Should the water companies be nationalised?

Preamble

The Labour shadow Chancellor has advocated the nationalisation of the UK water companies. It has been suggested that this would harm the income of pension funds, but this has proved difficult to assess.

However, there is no uniformity in their debt structures, but most are conceived to avoid tax. The interest on debt bonds is free of withholding tax and financial costs are set against operating profits to avoid paying corporation tax, in some cases gaining tax credits.

Nationalisation would mean that the bondholders interest would be paid less the withholding tax as this should rightly be payable to the tax gatherer. Changes to the prospectuses would require negotiation

The water companies exhibit five differing ownership profiles. See Appendix 1.

Of the biggest ten, three are UK plcs with listed shares some of which could be held by pension funds.

Two are wholly owned by Hong Kong and Malaysian companies.
Three are wholly owned in Jersey.
One is a UK owned private company with offshore companies.
One is presumably owned by its consumers - a company limited by guarantee.

Recommendations

 

United Utilities, Pennon and Severn Water plcs as far as can be found are without offshore companies and should be left as they are.
 
Northumbrian Water and Wessex Water are owned in Hong Kong and Malaysia and it would discourage inward investment if nationalised. It is however, doubtful if foreign ownership of vital infrastructure is desirable.

Anglian Water, Southern Water and Yorkshire Water are wholly owned in Jersey and should be repatriated.
 
Thames Water with its association with state-aided and backed Tideway is probably the most desirable candidate for nationalisation. 
 
Welsh Water should close its Cayman Islands' finance company, but otherwise be left alone.

With the diversity of company profiles the nationalisation of the ten biggest would be an enormous task for an overloaded administration and should be restricted to just Thames Water. The Tideway tunneling will inevitably run into delays with consequent excessive overcosts and require state intervention, so it might as well be subject to nationalisation before it has to be so.

Appendix 1

Analysis

The annual returns and reports of the ten biggest water companies have been analysed to list their pension fund equity holdings and their tax haven contents.

Anglian Water 

Anglian Water Group Limited Jersey

Canada Pension Plan Investment Board 33% of 1096m

Anglian Water Services Overseas Holdings Limited in Cayman Islands

Dwr Cymru (Welsh Water)

Glas Cymru a company limited by guarantee owns Dwr Cymru - WelshWater

Dwr Cymru (Financing) Limited in Cayman Islands

Northumbrian Water

CK Hutchinson Holdings and Li Ka Shing Foundation Limited Hong Kong

Cheung Kong Infrastructure Holdings Limited Bermuda

Severn Trent

Severn Trent plc 236m

South West

Pennon Group plc         171m capital

Southern Water

Greensands Holding Limited Jersey

Lothian Pension Fund                1.2% of 926m

Falkirk Council Pension Fund   0.39% of 926m

Southern Water Services (Finance) Limited Cayman Islands

Thames Water

Kemble Water Holdings Limited   ca. 2 Billion capital

Stichting Pensieonfonds Zorg en Weltzin  43m

Stichting Pensieonfonds ABP                     86.5m

BT Pension Fund                                        260m

Thames Water Utilities Cayman Finance Holdings Limited Cayman Islands

Thames Water Utilities Cayman Finance Limited Cayman Islands

United Utilities

United Utilities plc    ca.500m capital

Wessex Water

YTL Corporation Malaysia

Ytl Utilities Limited Cayman Islands

Yorkshire Water

Kelda Holdings Limited Jersey

Gateway USA 53%; Singapore 26%; Luxembourg 21% of 621m

John Busby 8 May 2019