Aug 28 2013

Profit and the Water Industry

I’ve read a number of articles in the national press over the last few months about the water industry and the levels of tax it pays, or rather, doesn’t pay.  Part of this has come on the back on the increased awareness about the low levels of tax paid by multinational companies such as Google and Amazon.  Part of it has come from the fact that all the water companies in England and Wales are currently in the process of consulting with their customers about their next 5 year plans.

Dripping TapBecause water is a regulated industry, each of the water companies has to submit a plan to Ofwat explaining how the business will run from 2015 to 2020 and how much they propose to charge customers to make it run sustainably.  This includes the level of investment that will be made in improving existing infrastructure or building something new.  Ofwat then agrees these business plans and bills should be set accordingly for the next 5 year period.  This means the process is quite important and is a chance for customers to let their water companies know what they think.  They are, afterall, monopolies so we don’t have the ability to take our custom elsewhere.  So have you noticed your local water company consulting on its 5 year plan?  I have, but mainly because I’m lucky enough to be a Member of Welsh Water, which is the only not-for-profit water company in England and Wales.  As a Member, we act in the same way that shareholders do in listed water companies, voting at the AGM and questioning the management about their approach to the business.  We are kept better informed about what is going on in the company than your average customer, so are able to take this back into our communities and hopefully get other people to engage as well.

But not only do other water companies not have this not-for-profit, member-led structure, many of them are now privately owned, which is where tax becomes an issue.  Regina Finn wrote a short piece in the Guardian shortly before she stepped down as CEO of Ofwat, stating that the regulator was changing in response to some of the just criticism against it.  Around the same time, the Chairman of Ofwat wrote a damning article in the Sunday Telegraph talking about the industry’s “excessive profits” and the lack of tax that is paid.  It is fair to say that the privatised water industry of today probably looks completely different to how those responsible for the changes in the 1970s and 1980s imagined it would.  Not so much an industry owned by us all and regulated to protect our interests, as an industry owned by finance and multinational companies with a regulator that hasn’t yet caught up with the new ownership structures.  In the last couple of months alone we’ve heard about bids for Severn Trent and Yorkshire Water, from pension funds and insurance companies.

Where does this leave us?  Is the problem one of an ineffective regulator, or a privatised industry gone awry?  In the energy sector we have similar issues of high profits and customers losing out.  In energy, complicated bills are to blame, stopping customers from changing providers, but that is a luxury we don’t have as water customers, and even if we did, would any of us trust the water companies now to give us the right information?  An article in the Telegraph mentions the missed opportunity of the current Water Bill, which I would agree with.  Surely it is up to Parliament to curb the worst excesses of these companies, in the public good?  And if it can’t, shouldn’t we be worried about the moves to privatise yet more, including Royal Mail?  If we aren’t learning from the mistakes of the 1980s, then it doesn’t bode well for the future.

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