Thames Water defends tax credit after £259m profit

Once again the London utility paid no corporation tax despite making a pre-tax profit of £259 million

Thames Water’s profits climbed 79 per cent last year but once again the London utility paid no corporation tax despite making a pre-tax profit of £259 million.

In fact, Thames — which raised customer bills earlier this year — received a tax credit of £87.4 million, up from a credit of £5.1 million, for the year to the end of March.

Finance director Stuart Siddall defended the continuing lack of tax paid by Thames saying: “Our capital spending was running at £1 billion last year and will rise to £1.4 billion this year.

"We also, as a sector, reached agreement with HMRC that concrete water tanks attract capital allowances.”

He pointed out that the biggest tax credit, of £132 million, reflected the Government’s reduction in corporation tax from 23 per cent to 20 per cent which meant the amount the company will eventually pay on previously deferred tax will be less than it orginally provided.

Under the regulator Ofwat’s rules, Siddall said tax credit should help to cut customers’ bills in the future.

“Last year I said we were unlikely to pay any corporation tax for around 10 years,” Siddall said. “It might be more like six or seven years now.”

He added that Thames does not receive a cheque or refund from HMRC for any of these tax credits and will eventually start paying deferred tax.

In the past MPs, unions and the regulator, Ofwat, have criticised Thames for the way in which it avoids paying tax.

Thames revenues rose by an inflation-busting 8.5 per cent to £1.95 billion last year which its chairman, Sir Peter Mason, said was “largely driven by increased prices.”

Thames raised prices by 3.4 per cent in April having had an application for an 8 per cent rise rejected by Ofwat.

Pre-tax profits rose from £144.9 million to £259.3 million. Almost half that  £114 million increase came from a sharp reduction in bad debts.

Siddall said: “Bad-debt provisions dropped from £113 million to £60 million largely because we had to make extra catch-up provisioning in the previous year as the recession took hold.”

Mason said: “We have been subject to significant media attention and scrutiny focusing on our financial structure, levels of infrastructure investment and taxes. We are committed to being straightforward and transparent in all aspects of our operations.”

Thames’ 17 shareholders — a mix of pension funds, institutions and sovereign wealth funds — received £100 million in dividends and interest payments, up from £92 million last year.