Ministers plan shake-up of water industry
Ministers plan to reform the British water industry amid concerns that companies are making large profits while charging customers too much and failing to invest in infrastructure. George Osborne, the chancellor, and Danny Alexander, Treasury chief secretary, are looking at ways to ensure that the industry pays more tax, while Number 10 and the environment department are looking at broader reform of the industry to encourage competition and bring down bills. A senior government adviser said: "Our focus is on improving the cost of living for bill payers and increasing competition. But there is no reason we can’t do this while also making companies pay more tax. Looking at the profits of some of these companies, there is a general feeling that not all of them are behaving properly." The chancellor plans to tackle the tax and consumer issues in his Autumn Statement next month. Environment ministers are rewriting the water bill going through parliament to enact a wider-ranging regulation shake-up. The co-ordinated move follows a request by Thames Water to raise its bills 8 per cent, well above the rate of inflation. That request was turned down by Ofwat, the regulator, which has said it expects bills to fall up to 10 per cent in real terms over the five years from 2015 to 2020. But all three man political parties believe more could be done to reduce bills and they are battling over how to do so as part of efforts to tackle the "cost of living crisis" that has so far focused on high energy bills. Mr Osborne and Mr Alexander want to stop water companies using high interest payments to cut their tax bills. The Financial Times has learnt that Robert Halfon, a Conservative backbencher, is urging the Treasury to impose a windfall tax on the industry – although this suggestion is unlikely to be taken up. Instead the chancellor will probably focus on reducing the size of interest payments that can be deducted from a company’s tax bill, especially for larger or more highly indebted companies. A report by Charlie Elphicke, a Conservative MP, shows that the biggest water companies owe 85 -105 per cent of what they are worth and high debt levels are helping companies write off potentially large tax bills. Thames Water has come under fire for not paying any corporation tax last year, despite being the UK’s biggest water company by revenue. Thames said: "We have not paid much corporation tax in recent years because the government’s tax system allows companies to delay, not avoid, payment of tax based on how much they invest." Another proposal would put a levy on the debt held by highly leveraged water companies, along the same lines as the bank levy. The Treasury would then benefit either from the levy or, if companies decided to reduce their debt levels, from higher corporation tax. The industry is likely to complain that these measures will force them to put up bills but coalition officials believe it is possible to ease the burden on bill payers at the same time. Ministers will use the water legislation to allow companies to take more aggressive action against customers who fall behind on their bills. The government wants to force landlords to give companies access to details of their tenants so they can be taken to court if necessary. Ministers estimate that this could shave £15 from other customers’ bills. The measures have been pushed by MPs on both sides of the coalition. Simon Hughes, the Liberal Democrat deputy leader, has long called for more transparency in the industry.