Saturday, 14 June 2014

Thames Water: a lesson in privatisation

In the last year Thames Water made a profit of £259 million on revenues of £1.9 billion - a very comfortable 13.6% profit to turnover ratio. While revenues were up 8.5%, profits leapt by an astonishing 79%.

The Thames Water profits bonanza was "driven by increased prices", their Chairman, Sir Peter Mason (presumably knighted for services to larceny), explained to shareholders.

This begs the question what is Ofwat doing? The water industry regulator obviously thinks this is acceptable. But light regulation was part of the privatisation deal. Water bills have risen 40% above inflation since the industry was privatised.

The UK water industry was privatised under the Thatcher government. It followed the privatisation textbook: 'the profits shall be privatised, the losses shall be nationalised'. Her then Chancellor Nigel Lawson stated "once it was clear the regulatory and environmental responsibilities would remain in the public sector, privatisation never looked seriously at risk".

And so today, the state funds the Environment Agency because the privateers just wanted to cherrypick the profitable bits. At the time (1989), opinion polling found  79% of people opposed water privatisation.

But if Ofwat is about as effective as a chocolate fireguard, then the Treasury is actively complicit.

This government has slashed the corporation tax that Thames Water will pay on their rip-off profits (from 28% to 20%). So instead of a tax bill for £72.5 million, the bill landing on Thames Water's mat will only be for £51.8 million.

Except it won't be paying a penny in corporation tax. And according to its Finance Director, Stuart Siddall (staggeringly overlooked so far for a knighthood) it won't do for the next ten years.

This is because it is receiving tax credits to invest in the infrastructure that it profits from - the same infrastructure it inherited on the cheap and has failed to invest in despite making bumper profits on the back of ever higher bills.

So here's a quick 8-point guide to how privatisation works:

1. The government privatises the profitable bits of the water industry on the cheap - underselling your taxpayer investment
2. Your taxes continue to fund the unprofitable bits of the water industry
3. The privatised company puts up bills, overcharging you
4. The privatised company puts up the pay of its directors and pays generous dividends to wealthy shareholders
5. The government cuts taxes on the profits of the privatised company
6. The privatised company refuses to invest in maintaining or upgrading the taxpayer funded infrastructure it inherited, so government introduces a tax credit scheme meaning you the taxpayer are paying for the upgrade to an industry that the privatised company profits from
7. Government has constructed a system in which you the taxpayer subsidise the people ripping you off
8. Government gives out knighthoods to the people ripping you off 

N.B. a correction was made to this article - Sir Peter Mason is chairman of Thames Water, not chief executive as originally stated.

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