The disclosure is likely to reignite the public outcry about legal tax avoidance by big firms at a time when Britain is drowning in debt and suffering painful public spending cuts.
It comes only a week after industry regulator Ofwat announced that water bills would rise by an average of 3.5 per cent to £388 a year.
Corporate Watch found six UK water companies took high-interest loans from their owners through the Channel Islands stock exchange. Interest payments on the loans reduce taxable profits in the UK and, thanks to a regulatory loophole, go to the owners tax free.
Corporate Watch found that some £3.4bn had been borrowed by the six companies using this method. It highlights Northumbrian Water as "the most brazen case", as it paid 11 per cent interest on just over £1bn of loans it has taken from its owner, the Cheung Kong group, a Hong Kong-based conglomerate run by Li Ka-shing, the world's ninth-richest person.
The Treasury considered closing the loophole last year, questioning the way companies were using it, but decided against it. The report also found that Britain's 19 water company bosses were paid almost £10m in combined salaries and other bonuses in 2012.
The huge levels of debt used by the industry overall to finance its operations are also costing UK consumers £2bn a year more than if it was publicly financed – equating to nearly £80 per household.
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