Archbishop of Canterbury urges curb on water company shareholder payouts

The Rt Rev Justin Welby argued that shareholders have made ‘extraordinary returns’ by way of ‘financial engineering’.

The Archbishop of Canterbury the Rt Rev Justin Welby argued that shareholders of water companies had made ‘extraordinary returns’ (Andrew Matthews/ PA credit) (PA Wire)

The Archbishop of Canterbury has called for limits on dividend payouts for shareholders of water companies and for utilities to be run “for their customers”.

The Rt Rev Justin Welby argued that shareholders of Thames Water and others have made “extraordinary returns” by way of “financial engineering” – using mathematical techniques to solve financial problems.

He urged the new Labour Government to put in place measures to curb this practice.

The Archbishop told the House of Lords: “The shareholders of Thames Water and others have made extraordinary returns by financial engineering well in excess of what one would expect to make from a utility, which should be low risk and low reward.

“In looking at the future structure, is the Government going to put in place measures to prevent the over-return to shareholders by means of financial engineering and limit the upside so that utilities are run, basically, for their customers and not simply for those who got them for short-term gain?”

All water companies are using financial engineering to overstate their investment and capacity to pay dividends

Baroness Blower

His comments came after Labour peer Baroness Blower claimed that all water companies are using a “highly imprudent” method of financial engineering.

She said: “All water companies are using financial engineering to overstate their investment and capacity to pay dividends.

“They all capitalise part of their interest payments, which is frankly a highly imprudent policy and was a major reason for the collapse of Carillion.”

Baroness Hayman of Ullock, minister in the Department for Environment, Food and Rural Affairs (Defra), said the archbishop made an “extremely good point”.

She said: “There are clearly serious problems in the water industry that have been building up for a number of years.

“We are looking at all options and ways forward to improve the situation and, clearly, modelling how companies operate will be part of those discussions.”

Lady Hayman added: “The problem is, we should have had firm action from Government to ensure that there was action taken much earlier to make sure that money was actually spent properly on fixing the system, rather than paying dividends and bonuses to company shareholders and actually not looking at how the company was being financially operated in a way that works for both customers and for the environment.”