John McDonnell: Our money seeps away into profiteering by water firms

The Government should produce a report that examines some of the key issues affecting the water supply industry and the consumer. I am talking here about the cost of water to the consumer, the number of disconnections that took place during privatisation – although that is no longer allowed under the Ofwat regulations – the purity of water supplies, the leakages, the levels of investment, the profits and the dividends paid to shareholders, management remuneration, the levels of taxation, particularly taxation avoidance, by the water companies and also their adherence to employment, human rights and environmental practices across the world.

I say that because the water industry is second only to the energy industry in ripping off the British public. Since privatisation, the water companies have stolen from the average consumer of water in this country.

Let me go through some statistics showing what has happened since privatisation.

Since 1989, real water bills have risen 50 per cent. Since 2010, bills have gone up by more than 12.5 per cent. At the same time, individual family incomes have gone down by five per cent. It is interesting to see where the money has gone. Most of it has gone into paying interest charges on water company debts or dividends to their owners and shareholders. Interestingly, most of those owners and shareholders are now overseas.

The performance of the companies has not really matched the rise in payments. Significant investment has been made in the infrastructure, but the problem is that since the 1990s that has declined as a proportion of the overall turnover of the industry.

The issue is this: we are not talking about advocating a return to the previous model of nationalisation here; we are talking about the long-term future of the water industry, which is why this debate is important.

My view is that privatisation and competition has not worked, but there are other models that we should explore. The Welsh model of a not-for-profit organisation ploughing the money that comes back into the infrastructure and into quality of service is the one we should now be exploring.

It has now been exposed that some of the borrowing is being used to pay dividends to shareholders and high salaries to chief executives and board directors.

That was not the intention of the Thatcher government’s original privatisation – well, it was not the stated intention.

Privatisation was meant to reduce prices, increase investment and make the industry more accountable to the wider public through shareholding. That has not been the case.

It is not more accountable through shareholding, because most of the companies that now own British water are owned by overseas shareholders.

It does not make it any more efficient for the consumer, because prices have gone through the roof in recent years, which people are angry about. It does not make it more accountable to the taxpayer. In fact, the taxpayer is being bled dry as a result of tax avoidance and the various scams that have been going on, which have been explored by Richard Murphy, the tax justice expert.

Corporate Watch has produced an excellent report on some of those issues. It reports that six UK water companies took high-interest loans from their owners through the Channel Islands and then converted them into euro bonds. They then lent them back to the companies and paid virtually no tax on them whatsoever.

This is a tax scam for which these water companies are used as a vehicle. Corporate Watch found that the six companies it looked at – Northumbrian, Yorkshire, Anglian, Thames, South Staffs, and Sutton and East Surrey – had borrowed £3.4bn using this method. It highlights Northumbrian Water as “the most brazen case” as it paid 11 per cent on just over £1bn of loans it had taken from its owner, the Cheung Kong group, a Hong Kong-based conglomerate run by the world’s ninth-richest person. No wonder he is the world’s ninth-richest person – we are making him so. This is a scandal.

Minor reforms will not satisfy people when their next water bills come through the door; they will be extremely angry.

I urge that we look sensibly at the not-for-profit model that is operating in Wales, because on that basis people can at least be confident about what they pay in and that what is given to these companies through tax subsidies as a result of their long-term investment plans is poured back into the supply of decent and pure water at a reasonable cost.

I do not believe that I am a lone voice in the wider community. People are fed up with being ripped off by energy companies, water companies and others, and fed up with being exploited as a result of privatisation.

*John McDonnell is a Labour MP who spoke in a House of Commons debate on the future of the water industry. This is an edited version.