Gove could give Ofwat new ‘legal powers’ to address offshore tax structures

16 January 2018

Environment secretary, Michael Gove has threatened to legislate against water companies over their use of offshore tax arrangements unless they start to behave in a “responsible fashion”.

In an interview with The Sunday Times, Gove signalled he would support Ofwat’s chairman Jonson Cox to act and would give him “new legal powers”, if necessary.

He said: “The regulator has a responsibility to safeguard the public interest. If he [Cox] needs more, I’ll do everything possible to back him up.

“I will back him every step of the way in any action he feels he needs to take.”

A spokesperson for Ofwat, said: “We’re pleased the secretary of state recognises what we are doing as a strong regulator. We have been leading the charge in confronting issues that can damage public confidence. Our approach of greater transparency and scrutiny is working.

“We are pushing companies harder than ever to make sure their houses are in order and that, as public utilities, they deliver more of what matters for customers.”

Gove called for the crackdown on water company bosses using offshore tax havens, while cashing in on their monopoly position.

He said privatised utility companies must meet “high ethical standards” in order to maintain public support.

In his interview with the newspaper, Gove suggested it was not “appropriate” for water companies to use offshore firms to borrow billions of pounds while avoiding paying business taxes.

He said he had talked to Cox about “the corporate practices” of some water companies.

“I don’t think it’s right that privatised utilities, which have a natural monopoly, should use offshore tax structures which have rightly come under criticism from the public,” Gove said.

He added: “One of the things I have said to Jonson is that we need to make sure that everything associated with Defra [Department for Environment, Food and Rural Affairs] meets high ethical standards.

“Water companies have a responsibility not just to play their part in making sure we’re ready for floods but also to behave in a responsible fashion. I don’t believe it’s appropriate for companies to operate in the way they have in the past.”

The legitimacy of the water sector was called into question at several times throughout 2017 and the Labour party even outlined plans to renationalise the industry.

Last year, Yorkshire Water and Thames Water, both vowed to close their Cayman Island subsidiaries, with Yorkshire promising further action to reduce borrowing, simplify its finances and enhance service for customers.

Yorkshire made its announcement in October, and was closely followed by Thames the following month. It revealed its intention to close its Cayman Islands set up as it announced the news of ex-SSE chief executive Ian Marchant joining as chairman.

Marchant joined Thames Water’s board on 1 December and will take over as chairman from Sir Peter Mason on 26 January.

He has been charged with leading a wide-ranging review of the company’s corporate structure.

Last week the government outlined its vision for a “greener future” as it published its 25-year environment plan.

Originally published at utilityweek.co.uk

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