, large swathes of the country saw the renewal of pipes and treatment plants, and investment in cleaner water.
only a few of the water firms remain quoted on the London Stock exchange, pay their taxes and dividends in the UK, or are forced to listen to shareholders at annual general meetings. The rest have fallen into the hands of overseas owners who pay little if any UK tax and have borrowed to the hilt to maximise returns.
In the Tory manifesto there was a pledge to examine overseas takeovers, to assess whether they are in the national interest. The US, Canada and Australia already have such regulations.
overseas owners of water firms feel they can treat customers with contempt because ofwat is toothless. The few millions in fines paid by Thames Water are a drop in the ocean when compared to the billions it has paid in dividends. Under Macquarie’s ownership, Thames became a cash cow and a serial offender for water leaks and pollution as it failed to invest enough to fully replace the company’s antiquated Victorian infrastructure.
Meanwhile, enormous effort went into setting up a Byzantine ownership structure involving no fewer than seven intermediary companies, including one called Thames Water Utilities Cayman Finance, in an attempt to maximise tax avoidance.
During its ownership, it paid no corporation tax and accumulated debts of £10.6bn while running up a pension fund deficit of an estimated £260m.
The Government needs to get real about policing utilities. We need regulators who will flex their muscles and impose heavy fines. Moreover, next time a major utility comes on the market, there must be a thorough investigation of whether its sale is in Britain’s economic interest.
Weak and inattentive government has robbed the nation of control over critical public services. Robust changes are required if faith in free market capitalism is to be preserved.