Meet the water boss whose pay has soared 700%

Meet the water boss whose pay has soared 700%: Firms like his stand accused of extracting vast profits while pumping sewage into our rivers and wasting billions of litres a day

• By his 1990s salary Colin Skellett would have earned £120,000 per year today 
• But last year, the Wessex Water Chief Executive took home a salary of £982,000 

One day in March 1990, a man named Colin Skellett wrote his first-ever letter to shareholders in the newly privatised utility company Wessex Water.

A 44-year-old former engineer who’d just been appointed managing director of the firm, he spoke evangelically of its mission to serve about 2.5 million residents of nearly 4,000 square miles of the West Country.

‘Water services are good value for money,’ the letter read. ‘For about 7p per person per day, Wessex supplies clean drinking water and for a further 9p takes away and cleans dirty water.’

It was the dawn of a new era and Skellett, who’d grown up on a council estate and began his career aged 16 on a Nottingham sewage farm, was a poster boy for a Thatcher-era privatisation programme being rolled out across Britain.

The then government’s sale of ten regional water authorities in England and Wales was supposed to unleash investment and innovation, introduce competition, reduce prices, and drag an antiquated state-run industry into the modern era.

Skellett’s first annual report trumpeted the fact that ‘over 80 per cent of Wessex staff and nearly 60,000 customers’ had purchased shareholdings in the firm, entitling them to benefit from its future success.

Fast forward 33 years and the same Colin Skellett, now 78, remains in charge of Wessex Water. His job title is chief executive

Annual profits were £19.3 million, he wrote, and the board of directors had decided to spend £10.4 million of that paying a dividend of 10p per share. As boss, meanwhile, he’d been earning a salary of about £50,000.

That was then. Fast forward 33 years and the same Colin Skellett, now 78, remains in charge of Wessex Water. His job title is chief executive.

Yet while some things at the firm have stayed the same, others have changed, dramatically. Not least his salary.

Adjusted for inflation, Skellett’s 1990 pay packet would today have seen him earning the princely sum of £120,000 a year. Yet according to the firm’s last set of accounts, published in October, he’s done rather better than that. Last year, he took home £982,000.

To put things another way, the privatisation of Wessex Water has seen the company’s boss increase his real-terms income by more than 700 per cent.

Park this fact, for a while, as you consider the tidal wave of trouble engulfing not just Wessex but pretty much every water company in England and Wales.

Adjusted for inflation, Skellett’s 1990 pay packet would today have seen him earning the princely sum of £120,000 a year

Today, the industry that Skellett so proudly helped found back in 1990 finds its reputation firmly in the gutter — or, perhaps, the sewer — thanks to two different but probably inter-connected scandals.

The first is environmental. It reflects growing public anger over the pollution that has been washing up on our beaches and fouling our rivers in recent years.

In England alone, there were 301,091 sewage discharges last year amounting to more than 1.75 million hours of discharge, according to the Environment Agency. That’s 824 incidents per day.

The second great scandal is financial. It concerns the toxic combination of greed, mismanagement and toothless regulation that, many argue, has turned the water firms into piggy banks for rapacious owners and their overpaid executives.

Many water firms are now in the hands of foreign institutions, billionaires or even offshoots of the Chinese government. Under their reign, critics argue that companies have raised prices, under-invested in infrastructure and extracted vast profits while treating customers with contempt.

Both scandals were highlighted this week by the revelation that ministers are being forced to draw up contingency plans for an emergency rescue of several debt-laden water companies. It comes amid fears that rising interest rates could force them into insolvency.

In particular strife is Thames Water, which is facing a £14 billion debt, after years funnelling colossal payments to foreign investors and millions to top executives.

In England alone, there were 301,091 sewage discharges last year amounting to more than 1.75 million hours of discharge, according to the Environment Agency. That’s 824 incidents per day

READ MORE: Households face biggest surge in water bills in nearly 20 years as average charge is set to soar by 7.5%

Thames boss Sarah Bentley was at the tiller pocketing £2 million as the crisis mounted. She received a £3 million ‘golden hello’ when she arrived in 2020 and picked up bonuses of £727,000. But on Tuesday she suddenly resigned, fuelling speculation over the firm’s future.

The fear is that Thames is simply the first of many. For, between them, the UK’s ten privatised water companies have somehow been allowed to build up a combined debt of about £65 billion over recent decades.

The loans and bonds the firms have issued are secured against their physical assets, including property, land and the water infrastructure itself.

Like all debt, these need to be repaid. And with interest rates soaring (but profits flat), it is suddenly very expensive indeed.

The whole thing is now stoking fears that taxpayers could be soon forced to fund a bailout. Many will, quite understandably consider such a scenario as grotesque. After all, some of the most troubled water companies were — until recently — funnelling huge dividends to their motley array of owners. And plenty of others are still paying them.

So how has it come to this?

Let us return to Wessex Water. It is by no means the worst offender in this blighted industry, or in the most parlous state, yet its history over the past 30 years is a perfect prism through which to examine the looming crisis.

In particular strife is Thames Water, which is facing a £14 billion debt, after years funnelling colossal payments to foreign investors and millions to top executives

Take, for example, Skellett’s income. His 700 per cent pay rise allows him to live, mortgage-free, in a sprawling £3 million limestone mansion on a hillside outside Bath, where the firm has its HQ. (His 40ft swimming pool has sometimes been a source of embarrassment to Wessex Water, which last summer banned ‘non-essential’ water use in a heatwave, telling customers to avoid filling up so much as a paddling pool.)

One of the promises of privatisation, and indeed Thatcherite Conservatism, was that hard-working staff would prosper from the success of their companies.

While Wessex’s boss class has indeed cashed in, its more humble employees have been less fortunate. In 1990, 1,639 of them earned a combined £23.7 million, or an average £14,460 each. Today, 3,146 earn an average of £36,967. That’s an increase of just 9 per cent once inflation is factored in.

To put things another way, where once these galley-slaves took home a third of the top man’s earnings, they each now earn a 26th of it.

Similar discrepancies have become normal across the industry. For example, Severn Trent, which was responsible for 44,765 sewage spills last year, pays CEO Liv Garfield £3.2 million, or 78 times the firm’s average wage of £41,000.

Southern, which has been fined more than £200 million for various environmental crimes in the past three years, paid its last boss, Ian McAuley, £1.4 million a year, including a half million pound bonus (his successor Lawrence Gosden’s salary is unknown). Average wages at the company are £48,500.

Thames boss Sarah Bentley was at the tiller pocketing £2 million as the crisis mounted. She received a £3 million ‘golden hello’ when she arrived in 2020 and picked up bonuses of £727,000

READ MORE: Ten longest sewage discharges of 2022 revealed: Welsh river valley which endured 7,800 hours of dumping tops list of worst offenders

Equally contentious, in this unlovely tale of modern capitalism, is the question of who actually owns Wessex Water.

Originally, a large portion was, of course, controlled by tens of thousands of small shareholders, as that first company report so proudly proclaimed.

Yet Wessex’s noble Thatcherite experiment in mass share ownership ended in 1998, when the Blair government allowed it to be taken over by shady American corporation, Enron. That ended in tears three years later, when the U.S. firm collapsed into bankruptcy amid a $74 billion (£58 billion) false accounting scandal. In the aftermath, Wessex was sold to YTL, a Malaysian conglomerate owned by billionaire Francis Yeoh.

He’s an evangelical Christian whose Twitter feed features Bible quotes, motivational messages, family skiing shots, and selfies with celebrity friends, like Nelson Mandela, Luciano Pavarotti, and ex-U.S. President George H.W. Bush.

Wessex has remained in Yeoh’s hands, forming part of a byzantine network of global firms linked to him.

Today, the water firm presides over 23 subsidiaries and joint ventures, some based in Holland, Germany and Switzerland. In turn, it is controlled by several layers of other firms, including YTL Corporation Berhad and Yeoh Tiong Lay & Sons Holdings Sdn Bhd, both registered in Malaysia.

However Wessex’s online ‘bill calculator’ estimates that a customer with average British annual water consumption of 50 cubic metres a year is now paying about twice as much: 33p a day on water and 37p on sewerage. Prices are set to rise 9 per cent next year, too 

Further up the whole structure sits a firm called Yeoh Tong Lay & Sons Family Holdings Ltd registered in the opaque tax haven of Jersey.

This kind of complex network is par for the course in today’s water industry. Successive governments have sat idly by as a raft of other water firms — vital pieces of our nation’s infrastructure — have been flogged to foreign banks, investment funds and tycoons.

Anglian’s owners, for example, include the Canada Pension Plan Investment Board; Northumbrian is controlled by a Hong Kong billionaire, Li Ka-shing; and Southern is owned by Macquarie, an Australian investment house nicknamed the Vampire Kangaroo.

Another seismic change for Wessex Water — or more specifically its customers — is in bills.

Had charges to customers risen with inflation, the 7p that Skellett boasted Wessex customers were paying daily for water in 1990 would now be 16p, while the 9p for sewage would have risen to 21p.

However Wessex’s online ‘bill calculator’ estimates that a customer with average British annual water consumption of 50 cubic metres a year is now paying about twice as much: 33p a day on water and 37p on sewerage. Prices are set to rise 9 per cent next year, too.

According to fact-checked data used by Labour at the 2018 election, average bills in England and Wales (adjusted for inflation) had by then risen by 40 per cent since privatisation

It’s a similar picture across the country. According to fact-checked data used by Labour at the 2018 election, average bills in England and Wales (adjusted for inflation) had by then risen by 40 per cent since privatisation.

Fourth on the rap sheet are environmental shortcomings.

Wessex was responsible for 21,878 sewage overflows in 2022, according to lobby group Surfers Against Sewage, overflows that lasted 129,957 hours. In June, it was fined £300,000 for supplying water ‘unfit for human consumption’ in Wiltshire. In March last year, it was named as being under investigation by regulator Ofwat amid ‘serious concerns’ that its waste treatment plants are failing to meet environmental standards. That investigation is ongoing.

A similar state of affairs seems to prevail across the UK, with campaigners blaming under-investment in infrastructure by owners obsessed with profit.

Thames, for example, discharged sewage more than 8,000 times last year in 378 locations of south-east England. In 2021, it was fined £4 million for releasing sewage into Oxford waterways and last year was fined £51 million by Ofwat for missing key targets.

At this point, it should be stressed that pollution isn’t entirely the fault of privatisation.

Wessex was responsible for 21,878 sewage overflows in 2022, according to lobby group Surfers Against Sewage, overflows that lasted 129,957 hours

In Scotland, water remains in public ownership, yet the situation is unclear as only 4 per cent of its sewage outflows are monitored (it is 89 per cent in England).

In Wales, where the once private firm Dwr Cymru failed in the 2000s and was replaced by a not-for-profit company without shareholders, waterways are more polluted than anywhere else in the UK.

On top of all this, England’s creaking system alone leaks three billion litres of water daily, a fifth of our entire usage.

But we digress. Because finally, and perhaps most importantly, given this week’s events, there’s Wessex Water’s finances.

On privatisation, Wessex was run conservatively, with no debt on its balance sheet and a policy of returning about a half of profits to shareholders in dividends.

That careful policy was torn up when Enron acquired the firm in 1998 for roughly £1.4 billion.

During the disgraced firm’s first year in charge, it paid itself a dividend of £291.8 million, roughly six times the amount distributed 12 months earlier and almost three times that year’s profit. At least part of the cash for this payout seems to have been raised by borrowing: that year, the firm issued a company bond for £296.7 million.

 Thames, for example, discharged sewage more than 8,000 times last year in 378 locations of south-east England (Pictured – Jubilee River in Dorney Reach, Buckinghamshire)

Extracting vast amounts of cash from a healthy firm tends to force it to borrow even more. By 2002, when the Malaysians took over, the firm had debts of £695 million on its balance sheet.

The new owners began by taking a ‘special dividend’ of £210 million from Wessex. During the first five years, they extracted £544.7 million via dividends for themselves.

By then, it was 2007 and Wessex’s net debt stood at £1.15 billion. Today that has more than doubled: latest accounts reveal it has £2.47 billion of ‘loans and borrowings’, which is around two-thirds of the company’s overall value.

Paying back debt is now having a huge impact on Wessex finances. It made a post-tax profit of £57.9 million last year, having lost £25.4 million the year before. But in the same two years it spent £73.5 million and £66.1 million repaying creditors. This in turn means the firm has in the past two years paid £139.6 million to service debts, or more than four times its profits.

And about £850 million of Wessex’s current debt is in so-called ‘index-linked instruments’, which tend to rise with interest rates. This makes the firm hugely vulnerable to changes in inflation.

Its latest accounts reveal Wessex had to take out a £75 million loan in February 2022 to repay holders of one maturing bond, and, in light of spiralling inflation, has agreed a ‘covenant amendment’ with some lenders, effectively renegotiating loan arrangements for ‘the testing periods to 31 March 2024’.

Against this backdrop, it’s remarkable that Wessex has been paying hefty dividends to its Malaysian owner: £80 million last year, £70.1 million the year before.

To put things a different way, it has in this period paid out £150.1 million in dividends, despite declaring an overall profit of just £32.5million. In 1990, it limited dividends to half annual profits, a policy one might call sustainable.

That said, on the debt front, Wessex is not alone. With borrowings about two-thirds of the firm’s value, it is actually in a healthy position compared with most rivals.

After Thames, with its vast £14 billion debt pile, comes United Utilities, where borrowings are £8.2 billion, Severn Trent (£7.16 billion), Anglian (£6.8 billion) and Yorkshire (£5.7billion). The smallest, of £1.53 billion, belongs to Northern Ireland Water.

Back in 1990, when executives were paid reasonable salaries and the industry stuck to real, rather than financial, engineering, the same figure for every company was zero. Some would argue it should have stayed that way. For cash is now draining from their coffers, and these over-exploited firms desperately need to plug the leak.

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