Jonson Cox, the chairman of industry regulator Ofwat, has described the water companies’ high profits and tax-reducing corporate structures as “morally questionable”.

In an article for the Daily Telegraph which levels a number a serious criticisms at the utilities, Mr. Cox said that “the dichotomy between profits and the prices charged to customers raises business, regulatory and moral questions.”

Mr. Cox said that structural change in the last six years had led to private ownership largely replacing the listed companies created at privatization – which had caused him to review how Ofwat regulates the sector.

With regard to tax policy, Mr. Cox said it was not an area for an economic regulator to address structures which may be legal and common in private equity – however, he commented:

“But some aspects are morally questionable in a vital public service. ….We have seen damage inflicted on trusted consumer brands in recent months by alleged tax-avoidance structures. Water company licences require proper regard for the UK Corporate Governance Code. In our discussions with unlisted companies, we have yet to find a company that fully complies or satisfactorily explains why not.”

Mr. Cox said Ofwat was now pressing the water companies to improve governance and was planning to develop a bespoke governance code for the sector which could become a licence condition.

He concluded:

“ I am not popular for having raised difficult questions, but it is better to improve corporate structures and behaviours by reasonably firm encouragement now, rather than being forced to take stronger action later.”

The comments comes at a challenging time for both the regulator, which is currently has having to deal with its own problems and the utilities who face criticism as customers cope with rising bills.

It is hardly likely to calm the nerves of investors in the run up to PR14 which will set out the upcoming AMP6 investment programme for 2015-20.