Water firms receive £100 million tax cut last year despite sewage scandal

EMBARGO: EMBARGOED FOR 00.01 WEDNESDAY 30th AUGUST 

• 10 water firms paid no tax last year despite paying out £1bn in dividends 

• Rishi Sunak’s flagship policy directly leads to water firms getting taxpayer money without investing to stop leaks - with accusations of “Sunak’s Sewage Tax Cut”

• Liberal Dem Leader calls for HMRC investigation into water firms tax receipts 

• Evidence suggests “taxpayers now subsiding water firm bonuses for CEOs and overseas owners” 

New research commissioned by the Liberal Democrats has revealed water firms received almost £97.1 million in tax rebates last year after the government slashed taxes on the industry. 

It comes after the government announced proposals to scrap “nutrient neutrality” rules that protect against water pollution. 

The largest tax rebate reported was to Northumbrian Water, amounting to a staggering £21.9 million. The firm credited Rishi Sunak’s 2021 flagship “super deduction” policy, which allowed businesses to claim rebates worth 130% of investment. Whilst this policy was meant to incentivise business investment, an investigation by the Liberal Democrats has revealed water firms increased their dividends and executive salaries this year, all whilst still discharging sewage into swimming areas. 

As a result of the policy, Northumbrian Water paid no tax into the exchequer. Before Sunak’s tax cut, Northumbrian Water did pay tax.

The tax cut appears to have aided the firm in increasing their payout to overseas owners in Hong-Kong and New York, with a £105 million dividend this year. Meanwhile, their CEO earned £648,000 in salary and bonuses, whilst the firm pumped sewage into waterways for a staggering 107,536 hours in 2022.

The new analysis of Companies House records and financial reporting has also revealed 10 water firms paid no tax at all in 2022/2023. A stark increase since 2021/2022, when just one firm paid no tax. This highlights how the firms were able to take advantage of Rishi Sunak’s tax break, without delivering enough investment to stop sewage discharges. 

Some of the other firms found to have paid no tax last year and benefit from the tax cut include South West Water, known for pumping sewage onto beaches in Devon and Cornwall and Wessex Water which pollutes rivers across Somerset. Both firms received tax rebates approaching £20 million. 

The revelations have been labelled the “Sunak Sewage Tax Cut”. Whilst water firms have benefited from Sunak’s tax cut, they have paid out £1bn in dividends to their owners, many of which are overseas shareholders. Last year, it was reported that water firms even borrowed money to shell out large dividends, loading unnecessary debt onto their books and reducing investment funds. 

In March this year, the House of Lords Industry and Regulators Committee published a report that said that “levels of investment have not risen to match” the demands of “population growth, property development and climate change”, leaving “a network unable to cope, and which relies on releasing polluted water into the environment.”

They also said that this underinvestment means the UK lacks “appropriate plans and infrastructure to deal with future demand, and the loss of billions of litres of water to leakage every day.”

Lib Dem Leader Ed Davey said: 

“This is a bombshell revelation which will shock the British public. Sunak’s Sewage Tax cut will leave a bad taste in the mouth for all those impacted by dirty rivers and beaches. To make matters worse the government is scrapping protections against water pollution in our rivers. 

“The Conservative government has openly allowed polluting water firms to get their hands on taxpayer money worth tens of millions despite failing to end the sewage crisis. Worst still, they are even making money off the tax cut, which appears to be funnelled to overseas investors and greedy CEOs. 

“Taxpayers are now effectively subsidising water firm bonuses for CEOs and overseas owners.

“There needs to be an urgent and independent investigation by HMRC into water firms pocketing these tax cuts. Most of all, we need this industry ripped up and reformed from top to bottom.”

ENDS

Notes to Editor:

Northumbrian Water boosts dividends to shareholders - Business Live

Ofwat tracks dividend payments as part of its annual monitoring financial resilience reports. According to Ofwat, water companies paid just over £1 billion in dividends in FY 2021/22.

The House of Commons Library provided figures using Fame, a business information database, based on each company’s filings with Companies House. The figures marked with an asterisk are taken from published annual reports instead and should be treated as provisional.