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PR24 also uses an estimate of something called weighted average cost of capital in its calculation. Ofwat assumes that water companies have a gearing of 55%, but none of the companies actually has that. For example, Thames has a gearing ratio of around 80%, Southern Water of 70%, Yorkshire Water of 70%, Northumbrian Water of 68%, and United Utilities of 66%. That is according to a very peculiar measure used by Ofwat, rather than the measure that any credit rating agency would use. Ofwat’s usage of a fictitious 55% gearing ratio means that it assumes that companies have equity of 45%, which none of them does. The outcome is that water companies are allowed a greater rate of return than they would be allowed if proper gearing ratios were used, because the cost of capital of debt tends to be lower than the cost of equity. I will not bore noble Lords with the tax effects.