Southern Water in fraud probe

SOUTHERN Water could be joining Severn Trent in the dock, after the Serious Fraud Office confirmed it is the second utility to undergo a criminal investigation.

Britain's water companies are now under huge pressure to clean up their act. Southern Water, Severn Trent and Thames Water are already facing fines from regulator Ofwat for failing customer services, but the prospect of criminal charges against the latter two raises huge questions about the conduct of the privatised utilities.

The SFO notified Southern on Tuesday that it believes the mis-reporting of customer service data has been serious enough to warra nt a full fraud probe.

This indicates the agency believes there is evidence of a conspiracy or a fraudulent attempt by Southern to misstate data - perhaps with a view to massaging its profits.

It will now appoint a senior investigation lawyer and involve the police with a view to bringing criminal charges against Southern and/or any one connected with the suspected fraud.

Southern Water, which supplies water to 1m households in Kent, Sussex and Hampshire, said it will ' continue to co- operate and assist the SFO in every way'.

It was actually responsible for bringing the issues to the attention of the SFO in October 2005, after a new management team, led by chief executive Les Dawson, discovered 'inconsistencies' in the reporting of service standards.

Royal Bank of Scotland is the largest single shareholder in Southern Water with just under 50%, with hedge funds owning the remainder. RBS said: 'It is a matter for the board of Southern Water and it would be inappropriate to comment further.' The SFO said: 'A criminal investigation is now under way.'