Anglian Water pledges to fight windfall tax

Anglian Water yesterday intensified the attack by the privatised utilities on Labour's proposed windfall tax, pledging to mount a legal challenge to the policy should the party win power in the next election.

Alan Smith, Anglian's group managing director, described the tax as iniquitous and claimed the privatised water firms did not have enough surplus cash to fund it. Anglian is believed to have instructed lawyers to examine Labour's outline proposals in more detail, though Mr Smith admitted many aspects of the policy were still unknown.

"We are doing our homework in trying to understand what the legal position might be. If it is not legal in our view, or if we believe it's in breach of European law, then we would certainly consider going to court," he said.

The comments are the toughest so far by one of the privatised water companies and are markedly stronger than recent opposition to the tax voiced by Thames Water. However, John Devaney, executive chairman of Eastern Group, the regional electricity company owned by Hanson, has previously argued that any responsible board of directors would be obliged to challenge the tax's legality.

Mr Smith made the comments as Anglian unveiled a modest 5.5 per cent rise in half yearly profits to pounds 132.7m and said it would invest a further pounds 34m in improving water distribution.

The company raised its interim dividend payout, all of which comes from profits in the core regulated water and sewerage businesses, by 14.6 per cent to 10.2p. However this was lower than the 22 per cent dividend increase announced by Thames Water last month.

Anglian also raised the possibility of further job losses in addition to almost 900 so far.

Losses at the company's unregulated contracting and engineering businesses rose from pounds 4.5m to pounds 6.5m between April and September because of extra cash spent on marketing activities.

Anglian has already said it intends to raise its marketing spending to pounds 6m a year, but yesterday admitted these businesses would not make profits until the next century.

The disclosure came as a surprise to City water analysts. Shares in Anglian fell 11.5p to 547.5p.