The Tory Party Treasurer’s water company which he co-owns via an offshore trust in the British Virgin Island has won a £1.2m contract with HMRC, the Mirror can reveal.
It comes as the Foreign Office plans a crackdown to try to force British-linked tax havens like the BVI to reveal the beneficial owners of offshore companies.
Graham Edwards, who has donated £5.5m to the Tories since 2011, is a director of independent water company Castle Water. Castle Water has profited from the deregulation of water supply to business customers by DEFRA in 2017, growing from a turnover of £2.9m in 2016 to £436m last year.
It is not currently profitable and runs thanks to £150m in loans from its offshore parent company in the BVI, our investigation with the Good Law Project found. Castle Water says it is UK tax resident but accounting expert Professor Richard Murphy says the offshore ownership arrangement means there could be “significant tax savings” for Castle Water’s owners, including majority shareholder Mr Edwards, if they ever sold the company.
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Where companies are owned in tax havens, the new buyers typically acquire the shares in the offshore parent company rather than directly buying the UK subsidiary.
Prof Murphy, professor of accounting practice at Sheffield University Management School, said: “Castle Water Limited is owned by an offshore structure based in the British Virgin Islands which appears to exist for the benefit, at least in part, of one of its directors, Graham Edwards. The structure would be of greatest benefit if Castle Water Limited was sold.
“In that case the sale proceeds received in the British Virgin Islands would likely be tax free, subject to HM Revenue & Customs scrutiny. There could be significant tax savings arising in that case.”
John Reynolds, CEO and minority shareholder in Castle Water, told the Mirror: “You are correct that Castle Water Holdings is registered in the BVI but you should note that it is tax domiciled in the UK, so there is no tax structuring going on. Our funding structure is not unconventional and we comply with all tax legislation.
“Castle has just celebrated its 10th birthday and is making a long-term investment in the UK. Neither I nor the other shareholders have any intention of selling.”
Since deregulation, Castle Water has bought up customers of big water firms such as Thames Water and has been put on lucrative Government contract frameworks – which has allowed it to clinch a £10m contract with the MoD and a £2m deal with the Cabinet Office – alongside smaller public sector contracts with universities and the NHS.
Castle Water also has more than £500,000 worth of contracts to provide water and sewerage services across DEFRA’s commercial sites – the Government department responsible for the water industry. The firm had a £1.2m contract with HMRC from 2020 to 2022, but an HMRC spokesperson said: “We no longer have a contract with Castle Water.”
Mr Reynolds added: “Graham Edwards has no operational involvement in Castle Water, and no involvement in any sales activity. The public sector contracts you refer to which we have been awarded have gone through rigorous procurement processes, and Graham has had no involvement in any of these.
“The water market for commercial customers isn’t really a party political issue. Deregulation of the commercial water market was through legislation passed when Labour was in government.”
But Liberal Democrat Treasury spokesperson Sarah Olney: “The Conservative Government has serious questions to answer as to whether its Treasurer has benefited from changes implemented by the Government.”
An investigation by the Mirror and the Good Law Project has found that Castle Water is owned via companies based offshore in the British Virgin Island, a notorious Caribbean tax haven. Accounts filed at Companies House state that Castle Water Limited is “a wholly owned subsidiary of Castle Water Holdings Limited”, which is registered in the British Virgin Islands.
They state that “a trust (of which Mr Graham Edwards is a beneficiary) and the trustee of that trust (in their capacity as such) control” Castle Water. Filings also reveal that “person of significant control” over Castle Water is Wpgss Limited, which is owned by Wpgss Holdings Limited, also incorporated in the British Virgin Islands. Accounts for Wpgss Limited state that Graham Edwards is the “ultimate controlling party”.
Prof Murphy added: “That BVI structure has provided more than £150 million of funding to Castle Water, which funds the investments and losses the company has made. There is no immediate tax advantage to this arrangement although the more than £40 million of interest paid by Castle Water Limited on loans due to the British Virgin Islands holding company will almost certainly have attracted some HM Revenue & Customs scrutiny.”
Jo Maugham, Executive Director of Good Law Project, said: “Nobody sets themselves up in a tax haven without good reason. And the reason is usually to avoid paying tax – which is why we call them tax havens. Another common reason is a desire to benefit from the secrecy those regimes tend to offer.
“Of course we don’t know what attracted Tory treasurer and mega-donor Graham Edwards to the British Virgin Islands but there are certainly questions to be answered about why HMRC, of all Government agencies, gave his firm a contract.”
Mr Edwards was appointed Tory Party Treasurer in December 2022. The Conservative Party declined to comment. But a source said: “This arrangement was set up to allow offshore money to be invested in the UK, creating jobs in a deprived part of the country. It is not about tax, it is about investment.”
The BVI authorities do not reveal the owners of companies like Castle Water Holdings Limited. The information we have found about the ownership of Castle Water comes from the paperwork it submits to the UK Companies House.
Deputy Foreign Secretary Andrew Mitchell said this week that 40% of the dirty money in the world is going through the City of London, the crown dependencies and other British overseas territories, including the BVI. He said the crown dependencies and overseas territories would face fresh demands from the Foreign Office to comply with UK laws on setting up public registers of beneficial share ownership.
The UK Government passed a law in 2016 requiring the government to issue a draft order in council imposing beneficial ownership registers by 2020. But the BVI and the Cayman Islands have not yet done so.
Mr Mitchell said: “On the issue of dirty money, it is important to recognise that Britain has a dog in the fight. According to some estimates, 40% of money laundering around the world – this is money often stolen from Africa and Africans by corrupt businessmen, bent politicians and war lords and so on – 40% of that money comes through London and overseas territories and crown dependencies.”
He added that “crown dependencies and the overseas territories have not yet done as much as they must do” and that the UK would “see a greater emphasis now on introducing these open registers of beneficial ownership”.
There is no suggestion that Graham Edwards or Castle Water Holdings is connected to “dirty money”.