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Thames Water Attacked for Paying Not a Drop of Tax

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Thames Water has been slammed by public sector unions and politicians after the UK's biggest water company by revenue announced that it paid no corporation tax last year.

The disclosure reignited the controversy over aspects of the water sector's tax-efficient structures, which were criticized as"morally questionable" by Ofwat, the industry regulator.

Simon Hughes, Liberal Democrat MP for Bermondsey and Old Southwark – and a fierce critic of the water industry – said the accounts were "extraordinary".

"It is simply not acceptable that the monopoly water provider in England for 9m water customers saw its income last year rise to £1.8bn but paid no corporation tax into the UK Treasury," he said. "Bills went up by nearly 7 per cent, but the chief executive received a massive pay rise and bonus.

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"I will go back to the Treasury, the National Audit Office and the regulator and keep up the pressure for a proper proportion of all water companies' profits to be paid annually in tax."

Dave Prentis, general secretary of Unison, the public sector union, said: "This is a disgrace. Since privatisation, water companies have been ripping off consumers, pushing bills up much higher than inflation. Now we know they are ripping off the taxpayer too."

But Thames Water vigorously defended itself, saying it had delayed, not avoided, paying tax as a result of its heavy investment programme. The impact of allowances on capital spending generated a tax credit even though the company made an operating profit of £549m for the year to the end of March, compared with £644m a year ago.

Martin Baggs, chief executive, said: "We have for the third year running carried out a further £1bn of improvements to our networks, while the average household bill in our region is the second-lowest in the country."

Publication of Thames Water results on Monday coincided with criticisms of the sector from Ofwat chairman Jonson Cox. He conceded that the use of high-coupon shareholder loans by water companies to improve equity returns might be legal. "But some aspects are morally questionable in a vital public service," he said.

Thames Water, which primarily raises its debt through a company based in the Cayman Islands, said it did not engage in any tax planning activities "that would be considered as artificial or aggressive tax avoidance". The company is owned by Kemble Water Holdings, which is ultimately controlled by the Australia-based Macquarie Group.

Net debt rose from £7.8bn to £8.4bn over the year. The cost of financing the debt weighed on pre-tax profits, which fell from £222m to £145m. However, a fall in the rate of corporation tax from 24 to 23 per cent from April allowed Thames Water to book a £5m tax credit towards post-tax profits. Revenues rose from £1.7bn to £1.8bn.

Mr Baggs saw the total of his basic pay and annual bonus fall from £896,000 to £840,000 in the year to March 31 but he is expected to receive an additional bonus worth £366,000 in July under a long-term incentive plan.

Stuart Siddall, chief financial officer, saw his total pay and bonus increase from £369,000 to £588,000.