Michael Gove, the Environment Secretary has issued a warning to water companies that he is prepared to give their regulator new powers if they can’t address public concerns. Common concerns from the public are over prices, executive and shareholders pay and leaks.
Gove has said he’s written to Ofwat, the water regulator and asked them to investigate each of these concerns. He said that he is prepared to give Ofwat new powers if appropriate changes are not agreed to.
Dividends and executive pay
Private water companies have come under fire over the past few years because of revelations around dividend pay outs despite increasing levels of debt.
A study from the University of Greenwich revealed that companies earned around £18 billion in pre-tax profits over the past ten years. They have also paid out about the same amount to shareholders.
Ofwat figures show that water prices have outstripped inflation by 36% since the sector was privatised.
Sir Ian Byatt, the first chief executive of Ofwat said that he would insist on an immediate 10% cut in prices if he were still in the job. He also suggested that water companies bring in a form of dividend cap where pay outs to shareholders would be cut if they became too great.
This would ensure that the benefits of privatisation are “shared with the customers, not just the financiers,” he said.
Thames Water has been facing growing concerns about leakages and water pollution. They were recently issued a fine for polluting the Thames.
In the past decade, Thames Water have also paid out nearly £2 billion worth of dividends while paying little Corporation Tax due to the use of subsidiaries in the Cayman Islands.
Response from Ofwat
Rachel Fletcher, chief executive at Ofwat has said that a dividend cap was not currently being considered, not is any direct action on curbing executive pay.
She said that Ofwat would require water companies to provide more public information on things like executive pay and dividend pay outs, rather than bringing in new rules to control these issues.
What do you think of Gove’s warnings? Should Ofwat step in and bring more controls in? Let us know your thoughts in the comments.