Andy Burnham is set to push Thames Water into special administration, in an unprecedented move which could leave the taxpayer with a £2 billion bill.
Thames Water, which supplies 16 million customers from Gloucestershire to London, Kent and Essex, has warned that it will run out of cash by the end of the year unless a deal can be agreed between its creditors, the water regulator and the government.
The incoming Prime Minister is now facing a decision over how to deal with the company, and a special administration regime (SAR) would allow essential services to keep running until a buyer is found.
In his first speech as Labour leader on Friday, Mr Burnham had pledged to take greater “public control” of the nation’s utilities, and that “the cost of the essentials” is necessary to manage “inflation, public spending and the rest of the economy.”
Putting Thames Water into administration suggests that his team does not believe a private-sector solution can be found, with the utility’s creditors being owed £17 billion.
The emergency SAR, which would be an unprecedented move for a water company, would risk leaving the taxpayer with a bill for the £2 billion that Thames Water believes it needs to keep running until the end of next year.
Chris Weston, Thames Water’s chief executive, told The Sunday Times: “If they put us into a SAR, the government would have to fund us for the period of time that we were in the SAR.”
A Burnham ally said: “If it is going to cost the taxpayer £2 billion to keep the company afloat then the taxpayer needs to receive something in return - that means control, so that we can fix the company and secure the water supply for thousands of families and businesses.”
Labour deputy leader Lucy Powell told Times Radio that Mr Burnham wanted to tackle “the privatisation model” for utilities.
She said: “Andy’s been really clear that that model is something that he wants to look at and take on, so that these things work in the interests of ordinary consumers and bill payers.
“The government already has powers to step in if necessary and has powers for special measures, as it’s called.”
Thames Water does not believe that it needs to be placed into a SAR because it has not breached its license with water regulator Ofwat, the water regulator, and has enough cash for the short term.
The utility’s creditors had proposed a deal in which they inject £3.35 billion of fresh equity alongside £6.25 billion of new borrowing while writing off £9.6 billion of existing debt.
This plan attracted criticism however, as they have also asked for leniency on future penalties for sewage spills.
The company has set aside £555.2 million for potential environmental, legal and regulatory provisions.
A Thames Water spokesperson said: “We continue to work with all parties to reach an agreement that supports Thames Water’s long-term financial stability and ensures the uninterrupted delivery of our biggest infrastructure upgrade in 150 years while continuing to meet the needs of our 16 million customers.”
