Julian Smith: Yorkshire Water is awash with profit while squeezing its customers dry

The policies the Government have come up with to get every energy consumer onto the lowest tariff are exactly the right thing to do, and I hope the review of green levies and Labour’s £125-worth of green taxes will enable us to reduce energy bills, too.

Addressing water bills will be another big step, by making the industry more competitive and ensuring we have a water industry that is fit for the future.

Giving businesses the opportunity to switch will enable big users of water to get the very best deal. It is unfortunate, however, that that opportunity will not be available to the consumer.

My constituents really have only one option, which is Yorkshire Water, unless they happen to live in Long Preston, near Settle in the western part of my constituency, where they have their own water trust which enables them to guarantee much lower prices.

Yorkshire Water has done some positive things on infrastructure, and it has also done some good, and some bad, things on flooding, but the financial situation and decisions of Yorkshire Water show that it is exploiting people across Yorkshire.

If you have not read the Yorkshire Water annual report, perhaps I should recap. In 2013 it made an operating profit of £331m on a turnover of £936m. Average increases in bills were 6.6 per cent with the average bill being £356.

There was a quadrupling of the dividend payment, from £62.3m to £256m in the past year. The thing that really sticks in the craw of my constituents is the fact that despite those massive dividends, Yorkshire Water paid zero tax in the last financial year, and with a highly leveraged balance sheet.

When we compare that behaviour with the behaviour of my constituents, the small and micro-businesses throughout my rural constituency, the need to hold the feet of the water companies to the fire is vital.

People will say that Yorkshire Water has done nothing illegal, and it has not, but we thought as Yorkshire MPs that we should take that from the horse’s mouth, so we invited the senior management team down to Westminster.

Let me list that team: Kevin Whiteman, the chairman, earns £1,077,000; Richard Flint, the chief executive, earns £1,091,000; Liz Barber, director of finance and regulation, earns £476,000; and the communications officer earns £165,000.

Those highly paid – highly compensated – board members showed no contrition. They basically said that they would not budge on their stretching of the tax rules to ensure that they paid no tax. We talked about the clause in their commitment to customers where they said that they would be responsible and that they were environmentally and socially engaged, but they just would not listen.

The situation is a kick in the teeth from Yorkshire Water to hard-working people across Yorkshire.

We asked the management team about their debt standing at 84.5 per cent of regulated capital value at the end of March, in contrast to the figure of 56 per cent when the company was acquired.

We asked them how they explained their £63m of shareholder dividends in 2012 quadrupling to £256m in 2013.

We asked them how they could seriously defend, in these tough financial times, a dividend payment of 27.3 per cent of 2013 revenue.

We asked them to enlighten us on the risks of having more than £4bn in debt and what would happen if things went wrong.

We asked them how they explained the quagmire of vested and conflicting interests between the different board structures — between investors and the company and the various Yorkshire Water subsidiaries.

And we asked them how they could explain the claim in their annual report that these complex financial arrangements led to lower bills for customers, given that bills actually went up by about seven per cent.

The answers were not weak or woolly – they were non-existent.

I welcome the measures that the Government have taken on tax reform and the general anti-avoidance rule. That is a shift from prescriptive rules to a general rule, which is the right thing to do.

However, should Her Majesty’s Revenue and Customs really be having to wage an uphill struggle against a monopoly business providing customers with one of the most fundamental services and utilities in the world?

The Government have done a lot on tax, but I urge them to go further. I urge them to use things such as the Water Bill to implant exciting and novel policies from the Treasury and look at whether we can taper the level of deductions received for interest charges in corporation tax as shareholders take on more debt. Can we impose a bank levy on debt? Could we look at how to impose a levy payable by shareholders to customers so that the cost is not simply passed on to customers and instead they gain a share themselves?

Somehow, we must stop this limitless offsetting of interest against tax. We should push on with greater competition and consider ensuring that a percentage of profits goes back to customers.

We should knock Ofwat about until it works vigorously in the interests of the consumer first, second and third.

We should consider everything in the industry and say clearly to companies such as Yorkshire Water: “No. No more. This has to change.”

We should shake this industry up from top to bottom.

*Julian Smith is the Conservative MP for Skipton and Ripon who spoke in a Commons debate on the water industry. This is an edited version.