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Water industry operates in `tax-free zone'

Labour yesterday renewed its assault on the privatised water companies, claiming that new figures released by the industry watchdog Ofwat revealed that they paid virtually no mainstream corporation tax on their core activities last year, writes Michael Harrison.

Describing the industry as a "tax-free zone", Frank Dobson the party's environment spokesman, said that despite making pounds 11bn in profits and paying out pounds 3.5bn in dividends to shareholders since privatisation, the 10 water companies had paid almost no tax.

According to Mr Dobson, the Ofwat data released to Labour show that eight of the 10 had paid no mainstream corporation tax at all on their core water and sewage businesses. Three of these - Severn Trent, Southern Water and Welsh Water - had made a negative tax contribution by offsetting their core activities against the overall tax liability of the parent company.

Mr Dobson said this was the sixth year since privatisation that the companies had paid virtually no mainstream corporation tax. "The Tory tax-free zone for the water industry just goes on and on," he added. "This all flows from the personal actions taken by John Major. He was the Chancellor who saw to it that when they were privatised the water companies had pounds 5bn of debts owed to the taxpayer written off. At the same time he also gave the newly privatised companies a further pounds 1.5bn cash gift from the taxpayer."

If that was not enough, he gave them tax breaks on pounds 7.7bn of investment made at a time when the industry was still publicly owned, Mr Dobson added.

According to Labour, the only two companies which have paid corporation tax since privatisation are Northumbrian Water and South West Water with payments totalling pounds 16m. However, they did not break down how much of this was advance corporation tax which could be offset at a later date against future tax bills.