Down The Drain

Tamara Cohen writes:

Four million pounds in bonuses have been paid to the directors of water firms – despite their failure to repair leaks which allow 300 million gallons to be lost every day. All but one of the companies, which today brought in hosepipe bans for 20million customers, handed rewards to their board members in the last financial year. These include £2million for three executives at Britain's largest water supplier Thames Water, whose highest paid director, understood to be chief executive Martin Baggs, took home £1.67million in 2010/11. More than £1million was paid out by Anglian Water and more than £400,000 by Southern Water, even though both failed to meet their leakage targets last year.

The daily loss of 300million gallons – enough to service the needs of 11million consumers – has made a big contribution to the water shortage. The Mail can also reveal that an astonishing £500million was paid to the water companies' mainly foreign shareholders for the six months to September 2011 – when drought was already blighting the East of England. Critics say this money could have been better spent fixing Britain's fragile pipe network.

Almost £300million was paid to investors in Anglian Water, owned by a Canadian and Australian-led consortium, £179.5million by Thames Water, which is majority owned by Australian bank Macquarie, and £16million by South East Water owned by a Canadian company. Sutton and East Surrey Water, owned by Deutsche Bank, paid out £2.65million to shareholders. Veolia and Southern Water did not pay dividends in that period.

The payouts will infuriate customers who are banned from using hosepipes for gardening, cleaning or paddling pools from today by seven firms – the most extensive ban since the drought of 1976. Companies have blamed the restrictions on chronically low rainfall for the past two years. Anyone caught breaching the ban faces a £1,000 fine. Labour's water spokesman Gavin Shuker said: 'On the day millions are made the subject of a hosepipe ban, in the week of inflation-busting price rises, customers will find these bonus payments hard to swallow.'

Both David Cameron and Business Secretary Vince Cable have recently spoken out about bonuses. Mr Cameron said 'everybody' had to do a better job at 'explaining how pay is linked to performance.' Bonuses and shareholder dividends for the financial year 2011/12 which ends this week, will be announced by water companies in June. Their profits have soared since privatisation in 1989 as a string of financial conglomerates have bought and sold the utilities in quick succession. Anglian Water – which serves 5million customers in one of the worst-hit drought areas – announced profits of £709million last year. This was around double the 2008 figure. Thames was bought by the Australian firm Kemble Water after a disastrous few years under German firm RWE which bought the company for £4.8billion in 2000, and sold it for around £8billion six years later.

Water companies have stressed that an hour using a hosepipe wastes the same amount of water a family of four uses in a week, and that savings now will prevent further restrictions later in the year. A Thames Water spokesman said half of £1.98million bonuses were incentive plans from previous years only paid if the directors meet tough financial targets. He added the company invests £1billion a year in improving pipes, sewers and other facilities. Anglian has not banned hosepipes for 20 years. South East Water said it had to pay a reasonable return to investors who had helped fund improvements to its water supply infrastructure. Restrictions are likely to last all summer, even if there is rain in the affected areas. Winter rainfall, as low as 40 per cent of the average in some areas, has left reservoirs and rivers low.

Nick Ellins, of industry body Water UK, said: 'Water companies are required to meet their customers' needs and statutory obligations efficiently, within price limits set by a regulator. They also have to ensure that they win their investors' confidence, by delivering a fair return on the investments made.'