MPs vote on blocking water firms receiving tax cuts unless they stop sewage discharges
- 10 water firms paid no tax last year after government’s previous round of tax cuts on industry
- Water firms who paid £1.4bn in dividends to overseas owners are now set to receive permanent tax cuts from government
- Liberal Democrat amendment vows to block “water industry gravy train, where money and sewage flows freely”
Today, MPs expect to vote on a Liberal Democrat amendment to block disgraced water firms receiving a tax cut.
The Government’s Finance Bill allows water firms to fully expense the costs of investment in equipment, handing them a large corporate tax cut.
The Liberal Democrats’ amendment tabled by Treasury spokesperson Sarah Olney MP, would block these tax cuts for the water industry, unless the equipment was specifically for ending sewage dumps in rivers, lakes and coastlines. The amendment also specifies the tax cuts cannot be given to water firms unless they produce a full time-limited plan for dealing with the sewage scandal.
The government’s temporary version of this tax cut, which began in 2021, handed Northumbrian Water a staggering £21.9 million tax rebate. At the same time, Northumbrian Water increased their payout to overseas owners in Hong-Kong and New York, with a £105 million dividend. Meanwhile, their CEO earned £648,000 in salary and bonuses, whilst the firm pumped sewage into waterways for a staggering 107,536 hours in 2022.
House of Commons Library research commissioned by the Liberal Democrats found the water industry benefited from almost £100 million in tax rebates last year. The analysis of Companies House records and financial reporting has also revealed 10 water firms paid no tax at all in 2022/2023 – a stark increase since 2021/2022, when just one firm paid no tax.
Liberal Democrat Treasury spokesperson Sarah Olney MP said:
The Conservative government is about to hand water firms a stinking big tax cut. What a farce.
The same disgraced industry which causes environmental destruction is now set to receive a great fat cheque from the Treasury. This is a national scandal.
My amendment is simple – no tax cuts unless you stop sewage. We need to put an end to the water industry gravy train, where money and sewage flows freely.
Water firms are polluting our rivers, lakes and coastlines, all whilst stuffing their pockets with eye-watering bonuses and salaries. Conservative MPs have the chance to block water firms receiving multi-million pounds worth of tax cuts. How can they justify hiking taxes on working people whilst slashing them for sewage pumping companies? They clearly have no shame.
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8 Comments
Just to be clear, “full expensing” isn’t a tax cut, it’s a tax deferral ie companies get tax relief earlier than they would otherwise.
This, incidentally, is why Hunt’s budget statements were so disingenuous & downright misleading when he claimed to be granting such a big tax “cut” – and why most businesses shrugged and concluded it would have no impact on their investment decisions
I’m afraid this article seems a little misleading to me. As @Dominic points out there are no actual tax cuts here. The Government is proposing to make permanent a scheme in which, when companies purchase certain capital equipment, they can count what they’ve spent as an expense immediately instead of – as was previously the case – only expensing it when the equipment depreciates in value. The idea is to encourage business to invest. And it’s not a scheme aimed at the water industry: It’s a scheme for businesses in general. Water companies don’t gain any benefits that aren’t available to all other industries.
I’d certainly like to know why 10 water companies have paid no tax last year, with a view to finding out whether there were legitimate reasons or whether that indicates some loophole in tax law that needs to be addressed. And I’d separately like to see something done to reduce the amount of sewage being released into the environment, but I think those issues need to be dealt with on their own merits: Dragging into it a tax deferral scheme aimed at promoting general business investment seems to me like disingenuous populism.
£1.4bn in dividends and no corporation tax paid…
This sounds like UK law being made into ass; in principle dividends are paid out of taxed profits, so at a minimum they should have paid £~460M in Corporation tax.
Perhaps UK law needs to either be applied or clarified …
@Roland – I think you’re mixing up accounting (i.e. accruals basis) and cash numbers. I suspect the tax numbers (or lack of them) being quoted are referring to cash, whereas dividends are paid out of distributable reserves – both an accounting concept and a cumulative one, so not limited to the profits of a particular year or years in isolation. So there’s no suggestion there’s anything nefarious or incorrect here.
The bigger issue (indeed scandal, to my mind) is that Ofwat has allowed the institutional investors in the water companies (mostly banks and pension funds) to load them with vast amounts of debt. They are extracting much more value/cash out of them in interest payments (which are tax deductible, unlike dividends) – and that also means the water cos are not investing enough in their infrastructure. The regulator seems to be asleep on the job!
@dominic – not getting confused, just wondering whether the legal framework gives too much wiggle room and so permits dividends to be paid in ways that are “tax efficient” – perhaps forcing them to be paid out of current year deemed profits might have benefits.
Similarly, as you note both the rules around debit loading and “interest payments” seem to provide further tax efficient ways of extracting monies.
Agree the regulator seems to have been asleep in permitting the water companies to increase prices in the name of essential infrastructure investment and permitting them to extract monies for “investors”.
Agree it is yet another scandal, problem is there are just so many scandals and rackets going on, calling it a scandal feels like devaluing other scandals like Horizon…
@Roland: dividends are never “tax efficient”, they are not tax deductible. They’re governed by the same company law for all companies, so I really think trying to apply a tax angle to corporate dividends is a red herring. The interest point is far more relevant.
@Dominic – much depends on where you are standing. Agree creative accounting, is being used to take out loans with tax deductible repayments and use these loans to pay dividends, on which only the dividend recipient pays tax to their local tax collectors, which for the backers of UK utilities are largely abroad…
But as you allude to, much to do with international company tax affairs is defined by international treaties and changing these is not going to be a quick solution…
@Roland just to be clear, these are two separate things. Loans aren’t being “used to pay dividends”, rather the loans themselves are being used to extract value (in the form of interest payments) to the financial investors in the water cos.
It’s not really “creative accounting” either, it’s just the standard business model for financial & private equity investors. You can’t really blame the investors for doing what they’re meant to do.
The issue is that the water cos are regulated, privatised utilities rather than just some other business. So the regulator should be doing a better job to limit the amount of debt (as well as dividends & indeed bonuses) without appropriate investment in infrastructure & service levels for customers. Right now it seems they are effectively letting investors milk the businesses as cash cows, reaping the rewards from historical investment when in state ownership.
You’re correct that international tax rules require international consensus but that’s not really the point. The tax rules work just fine in this instance; rather it’s the weak regulation that’s the problem.