Windfall tax 'will hike bills' of Hyder customers

Hyder, the Welsh water and electricity utility, warned yesterday that the government's windfall tax could mean higher bills for its customers and a cut in spending on cleaning up beaches. In a shot across Labour's bows ahead of the Budget on 2 July, Hyder's chairman, Iain Evans, said that an excessive or unfairly distributed tax would force Hyder to re- examine its voluntary annual pounds 9 per customer rebate and an extra pounds 40m in discretionary spending on making Welsh beaches the cleanest in Europe.

Graham Hawker, chief executive, said: "We would be very loathe to withdraw our rebates to customers, but if the tax is excessive, we will have to think again." The group may get a "double whammy" tax hit after Welsh Water bought electricity group Swalec 15 months ago.

Mr Evans said that its consumer friendly image would mitigate. "There wouldn't be a windfall tax if every water company had the same relationship with its customers as we do. We have not had a hosepipe ban in seven years. We're confident that a sensible government will take into account our customer-oriented image."

Speaking at its full-year results, Mr Evans said that an unfair windfall tax would be one calculated on total shareholder returns rather than published information such as turnover or operating profits. "I don't see how a tax based on shareholder returns would work. The key to all this is keeping it simple." Robert Miller-Bakewell, analyst at NatWest Securities, said that the level of tax was the huge uncertainty: "If it's around pounds 200m, then I suppose Hyder will pay up and get on with life. Much above that and the company might start cutting its customer rebates." A pounds 300m hit to Hyder would imply an overall windfall tax of around pounds 10bn.

A spokesman for Labour would not comment on the form of the tax or whether the impact on companies would be revealed in the Budget: "Whether Hyder put up bills is a matter for them and their customers."

Hyder's full-year results showed that operating profits rose from pounds 129m to pounds 284m, including a first full-year contribution of pounds 110m from Swalec and the dividend was increased by 13 per cent to 43.9p. Mr Hawker said that operating two utilities in the same geographic region had enhanced earnings by over 17 per cent.

The company said profits from Hyder's non-regulated business - customer services and managing transport and utility projects as majority stakeholder in the UK Highways consortium - would underpin dividend growth.