Thames Water

Leonie Nimmo explores how privatisation has allowed one utility company to shift ownership to Luxembourg.

Thames Water is one of ten companies that were created when the Thatcher government privatised England and Wales water authorities in 1989. A golden handshake wiped combined debts of £5 billion and guaranteed the new companies 25 year monopolies. (1)

Unsurprisingly, they became attractive financial playthings for private equity and today only four out of the now nineteen water and sewerage companies remain publicly-listed on the London Stock Exchange.


Rising prices

Research by the Public Services International Research Unit in 2001 found that tariffs increased by 46% in real terms in the nine years following privatisation, whilst operating profits more than doubled in eight years. Last year a report by the New Policy Institute found that one third of bills, approximately £100, went to operating profit. 

Thames Water has structured its finances in a way which enabled its parent company, Kemble Water Holdings, to receive a tax rebate of ££70 million in the financial year to March 2012, whilst making an operating profit of £577 million and paying out £165 million in dividends to shareholders. As we went to press, it was reported that Thames Water paid no corporation tax in the last financial year and received a £5m credit from the Treasury, even though it had turnover of £1.8bn. Thames Water reported profits of £550m whilst bills went up 6.7%.



The key to this financial alchemy is debt. Interest repayments on loans wipe out UK profits and thereby requirements for companies to pay UK corporation tax. Companies and the water regulator, OFWAT, argue that borrowing is necessary to raise capital for investment in infrastructure. But there is nothing to stop companies borrowing from companies in the same corporate group based in secrecy jurisdictions, or tax havens, for artificially high rates of interest. Last year Thames Water had debts of £4.57 billion to a subsidiary registered in the Cayman Islands. 

Thames Water's proposed Tideway Tunnel will increase the company's debt by a further £4.1 billion, exclusive of finance costs, thus creating further opportunity for tax-avoiding financing. See opposite for more information on the tunnel. Whilst the costs will be paid by Thames Water customers in their water bills, the resulting asset will be owned by Thames Water shareholders. According to Dr Benjamin Pontin of the Environmental Law Foundation, this proposal would affect an unprecedented redistribution of wealth away from the British public and into generally foreign owned private corporate hands. (2)


The role of OFWAT

In 2007 OFWAT allowed Thames Water to restructure in such a way that ownership was partially shifted to the tax haven of Luxembourg, the beneficial owners of the company were harder to identify and it was free to substantially increase its debt. The 

agreement appears to have been a government body effectively sanctioning tax avoidance by a company it has the role of regulating something that would perhaps be less acceptable in todays political and economic climate. According to the OFWAT ruling, where capital restructuring may bring about tax efficiencies these would be passed to customers at the next review as part of the established regime. (3)

1 UK Water privatisation “ a briefing, Public Services International Research Unit (PSIRU), February 2001 Legal Status of the Thames Tunnel Proposal in relation to the Urban Waste Water Directive, Dr Benjamin Pontin, Environmental Law Unit, University of the West of England. 
3 ˜The completed acquisition of Thames Water Holdings Plc by Kemble Water Limited: A position paper by Ofwat, May 2007. Available from pdf  
4 ˜Department of the Environment: Sale of the Water Authorities in England and Wales, National Audit Office, February 1992