Thames Water: the drip, drip, drip of discontent

http://www.theguardian.com/commentisfree/2014/jun/15/thames-water-discontent-privatisation

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Has anyone seen Sid? In the winter of 1986, his name haunted almost every ad break. "Tell Sid," actors would urge each other, with varying degrees of stiltedness, as they plotted how to cash in on the sale of publicly owned British Gas. It became the catchphrase for the first wave of privatisations, that era bursting with promises of a prosperous share-owning democracy and record investment in essential public services. And unlike last year's sale of Royal Mail, it was just about possible back then to believe they really meant it.

I wonder what Sid would have made of last week's results from Thames Water. Here, surely, was proof that Thatcher was right: Britain's largest water firm is still enjoying bumper profits after 25 years in private hands.

Yet had Sid taken a punt on Thames in 1989, he would long ago have been bought out – the company is now in the hands of a private consortium, led by Australian bank Macquarie (once dubbed "the Millionaires' Factory"). If Sid had been a Thames employee, chances are he would long ago have been laid off: its headcount has fallen by two-thirds. And were he a customer, he would have been lumbered with a monopoly service with a dismal track record – and which year after year has lobbied to get captive households to stump up for major improvements, while shovelling hundreds of millions into the pockets of a small group of largely foreign investors.

Margaret Thatcher and her lieutenants pledged a future of dynamic, efficient private managers rebuilding a dilapidated private realm. "The [water] industry is going to benefit from the biggest and most sustained period of investment in its history," proclaimed the then environment secretary Chris Patten on the eve of its sale. But Thames shows the opposite.

Few businesses are more basic than the supply of water. But Thames now doesn't look anything like a water company; it more closely resembles a Russian doll. Holding company sits within holding company sits within holding company: in all, there are five intermediate firms between the business that supplies the water and sorts the sewage and the eventual shareholders. That's before you reach the two subsidiary firms that go out to the markets to raise cash, one of which is naturally based in the tax haven of the Cayman Islands.

Who gains from such a corporate Byzantium? Not regulators and politicians, nor journalists and analysts, because such a layout is the opposite of transparent. But the beneficiaries are identified by John Allen and Michael Pryke at the Open University, who pored over Thames's accounts from 2007 (the first full year after the Macquarie consortium took over) up to 2012. In three of those five years, investors took more dividends out of the business than it raised in profits after tax. Bung in interim payments, and there was only one year in which the consortium of shareholders took less out of the company than it had in post-tax profits. What replaced the profits? In a word: debt, which more than doubled to £7.8bn in that period.

The academics conclude: "A mound of leveraged debt appears to have been used to benefit investors at the expense of households and their rising water bills." Not just investors, mind: those at the top of the business have obviously been cashing in. All the middlemen – lawyers, tax consultants and financiers – associated with the intermediary firms would also have been taking a hefty cut. And in last week's report, Thames chief executive Martin Baggs was revealed to be on a pay package of £1.29m. No wonder staff call him "Moneybaggs".

Over those five years, £1.8bn was extracted in dividends – some handed to shareholders, some used to repay loans. Approached for comment, Thames didn't deny the findings: "Some years dividends exceed the years' profits, sometimes they are less." What has certainly not exceeded expectations is corporation tax: Thames admits it won't pay any for the next six or seven years. Nor has service for Thames' 13m customers been starry. Look at the most recent report from the watchdog, the Consumer Council for Water: Thames is near the bottom of the table for value for money for water, and for sewerage services. The not-for-profit Welsh service, Dwr Cymru ranks at or near the top for everything.

For years, Thames has been talking of the need for a supersewer deep under the capital. Rather than use its own profits, the company has lobbied the regulator Ofwat to allow it to make double-digit percentage rises to household bills. Now that that tactic has failed, managers have come up with another typically complicated wheeze to get someone else to pay for the Thames Tideway – in which the ultimate insurer for the £4bn project will be the British taxpayer.

What this looks like is a public utility that has been turned into a giant piggybank being shaken hard by its owners. Off the record, the workers say as much. "We're a cash cow and they just milk us," one said, and listed the thousands of his colleagues laid off, the plants sold and the increased workloads coupled with worsening pension schemes that for him would mean putting in extra years before retirement. Another said in all the changes of ownership, he no longer had much sense of who ran the company – but he knew that he was being managed: supervisors would monitor his movements through his mobile, his company laptop and his van – even punctures could lead to disciplinaries.

What does all this add up to? A utility once considered boringly safe passed from offshore owner to offshore owner, who have run it for profits first, customers last – and hung billions of pounds of debt around its neck along the way. If you see Sid, tell him he's been mugged.