Ben Chu: Wading through Thames' muddy waters

Outlook If Thames Water's product was as opaque as its accounts Londoners wouldn't relish turning on their taps.

Dive into those financial statements this week and one discovers 2012/13 revenues of £1.79bn, costs of £1.24bn and an operating profit of £549m. But this operating profit is eroded by interest payments on a large loan from two financing companies, one of them based in the Cayman Islands, leaving a taxable profit of just £150m. And the corporation tax payable on this surplus is entirely offset by capital investment allowances.

But what about those loans? The chairman of the water regulator, Jonson Cox, has warned that some water companies are using high-coupon intra-company loans to reduce their tax bills. Is Thames Water one of them? Good luck finding out. There are not only the two finance companies to investigate to get an answer but also a long ladder of parent companies. There are 11 companies in total in the "Thames Water Utilities Financing Group". What purpose does this morass of financial engineering serve, if not to avoid tax and obscure the public's view of what is taking place? If Mr Cox wants to reform the industry, he should start by insisting the utility firms' accounts are as transparent as the stuff coming out of the taps.