Environment secretary Michael Gove has warned that water companies must start to behave “in a responsible fashion” or face regulation on the use of offshore tax havens.

Speaking to the Sunday Times newspaper, Gove said it was not appropriate for the water companies to avoid paying business taxes at the same time as using offshore companies to borrow billions of pounds.

In a wide-ranging interview, he indicated that he expected the water sector regulator to act and if necessary give Ofwat Chairman Jonson Cox new legal powers, commenting:

“If he needs more, I’ll do everything possible to back him up….I will back him every step of the way in any action he feels he needs to take.”

However, he rejected the Labour Party’s call for renationalisation of the water utilities, saying it was “undeniably the case” that privatisation had brought private investment which had improved infrastructure.

The UK water sector has been in the spotlight during 2017 and faced criticism from a number of quarters. Four of the largest companies used off-shore tax arrangements in 2016-17.

In November, under the aegis of incoming Chairman Ian Marchant, Thames Water announced that it intends to close its Cayman Islands’ subsidiaries.

Last October Liz Barber, group director of finance, regulation & markets at Yorkshire Water said the utility was planning to wind up its offshore banking arrangements, commenting:

“There is a real challenge to the water industry’s legitimacy at the moment and complex financial structures only add to public concern as to the way in which companies are financed. We have some offshore companies in our structure which are no longer necessary or appropriate and we’re taking steps to remove these as soon as possible.”