Good morning.
Thames Water’s financial problems have finally come to a head, after Ofwat, the national water regulator, made the unprecedented decision yesterday to put the debt-laden company into special measures. Earlier this week the regional monopoly said it was going to run out of funds by June 2025 after it failed to secure fresh funding from existing shareholders.
Thames is the UK’s biggest water company, providing services for 16m people, and has faced scathing criticism over its handling of England’s sewage crisis and rising water bills. Thames customers are set to face a 22% increase in their bills over the next five years, a smaller rise than the 40% it had initially proposed.
For today’s newsletter, I spoke with the Guardian’s City editor, Anna Isaac, about the past, present and future of Thames Water. That’s after the headlines.
Five big stories
US news | In a critical press conference pitched as make-or-break for his presidential campaign, Joe Biden spiritedly defended his foreign policy record even as he faced a barrage of questions on his mental fitness and mistakenly referred to Kamala Harris as “vice-president Trump”. The blunder was compounded by the fact that he had earlier introduced the Ukrainian president, Volodymyr Zelenskiy, as “President Putin”, before correcting himself.
UK politics | Just over half of British adults voted at the 2024 general election, making it the lowest turnout by share of population since universal suffrage, according to a report by the Institute for Public Policy Research.
Israel-Gaza war | Israeli-made weapons designed to spray high levels of shrapnel are causing horrific injuries to civilians in Gaza and disproportionately harming children, foreign surgeons who worked in the territory in recent months have told the Guardian.
Child poverty | The Labour government has come under fresh pressure to abolish the two-child benefit limit as latest official figures show a record 1.6 million children are living in families affected by the controversial policy.
Education | UK universities face financial turmoil as figures from the Home Office show plunging numbers of international students applying for courses starting in the next academic year.
In depth: ‘It takes decades to meaningfully change infrastructure of the scale we’re talking about here’
On average, water bills in England and Wales will be going up by £94 over the next five years. It’s a “bitter pill” caused by “14 years of failure” by the Conservatives according to the new chancellor, Rachel Reeves. Customers are being encouraged to look into their specific supplier as the range is quite large, with the highest rise for South East Water customers at £183.
But the rises are not as high as the proposals Thames Water put to Ofwat. While this is a draft determination – there is still some haggling over the numbers to be done – it is an indication of what the final decision will be later this year.
While concerns about Thames collapsing mount, there’s an important caveat, Anna says. This is the special administration regime (SAR) – not to be confused with the new move into special measures. This SAR acts as a backstop, effectively renationalising the company if it fails. This exists to make sure that people can still get basic utilities. “The water sector is regarded as an essential service, so there will be something in place to make sure that people by and large are able to get the water they need,” she says.
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Decades in the making
Thames Water’s financial “slow burn crisis” has been decades in the making. To understand the background, Nils Pratley has helpfully gone back in time to the 1980s and mapped out why the water industry ended up in private hands in the first place and how it transformed the sector. Thames Water has been left with some of the most severe challenges facing the industry.
The former owners of Thames, a consortium led by an Australian investment bank called Macquarie, carved the company up through complex corporate finance structures that included offshore entities. “They were able to extract a lot of money from the operating company because they were able to operate beyond the regulatory ringfence that was meant to keep the money in,” Anna says. Crucially, they did all of this within rules. “So, we should also be asking whether or not the rules were flawed,” she adds.
During that period the company was saddled with debt, despite chronic underinvestment in infrastructure, to pay huge sums in dividends. In just over a decade debt rose from £3.4bn to £10.8bn.
Earlier this year, Thames reported that it has £19bn of assets that are in “poor” or “failed condition” or are “no longer capable of reliably performing their function”. The cost cutting has come at the expense of the environment and consumers’ pockets. Here’s a particularly nauseating figure for Londoners: between 2020 and 2023 Thames Water pumped at least 72bn litres of sewage into the River Thames. In just six days last December sewage was dumped across the Thames Water network for more than 128 hours, which is equivalent to 18 hours every day.
The company has been hit with £35.7m in fines between 2017 and 2023 by the Environment Agency. In June, Ofwat warned that it faced a fine of over £40m for allowing a £37.5m dividend to be paid to its owners last year.
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What are special measures?
The heavily indebted water supplier has been placed in special measures, on a turnaround oversight regime. Under this scheme, Thames is going to face increased scrutiny from Ofwat over its finances and the way the company is run. It has been told that it needs to reduce sewage spills by 64%, supply interruptions by two-thirds and leaks by 19%.
The purpose of this intervention goes beyond the financial situation, Anna says. “The regulator is also scrutinising how Thames’s operations are working on a day to day level, so it’s a turnaround plan, as well as an investment plan.”
The measures will remain in place until Thames can prove that it is in an acceptable financial position. There could be conditions to exiting the regime: the amount of debt it can take on could be limited; it may have to restructure and separate the business; it could face some form of nationalisation; or it could be listed on the stock exchange to secure extra equity.
Nothing changes immediately because of this intervention. Thames has enough money to run until the middle of next year and the special measures are meant to help get it back on track, “but ultimately, it’s about whether or not private investors want to put money in the medium term and that reality has not changed”.
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Are other water companies in trouble?
Thames is in a unique situation as the depth of its financial hole is extreme, even when compared with other water companies.
While others like Southern Water are not in the best financial positions either, the problems they face are not as severe nor would the fallout be as bad if they were to be in trouble because they are smaller than Thames. “And now that Ofwat has said they can raise bills by quite a large amount in some cases, it makes them relatively attractive for some investors,” Anna says.
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What will it take for Thames to get better?
Anna says there is a “holy trinity” that Thames Water needs to eventually get back on track: confidence, time and money. “Outsiders’ confidence in its management, as well as the time and money needed to upgrade its infrastructure.”
There is no quick fix for the company’s dire financial straits. It requires a long-term effort and the right combination of investments, management change, and a turnaround business plan. “The sheer scale of the infrastructure that Thames oversees can’t be upgraded in the short term,” she says. “It takes decades to meaningfully change infrastructure of the scale we’re talking about here.”
What else we’ve been reading
Michaela Makusha has written a brilliant piece about Bridgerton’s fanbase, which seems to be more toxic than your average. “What on earth is it about the show that evokes so much rage,” she asks – particularly towards its actors of colour. Hannah J Davies, deputy editor, newsletters
Iran has elected a new purportedly “reformist” president, Masoud Pezeshkian, following two years of brutal crackdowns on protest and free expression. Deepa Parent spoke with Iranian freedom protesters who are sceptical about whether anything will really change. Nimo
Laura Marling talks motherhood, getting to grips with TikTok and – of course – her upcoming eighth album in a delightful interview with Rachel Aroesti, which features just the right amount of Ed Sheeran shade. Hannah
Megastars who once endorsed Joe Biden are asking him to step aside in the US election. Jesse Hassenger asks how much of a difference this turn, in the sprawling political drama dogging the president, will make for his future in the White House. Nimo
Ravinder Bhogal takes the humble cherry to new heights, roasting them in balsamic vinegar to serve alongside burrata, among other delicious ideas. Hannah
Sport
Tennis | Barbora Krejcikova paid tribute to her former coach Jana Novotna after she reached the Wimbledon final with a 3-6, 6-3, 6-4 victory over Elena Rybakina. Krejcikova will play Jasmine Paolini who beat Donna Vekic 2-6, 6-4, 7-6 (8) in the longest women’s semi-final in Wimbledon’s history.
Cricket | England are on the verge of winning the first Test against the West Indies, who trail by 171 runs with four second-innings wickets remaining
Cycling| Biniam Girmay took his third victory in 11 days after winning stage 12 of the Tour de France in Villeneuve-sur-Lot, while Mark Cavendish was described as “upset and angry” after being relegated from fifth place on a penalty in another hectic sprint finale.
The front pages
“Water bill rises ‘show contempt for customers’” says our Guardian splash headline this morning. “Sterling surges as GDP data buoys Labour growth agenda” – that’s the Financial Times. “Violent prisoners will be freed early” says the Daily Telegraph as if that’s the only criterion while the Daily Mail has “Labour accused of scare tactics over ‘full’ jails”. “Prisoners to be freed after 40% of sentence” is the Times’ version. “Starmer faces mutiny on child benefit from Labour backbenches” says the i. “May you reign over Spain” – England are invested with the king’s Euro hopes on the front page of the Metro. The Daily Express does some grim shopping: “Ban them now! We bought deadly crossbow in 2 minutes” and the Daily Mirror also follows up on the Bushey killings with “Together in grief” after talking to loved ones of the victims, Carol, Hannah and Louise Hunt.
Something for the weekend
TV
Spent (BBC iPlayer)
Michelle de Swarte (pictured above, right, with Juliet Cowan) has unleashed her talent and mesmeric presence by writing and starring in this comedy drama, based loosely on her time as a model in the US. Declared bankrupt after “spending money like it has a sell-by date”, her character Mia hightails it home to the UK. It is worth watching for the dry comedy alone, but it is the emotional heft that stays with you. Lucy Mangan
Music
Cassandra Jenkins – My Light, My Destroyer
Jenkins’s 2021 album An Overview on Phenomenal Nature occasioned a deal with a sub-label of Secretly Canadian, the US indie that has seen a succession of its female artists, including Mitski, gain a foothold on TikTok. It’s not inconceivable that something similar could happen to her; for an album so thick with sadness and seclusion, My Light, My Destroyer is remarkably easy listening. Alexis Petridis
Film
Sleep
This gleefully brash Korean chiller is directed by first-timer Jason Yu, a former assistant to the Oscar-winning director Bong Joon-ho. A horror movie about the unquiet sleep of a fraught marriage, there are hints of The Exorcist, Sleeping With the Enemy and Steven Soderbergh’s neglected Hitchcockian thriller Side Effects. Lee Sun-kyun appears posthumously, having heartbreakingly taken his own life last December. Poignantly, he gives one of his best performances. Peter Bradshaw
Podcast
Peppa Pig’s Play-A-Long Podcast (Audible, all episodes out now)
The queen of the oinkers has been an icon to toddlers all over the world for 20 years, so it’s about time she entered the podcasting realm. Kids and their parents can play along as Peppa Pig explores very big feelings, long car journeys and what to do when you’re not tired at bedtime. As you’d expect from the perpetrator of bangers such as Peace and Harmony, there are earworm-heavy songs and, of course, jibes at Daddy Pig. Hannah Verdier
Today in Focus
Euro 2024: is it coming home? - podcast
How did Gareth Southgate get the England team to the Euro 2024 final? Barney Ronay reports
Cartoon of the day | Ben Jennings
The Upside
A bit of good news to remind you that the world’s not all bad
Two lion brothers have crossed the predator-filled Kazinga Channel in Uganda, with their record-breaking crossing documented by researchers. Tibu and his sibling Jacob (pictured above) undertook the 1.5km swim, after two failed attempts. Jacob had also previously lost a leg, been attacked by a buffalo, and the family were poisoned by poachers. Dr Alexander Braczkowski of Griffith University in Australia, who led the research, said that the 10-year-old “really is a cat with nine lives ... I’d bet all my belongings that we are looking at Africa’s most resilient lion”.
Sign up here for a weekly roundup of The Upside, sent to you every Sunday
Bored at work?
And finally, the Guardian’s puzzles are here to keep you entertained throughout the day. Until Monday.
