Time to admit that privatisation of national utilities isn’t working?

Germanshepherdsmum

You can make profits whilst having large debts Nandalot. Many profitable companies are highly geared.

I genuinely don’t understand that GSM.

Can anybody explain it to me. Not politically but economically.

Shouldn’t dents be paid off before assessing profi or at least held in a balancing account?

Because they haven’t made that profit if there is money owing?🤔

Profit is excess of income over expenditure. Whether a company has taken on debt is irrelevant. If debts had to be paid off before profits could be declared, or the money required to pay off debts had to be held in a suspense account, you do realise that businesses who take on debt would never make a profit and would quickly cease to exist, don’t you? I don’t think you realise just how vital external finance is to the running of any sizeable business - from the humble bank loan to sale of shares to very sophisticated arrangements involving huge sums of money.

I could liken it to someone telling you that you mustn’t spend any money at all until you have repaid your mortgage - you’d very quickly die from starvation.

I’m not dying the money should be in a suspense account but shouldn’t the debt appear on the debit side of the final accounts.

Surely the calculation of profit can’t be true if there is unpaid debt.

Final accounts should show assets and debts surely to give a true picture of profits.

dying =saying😬

Germanshepherdsmum

I don’t need a lecture on the British constitution Grantanow. You know full well how difficult it is to get a controversial Bill passed. The Parliament Act has been used only four times - its use is the British equivalent of ‘doing a Macron’. That didn’t end well, did it?

On the contrary, the use of the Parliament Act was effective in each case. Macron is quite irrelevant. There have been many controversial Bills passed by Parliament. Whether it's difficult or not is beside the point - it can be done.

Debts do show on balance sheets unless they are of the ‘off balance sheet’ variety. As I said, profit is excess of income over expenditure. Debts are not relevant to the calculation. Very simply, a company has income of £1m and has spent £500k. It has to pay tax of £100k. It therefore has made a profit of £400k. It has debts of £500k but is up to date with the agreed repayment schedule. Applying your argument would render it insolvent so it would have to cease trading. Tough on the employees.

Casdon I meant Ireland. It was reference to vegansrock saying water in Ireland was free and not charged to each consumer.

let me post a cliche

Why should rich people with swimming pools, jaccuzzis, huge gardens to water get their water free?

This is the result of not charging for water. Indeed, I would suggest that if water was free there would be an immense waste of water, the idea that everyone in this country would be altruistic and self sacrificing and always use as little water as possible. Even among those on low incomes, taps would be left on, gardens watered, leaks not repaired.

On the other hand, it would be possible to allow every conumer a certain allowance of water that is not charged and there could be extra allowances for those on a disability benefit, but after that we should all pay.

Mmm, I think I get what you’re saying about debts don’t count on the balance sheet for tax purposes.

I don’t think I really see how it works in terms of payouts to shareholders though. I mean they get money that isn’t really there, I think.

Surely it means that it’s very easy for a Board to borrow enormous sums to make it look as if a business is really profitable when, in reality, it is insolvent. Then they make big dividend and bonus payments and go bust.

That’s tough on their suppliers who are at the bottom of the insolvency queue.

Lathyrus

How it works is based on the nature of how Thames Water, and other utilities are owned

Thames Water has only huge sovereign funds and very large pension schemes investing in it. There are no small or diverse share holders. You will find its investor profile in my email on page 2. You may find it enlightening.

The entities lending money to TW are its main shareholders. Now given nearly all of the owners are organisations who want income, almost more than capital growth, no tax is charged on debt interest, where it will be charged on dividends. So it is much better to get your income from debt. Debt interst also has to be paid, whether the ocmpany is profitable or not, so it is a good steady income, largely unaffected by the ups and downs of the company itself.

Obviously, if the company reaches a stage where it cannot operate profitably long term, and short term debt (to banks etc) is building up, then, of course, the debt holders are in trouble.

But in most cases this isn't the case. But generally, the aim of the kind of entities that own companies likeThames Water, like debt interest because it is a steady amount coming in every year, that they do not pay tax on - and if you are a pension fund with pensions to pay out, month on month, year on year, that has a lot to recommend it.

M0nica

Casdon I meant Ireland. It was reference to vegansrock saying water in Ireland was free and not charged to each consumer.

I was referring to the bit where you said ‘In the UK, where water is scarce’ Monica not about Ireland. My point was that not all of the UK is short of water, but we need to build more reservoirs to cope with the demand as the climate changes.
I have family in WA, and all their water supply for the whole state comes from desalination plants. I don’t know if any of the water companies in the UK are looking at that yet, but as an island nation we are never going to be short of water one way or another provided the investment is made.

Casdon Every UK nation has its pinchpoints in water supply, either because of sudden large growths in populations or areas dependent on old and decaying infrastructure that cannot meet local needs.

Overall England is in water deficit and the aquifers have run very low.

However the question is how much water will cost, desalination is a very very expensive way to produce fresh water and the energy requirement is high, so while some may be built, they will be used intermittently rather than all the time because of the cost.

I live somewhere where Thames Water wants to build a reservoir, one of the largest in Europe, that would virtually eliminate the parish. It is a huge embanked reservoir and the tecchnical and safety issues are frightening.

The reason Thames Water wants to build it is because it will require the company to borrow the money needed to build it, which will, of course provide a steady stream of tax free income to those lending the money. I wonder who they will be?

Another viable scheme that would meet the need the reservvoir would serve, has been put forward to transfer water from the river Severn, but this of course is a much cheaper, simpler option, and not what Thames Water wants, I wonder why?

You’re right Monica, but investment in the infrastructure and building new reservoirs, desalination plants, or whatever else it’s going to take has to happen. The solutions are there, we just need the money, the plans, and the action to sort it out.

I do get the idea that the right wing want privatised profits and nationalised debts.

Lathyrus

Mmm, I think I get what you’re saying about debts don’t count on the balance sheet for tax purposes.

I don’t think I really see how it works in terms of payouts to shareholders though. I mean they get money that isn’t really there, I think.

Surely it means that it’s very easy for a Board to borrow enormous sums to make it look as if a business is really profitable when, in reality, it is insolvent. Then they make big dividend and bonus payments and go bust.

That’s tough on their suppliers who are at the bottom of the insolvency queue.

I own shares. The companies in question have debt or they wouldn’t be in business, just as you wouldn’t be able to buy a house without a mortgage unless you were filthy rich. The companies make profits and pay me dividends (if you like, interest on the money I have invested in them) out of those profits - real money. I hope the value of the shares will increase but there is no guarantee of that, and I will have to pay tax on any increase in value if I sell them. I really don’t understand your problem with this.

Lenders will scrutinise balance sheets and business plans before lending. None of the familiar big high street shops would exist without external finance - debt.

Actually shareholders are at the bottom of the heap if a company goes under and may not have recouped their original investment through dividends. Lenders have means of securing their positions. Suppliers will often have a retention of title clause in their contracts, enabling them to get supplies returned.

M0nica

let me post a cliche

Why should rich people with swimming pools, jaccuzzis, huge gardens to water get their water free?

This is the result of not charging for water. Indeed, I would suggest that if water was free there would be an immense waste of water, the idea that everyone in this country would be altruistic and self sacrificing and always use as little water as possible. Even among those on low incomes, taps would be left on, gardens watered, leaks not repaired.

On the other hand, it would be possible to allow every conumer a certain allowance of water that is not charged and there could be extra allowances for those on a disability benefit, but after that we should all pay.

I agree in part MOnica, and would add businesses to that list. I would however remove jacuzzis because they are simply baths which use no more water than a normal bath - I have one.

Giving all consumers a basic free amount of water would require every property to be metered. An extra allowance for disabled people would mean an additional level of administration and therefore cost - imagine monitoring people who become disabled, disabled people who move or die - why add such additional expense? Totally unnecessary. And to my mind if you allow anyone any water free of charge it would encourage waste. We should all pay for what we use.

Cadon The point I am making is not that investment shouldn't take place, but often the companies are deliberately choosing expensive projects over cheaper just as effective ones because they can put the money into the company and then draw their income as debt interest that is untaxed and pays out whether the company is profitable or not.

Companies like TW just have a handful of big shareholders, who manipulate the finances of the company to benefit them with scant regard to its customers.

As I said, they are at the moment planning a huge and potentially dangerous reservoir in my area because it costs a lot of money and they can load the company with debt and draw the interest, rather than a better scheme, that can be implemented more quickly, but will cost much less.

Thank you GSM and Monica for taking the time to explain to me.

I fear it is beyond me😬 Especially the bit about income from debt and lending to yourself.

I’d still have the row of cocoa tins on the mantelpiece if it was up to me😬 But thank you once again💐

M0nica

Cadon The point I am making is not that investment shouldn't take place, but often the companies are deliberately choosing expensive projects over cheaper just as effective ones because they can put the money into the company and then draw their income as debt interest that is untaxed and pays out whether the company is profitable or not.

Companies like TW just have a handful of big shareholders, who manipulate the finances of the company to benefit them with scant regard to its customers.

As I said, they are at the moment planning a huge and potentially dangerous reservoir in my area because it costs a lot of money and they can load the company with debt and draw the interest, rather than a better scheme, that can be implemented more quickly, but will cost much less.

I do take your point Monica. Villages in Wales have been lost in the past to make way for reservoirs, and I’m sympathetic to the impact it has on communities. I would have guessed that the alternative of drawing water from the Severn would impact on the Severn Barrage proposals, which would potentially affect the viability of the tidal power scheme?
Whatever happens has impacts, but I think we’re in agreement that there needs to be a clear plan to get us out of the growing hole. I have read today that other water companies are not far off the same position as Thames Water either.

I probably haven’t done a good job Lathyrus. Very simply, if you have a mortgage or a bank loan for a car or home improvements, so long as you make your repayments on time over whatever period was agreed you are fine and can spend the rest of your money as you wish. So is a company which has borrowed money, let’s say from a bank. It makes the repayments to the bank when they fail due,just like your mortgage or bank loan repayments, and if after making those payments it makes more money from whatever it does (making and selling widgets for example) than it is spending, that money is its profit. It has to make provision for tax but after that if there is money left over it can pay shareholders a dividend out of it. It might not be much depending on how good the profits are - some years I haven’t had dividends. And the shareholders hope that over time their shares are worth more than they paid for them (sometimes they’re not).

I hope that isn’t patronising. That isn’t my intention. There are things I don’t understand and people can try to explain them to me till the cows come home but I have some sort of mental block that stops it getting through - mainly anything involving maths and maps (I have no sense of direction, thank goodness for the satnav)! 😊

PS and the company would mention the loan from the bank on its balance sheet just as you would have to disclose your mortgage or bank loan if you applied to borrow more money. 😊

Germanshepherdsmum

Lathyrus

Mmm, I think I get what you’re saying about debts don’t count on the balance sheet for tax purposes.

I don’t think I really see how it works in terms of payouts to shareholders though. I mean they get money that isn’t really there, I think.

Surely it means that it’s very easy for a Board to borrow enormous sums to make it look as if a business is really profitable when, in reality, it is insolvent. Then they make big dividend and bonus payments and go bust.

That’s tough on their suppliers who are at the bottom of the insolvency queue.

I own shares. The companies in question have debt or they wouldn’t be in business, just as you wouldn’t be able to buy a house without a mortgage unless you were filthy rich. The companies make profits and pay me dividends (if you like, interest on the money I have invested in them) out of those profits - real money. I hope the value of the shares will increase but there is no guarantee of that, and I will have to pay tax on any increase in value if I sell them. I really don’t understand your problem with this.

Lenders will scrutinise balance sheets and business plans before lending. None of the familiar big high street shops would exist without external finance - debt.

Actually shareholders are at the bottom of the heap if a company goes under and may not have recouped their original investment through dividends. Lenders have means of securing their positions. Suppliers will often have a retention of title clause in their contracts, enabling them to get supplies returned.

Many people may be in receipt of private pensions, endowments, stocks and shares ISAs, all of which are invested in shares, not directly owned but run by Fund Managers. All those people are receiving money from dividends in one way or another.

Missed out have invested in - endowments, stocks and shares ISAs

M0nica Setting aside those with a need for a lot of water, because their families are large, disabled or incontinent and they are on UC. At the other end of the spectrum there are those with swimming pools, or large paddling pools, emptied and refilled every day, or who spent hours everyday watering their gardens with sprinklers to keep the grass perfect.

When water is a scarce commodity that needs to be used carefully. The best way to do this is to make some charge for water.

Of course we should pay for water, pay proportionate to cover use.

However "swimming pools, or large paddling pools, emptied and refilled every day" -- really, not emptied, in my world, except once seasonally for large paddling pools, every few years for swimming pools.

Daily maintenance required.