Osborne-created tax loophole diddles the UK out of hundreds of millions

A tax avoidance loophole specially created by George Osborne, the UK Chancellor, last year means that water companies have played the system to reduce their tax bills to a trickle.

Some people just don’t know when it’s time to do the right thing.

Look at the three water companies that are paying practically no tax on their huge profits, while yanking up prices every year according to the retail price index and enjoying a monopoly in their areas – according to today’s report in The Observer.

Thames Water avoids tax by offsetting the interest payments on its debts against its tax liability and delaying it by claiming allowances on capital project spending. The company is seeking government support for a £4.1bn project to build a new “super sewer” under the Thames.

Anglian lent £1,609.1m to a subsidiary company in the Cayman Islands tax haven in 2002. This year it was able to pay £478.1m in equity dividends to investors, including its subsidiary in the tax haven.

Yorkshire Water also increased the debt on its books recently, which offsets tax payments.

In other words, all three were able to exploit a new tax loophole, created by George Osborne last year – that’s right, the Chancellor who is supposedly trying to stop tax avoidance has actually been creating more ways for big business to achieve it – to pay as little tax as possible.

In my article last Monday, I highlighted changes to the tax laws, brought in by Gideon, I mean Mr 0, that mean companies in the UK pay nothing at all on money made by their foreign branches and may claim the expense of funding those foreign branches against tax paid in the UK. That is exactly what Anglian and Yorkshire are doing, according to the Observer report.

Without knowing where the Thames debt is based, it’s hard to say for certain whether it falls into this category of tax avoidance.

Thames made an operating profit of £650 million last year, and Anglia’s was £492, while Yorkshire’s was £303 million. With Corporation Tax at 26 per cent (they should all pay the higher rate), this means the Treasury failed to collect nearly £376 million from the three companies.

The amount lost to the Treasury from these three companies alone would pay off three-quarters of what the government hopes to take away from people currently on council tax benefit, when local authorities implement their new council tax relief schemes – the ‘Pickles Poll Tax’ – in accordance with Eric Pickles’ Localism Act, next April.

Both Thames and Anglian told The Observer their tax was merely being deferred, and they would have to pay it in full at a later date. Yorkshire declined to comment.

My problem with this is that the UK is in deficit difficulties NOW. We need everybody’s tax money NOW. Not later. By exploiting a loophole in the tax system that the Chancellor irresponsibly created, they – AND HE – are extending the problem.

The absence of any significant tax bills means Thames and Anglian were able to pay out dividends totalling £1.5881 billion. I don’t have the figures for Yorkshire. Ask yourself how many of those shareholders have tax avoidance schemes of their own.

Meanwhile, those of us on PAYE have to pay the full amounts of our tax bills – and our utility bills – no matter what harm they do to our household finances. There can be no deferrals for the working-class citizen!

And what help do our bloated water companies give us?

A drop in the ocean.

9 thoughts on “Osborne-created tax loophole diddles the UK out of hundreds of millions

  1. Steve CK

    Given that water companies have been stripped of virtually all their legal debt recovery teeth, it would be most interesting to see what happened if we then stopped paying them. What goes around comes around!

    1. Mike Sivier

      I heard about this. Trouble is, they’d probably just say, “Fine. We’ll stop maintaining the system and you can all have water with rust in it.” Or something similar.
      You’re right; the system only works with consent. The fear is that, if we withdraw consent, then rather than change the system, those who run it would rather let it crash altogether. It’s irresponsible, but then, have you seen any evidence of responsibility from the government and big business in the last two and a half years?

      1. Steve CK

        Hmm, good point. And interestingly, seeing as the bastards shouldn’t be there in the first place, might it be an ‘interesting’ way to force re-nationalisation of the water board? Not that we need such public expenditure with a huge deficit to pay off. Although, if said water companies did ‘abandon their posts’ I bet they’d be due no recompense from UK Plc, there must be legal responsibilities built into their licensing. Would be interesting to see what it was.

    2. techsolver

      “Not that we need such public expenditure with a huge deficit to pay of” The privatised companies are making billions in profit- why shouldn’t a re-nationalised water board do the same, but use the profits to reduce our bills?

  2. Thomas G Clark

    Another great blog post. The only slight quibble is that you claim that Osborne “irresponsibly” created this loophole. I say that he did it quite deliberately and maliciously. This is not the only multi-billion loophole he’s created to benefit (nominally) British corporations.

    He’s got his eye on some very lucrative kickbacks once this shitparade of a government is hoofed out.

  3. sven

    He ‘Osbourne’, could only be irresponsible if his allegiance was questionable, these benefits are not designed for you or I. Thomas G Clarke is correct, Osbourne did it quite deliberately and maliciously.

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