Thames Water and other failing water companies should be placed into special administration to allow the government to tackle much-needed reforms to the industry, campaigners say.
Triggering special administration would put Thames and other failing companies in government control, removing company directors and ending the dividends paid to shareholders. The companies could then be transferred to new owners who could be publicly owned or controlled.
Save Windermere, and other campaign groups who have exposed the scale of illegal sewage pollution in rivers, lakes and coastal waters over several years, are backed in their call for the government to trigger special administration by an academic who specialises in the industry.
In expert advice for the campaigners, Prof Ewan McGaughey of King’s College London said special administration, which is a power contained in the 1991 Water Industry Act, would not cost the Treasury or taxpayers anything. He spoke after the environment secretary, Steve Reed, was accused of using “economically illiterate” analysis, paid for by water companies, to reject calls to take the industry back into public ownership.
Special administration can be triggered by the secretary of state for the environment, food and rural affairs. The special administrator can put a plan before the high court to cancel a company’s debt, if continued payments to banks would interfere with properly carrying out the water company’s sewage or clean water functions.
McGaughey said: “The best way to clean our water is with more investment. Forty per cent more investment would be possible if we stop bailing out banks and shareholders with billpayer rises.
“It will cost us over £12.5bn this parliament to keep paying shareholders and banks … the right way to close this black hole is to make failed companies lose their licences, cancel the debt and transition to public water … this is all possible under the existing law.”
Over the past three decades English water companies have paid out £53.1bn in dividends – £83bn in today’s prices – and built debts of £60.3bn. Thames Water, the biggest of the privatised firms, is struggling with debts of £15bn and attempting to shore up its finances.
But the company has admitted it faces a cash shortage as soon as December. This week Thames Water was hit by further problems when its debt rating was downgraded to the lower levels of junk by two major credit rating agencies, piling further pressure on the company.
The campaigners, who include Ilkley Clean Water, Surfers Against Sewage, Windrush Against Sewage Pollution, SOS Whitstable and River Action, said the attempts to reform the multibillion-pound privatised water industry over several years had failed. A number of groups have organised a protest in London, the March for Clean Water, over the state of the water industry and the impact of pollution on English rivers, on Sunday November 3.
Reed has rejected taking the industry back into public ownership. Instead he is introducing measures to ban bonuses for water chief executives, beef up the regulators and introduce tougher penalties, including prison, for water companies.
But Matt Staniek of Save Windermere said: “The government is trying to distract us from one simple fact: they already have numerous laws and powers at their disposal right now, which they are choosing not to enforce, and special administration is one of them.
“The water industry has consistently breached its statutory obligations, and Labour could place it into special administration on this basis alone. Doing so would halt the extraction of dividends and the servicing of debt at the expense of captive customers.”
Ofwat, the industry regulator, has blocked plans by English water companies to raise customers’ bills by more than 40% in some cases to fund record investment of £100bn. Instead the regulator, in its first assessment of the spending plans for 2025-30, ruled the companies could spend £88bn over the five-year period, £16bn less than they requested, which would be recovered from bills.
Special administration can be triggered if a company cannot pay its debts or is not performing its statutory requirements, which include treating sewage. It was updated by the last parliament to bring it into line with modern insolvency legislation.
In a joint statement the campaigners said: “We urge the government to exercise the legislative powers granted under the Water Industry Act 1991 by initiating special administration procedures for Thames Water. This action would serve as a critical measure to halt the diversion of customer payments to shareholder dividends, hold failing company bosses accountable and allow the government to focus on the necessary reforms to address the systemic issues within the water industry more broadly.”
A spokesperson for the government said: “The government is closely monitoring Thames Water’s situation and the company remains stable.”
• This article was amended on 2 October 2024 to clarify that it is the secretary of state for the environment, food and rural affairs who has the power to trigger special administration.
