One of England’s top-rated water firms, Severn Trent Water, has been accused of using an accounting maneuver to artificially inflate its balance sheet by over £1.68bn. According to an investigation by BBC Panorama, this questionable practice boosts the company’s perceived financial health while enabling substantial payouts to shareholders. Severn Trent denies the allegations, calling them “completely inaccurate.” The controversy revolves around a shell company, Severn Trent Trimpley, created in 2017. Initially established without money or assets, Trimpley became the centerpiece of a financial loop involving another subsidiary, Severn Trent Draycote, which owns the water company. Draycote purchased Trimpley for just £2 but then issued additional shares, acquiring them with a £3bn loan note—essentially an IOU. On paper, this immediately made Trimpley appear to be worth £3bn. Severn Trent Water later acquired a 49% stake in Trimpley, valuing the investment at £1.47bn. This value has since grown to £1.68bn in the water company’s 2023/24 accounts due to interest payments on the IOU. However, critics argue that no real money changed hands, and the inflated valuation misrepresents Severn Trent Water’s financial position.
Retired auditor Stanley Root, who uncovered the Trimpley investment, described it as “an unreal transaction.” He told Panorama, “This has just been made up to make the accounts look better. It misleads readers into thinking Severn Trent Water is in a healthier position than it really is.” Since 2017, the paper value of Trimpley has grown annually due to interest payments between the subsidiaries. This has allowed Severn Trent Water to report robust retained earnings of £1.84bn. Yet, in the broader Severn Trent Group accounts, where such transactions are cancelled out, retained earnings stand at a mere £7.9m. Critics argue that this accounting trick has enabled Severn Trent Water to justify substantial shareholder payouts. Between 2017 and 2023, the company distributed £1.615bn in dividends—£369m more than its actual profits of £1.246bn during the same period. Campaigners and industry experts suggest this drains cash that could have been reinvested in vital infrastructure. Shrewsbury-based group Up Sewage Creek is among the dissatisfied customers. “They’ve used our money to enrich themselves and their shareholders while neglecting essential upgrades,” one campaigner said, highlighting ongoing pollution issues in local rivers. Auditor Root believes the Trimpley scheme is key to supporting these payouts. “It makes the balance sheet look stable, creating the illusion of financial resilience and enabling high dividends,” he said.
Severn Trent insists the Trimpley structure is entirely legal and transparent. The company’s accounts are audited independently, and its directors maintain that the valuation of investments is fair. “The IOU is very much a real asset, backed by other group companies,” a spokesperson said, adding that any suggestion of misleading investors, regulators, or customers is “false.” The water company also pointed to a £1bn capital raise in 2022, stating it is in good financial health and committed to record infrastructure investments. Despite Severn Trent’s reassurances, the revelations have fueled criticism of the company’s priorities. Customers and environmentalists argue that profits should be reinvested to tackle pollution, improve infrastructure, and ensure long-term sustainability. As questions linger over Severn Trent’s practices, the spotlight intensifies on the accountability of regulated utilities and the ethical implications of financial engineering.
