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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK business minister says Thames Water must survive; Bank of England governor understands criticism over rate hike – as it happened

Jeremy Hunt Thames Water Pollution Andrew Bailey ECB Huw Pill Ofwat Sarah Bentley United Kingdom Whitehall
Water companies are reportedly drawing up plans to increase household bills by up to 40% to fund tackling the sewage crisis and fighting climate change.
Water companies are reportedly drawing up plans to increase household bills by up to 40% to fund tackling the sewage crisis and fighting climate change. Photograph: MBI/Alamy

UK watchdogs agree on ‘action plan’ to prevent consumers being ripped off

Britain’s watchdogs have agreed to a suite of measures aimed at protecting consumers from being ripped off by companies during the cost of living crisis, after a meeting with the chancellor.

Jeremy Hunt said the “action plan” agreed to support consumers would “ensure they are treated fairly” amid concerns over greedflation – companies using rampant inflation as a cover to hike prices and boost profit margins.

However, the measures are unlikely to deliver much financial support to Britons who have faced sharp jumps in their household bills at the same time as soaring mortgage costs due to higher interest rates.

The chancellor met the heads of the Competition and Markets Authority (CMA), Financial Conduct Authority (FCA), Ofcom, Ofgem and Ofwat in Downing Street. Each regulator committed to speeding up or deepening existing work in their field.

The CMA is to publish a planned study into the profit margins of supermarkets and fuel retailers on Monday, and will release a study into grocery pricing in the next few weeks. Retailers have been accused of using misleading price tags.

The competition watchdog will also update its inquiry into the rental and housebuilding sector in August.

Ofcom, the communications regulator, agreed to push broadband and mobile suppliers who do not offer discount deals to vulnerable customers, known as social tariffs, to offer them and also waive fees for customers who want to switch to such a tariff.

It will also publish a review into “in-contract prices to ensure consumers are sufficiently aware of what they are signing up to by the end of the year”.

More here:

Full story: MPs probe water industry

Labour’s shadow environment secretary Jim McMahon tabled an urgent question on the financial resilience of water companies, asking the government whether the firms are in a secure state, my colleague Helena Horton reports.

Water minister Rebecca Pow, responding for the government, refused to comment on Thames Water save for saying there was “a lot of work going on behind the scenes” and that there is a “process in place, if necessary, to move us to the next stage.” This would be a SAR which would effectively take the water company into public ownership.

She said: “It’s not for me to comment on the individual financial position of a water company.” and said it was “up to investors to solve any individual issues”, and refused to say when the government had learned about the issues plaguing the company.

Much of the debate focused on privatisation of the water companies, with Labour MPs and Green MP Caroline Lucas saying the situation with Thames Water was yet another sign that privatisation has failed. Labour does not currently have a policy to nationalise water.

McMahon said:

“The news that we are seeing is the result of the Conservative Party’s failed profit above private interest experiment. Handing over the water industry at a knock-down price, together with the entire infrastructure serving the nation, over to private enterprise.”

Labour’s Andy Slaughter pointed out his constituents in Hammersmith had both been without water in recent years and had their homes flooded with raw sewage by Thames Water.

He added: “no one will miss the asset strippers at Thames Water if they go under” and said all he wanted for his constituents was a good service at a fair cost.

However, Pow gave a full-throated defence of the privatised system. She said:

“Since privatisation, capital investment in the water industry has been 84% higher than it was pre privatisation,” and added that “privatisation has allowed clean and plentiful water to come out of our taps.”

The minister insisted the government has taken “significant steps” to ensure the water industry delivers good outcomes and that there has been investments of £190bn since the sector was privatised in 1989. She also said the sector is financially resilient and pointed to the regulator Ofwat’s financial resilience report.

Updated

Afternoon summary

A quick recap

Business and trade minister Kemi Badenoch has said “We need to make sure that Thames Water as an entity survives,” as questions mount over the future of the UK’s largest water company.

It emerged last night that contingency plans for the collapse of Thames Water are being drawn up by the UK government and the industry watchdog amid fears that Britain’s biggest water company cannot survive because of its huge debt pile.

Environment minister Rebecca Pow had pledged that water supplies to Thames Water’s 15 million customers will be protected, whatever happens.

She told the Commons:

“Overall the water companies are considered resilient, but there is a lot of work going on behind the scenes with Thames Water to ensure that customers will not be impacted.

“And there is a process in place if necessary to move us to the next stage.”

Several Labour MPs said that water privatisation had failed, with companies racking up debts on their books and paying out lucrative dividends, while failing to invest in infrastructure.

Darren Jones, who chairs the Business and Trade Committee, said that Thames Water showed the failure to run and regulate the sector properly.

Jones told the Today Programme:

For too many years, decades even, we’ve allowed these companies to be operated with high risk stakes, with high levels of debt, with wealth being extracted from the companies, with investment not being high enough.

And then, once again, we’re in a situation where we’re being told that customers, taxpayers are going to have to pick up the bill for a failure of good corporate behaviour at these companies, and by the sounds of it poor regulation.

A former Thames Water executive told the Guardian that the water company faces “intractable” problems which are rooted in “over 100 years of underinvestment”.

Thames Water, though, insists it is “continuing to work constructively with its shareholders” over its funding needs.

Water companies are also planning large increases in customer bills, to fund tens of billions of pounds of investment in infrastructure.

Elsewhere today….

Chancellor Jeremy Hunt has held a meeting with the UK’s economic regulators, to see how they can help ease the cost of living crisis.

At Prime Minister’s Questions, Rishi Sunak told MPs:

“The Chancellor met with all the economic regulators this morning and they will be making an announcement later about their plans to ensure fairness of pricing and supply chains to ease the burden on consumers.”

Britain’s top central banker, Andrew Bailey, has said he understands why the Bank of England is criticised, and declined to ensorse market forecasts of more rate rises.

The Bank’s chief economist, Huw Pill, has said the BoE failed to forecast the scale of the UK’s inflation shock because its assumptions become “unworkable” in a crisis.

Soaring mortgage rates and the cost of living crisis are forcing more sellers to accept lower offers to secure a property sale, according to Zoopla.

Emma Fildes, property buyer and advisor at Brickweaver, tells us:

The Spring market showed short lived promise as the quarterly growth rate in house prices turned positive. Yet inflation was quick to burst that bubble at the “core” leaving many a first-time buyer struggling to raise enough of a deposit to offset any dent in house prices.

Many have retreated in anticipation of further price falls and hope for rates to stabilise next year. This is seemingly supported by Zoopla which expects prices to fall by a conservative 5% over the course of the year.

Despite this, buyers remain proactive when a discount is applied. This is coming largely for buyers who could either afford to top up their deposit (with the help of mum and dad, savings or buyers with a good rate already fixed in). The alternative of watching wages diminish in rent remains unappealing versus getting on the ladder if there is a financial step up.

Meanwhile cash buyers are circling, some watching and waiting out sellers’ misguided pricing or pouncing on the needy as more properties come to the market. This influx of properties will further reduce prices as those who can afford to buy play their position off comparable properties.

The UK advertising watchdog has banned campaigns by Toyota and Hyundai for exaggerating the speed at which electric cars can be charged and misleading consumers about the availability of rapid-charging points across the UK and Ireland.

The boss of Britain’s biggest drugmaker, Pascal Soriot, has warned that the twin crises of climate change and biodiversity loss are damaging the planet and human health, as it announced a $400m (£310m) plan to plant 200m trees by 2030.

The energy regulator has announced a proposal to make new rules brought in to protect struggling prepayment meter customers a compulsory part of suppliers’ licence conditions.

While the communications regulator Ofcom has launched an investigation into BT after technical faults hit the 999 emergency call service on Sunday.

And in banking, UBS is reportedly preparing to cut more than half the 45,000 staff it inherited from the takeover of stricken rival Credit Suisse, in a move that is expected to begin as early as next month.

Updated

Another clip from today’s urgent question in Parliament on the water sector:

Dr George Dibb, the head of the Centre for Economic Justice at the IPPR thinktank, has analysed Thames Water’s accounts:

BoE governor Andrew Bailey is not endorsing market expectations that UK interest rates will keep rising.

Speaking at the ECB’s central bank conference in Sintra, Portugal, Bailey says the market has “a number of further increases priced in”, adding:

My response to that is, well, we’ll see.

We’re evidence driven. We’ll make our decisions based on that.

The money markets have been predicting that UK interest rates will hit 6% by the end of the year, up from 5% at present.

Here’s a clip of today’s urgent question in parliament about the Thames Water crisis:

Kemi Badenoch: must ensure Thames Water as an entity survives

British business and trade minister Kemi Badenoch has stressed the need to ensure Thames Water survives.

As worries over the future of country’s largest water utility rise, Badenoch told Sky News she was “very concerned” about the situation.

Badenoch says colleagues across government are looking at the situation, which is commercially sensitive.

Badenoch says she doesn’t know very much about what the plans are, but explains:

I was concerned to hear that the CEO had resigned abruptly [yesterday].

“We need to make sure that Thames Water as an entity survives.

There’s a lot of work that the government is trying to do on resolving sewage.

Up until now, the regulator has been focused on keeping consumer bills down. But there’s a lot of infrastructure that needs to take place, and we need that entity to survive.

The shrinking UK labour market is an important factor pushing up inflation, BoE governor Andrew Bailey warns.

The Labour force is smaller than at the start of the Covid pandemic, Bailey explains.

He tells delegates at the ECB’s conference in Sintra today:

I see this when I go around the country talking to firms. What they say to me very frequently is that their plan is to retain labour as much as they can.

Bailey adds that he doesn’t think this fall in the labour force is due to Brexit.

Andrew Bailey also argued that it was better for the Bank of England to raise rate by half a percentage point last week, than to have chosen a quarter-point rise if it expected another quarter-point rise in August.

Explaining last week’s move, he said:

“The cumulative data - both particularly on the labour market and on the inflation release we had, which to us showed clear signs of persistence - caused us to conclude that we had to make really quite a strong move.

Updated

Bank of England governor: I understand criticism over rate rises

Andrew Bailey, governor of the Bank of England, says he understands why the central bank gets flak, after raising interest rates by half a percentage point last week.

Speaking at the ECB’s central banking conference in Portugal this afternoon, Bailey says:

I think at the moment, I can understand why there are critics of us and central banks, [but] we have a job to do.

I’m very clear that our job is to return inflation to target and we will do what is necessary.

I understand the concerns that go with that but I’m afraid I always have to say that it is a worse outcome if we don’t get inflation back to target.

Bailey also explains that the Bank chose to raise interest rates from 4.5% to 5% – a bigger rise than some expected – because the resilience of the UK economy is leading to faster pay rises, when there is also signs that inflation is persistent.

He adds that the BoE will be “evidence-driven” when it comes to further changes in borrowing costs.

Updated

Bank of England forecasting models ‘Unworkable’ in a price shock, chief economists says

The Bank of England’s chief economist, Huw Pill, has admitted that the assumptions which underpin its forecasts become “unworkable” in a crisis, which is why it failed to forecast the surge in UK inflation.

Speaking to the ECB’s conference on central banking in Sintra, Portugal, this morning, Pill outlined how the BoE’s model underplays the interaction of high energy prices and a tight labor market.

Pill showed a forecast from early 2021, showing where the Bank expected inflation to be over the next few years – overlaid where it actually went (much, much higher).

Pill explains that the Bank’s models didn’t predict how the shock from soaring energy costs after the invasion of Ukraine would propagate through the economy, or how energy prices would develop.

This means that the Bank’s forecasting model didn’t predict the impact as various actors in the economy tried to recover the income lost to inflation (with firms hiking prices and workers seeing pay rises).

That, rather than not predicting the Ukraine war, was the error, Pill says.

He says:

“As inflation moves away from target, the everything-else-equal assumption that allows us to break down the contributions to the drivers of inflation in a linear way tends to become unworkable.”

The UK’s low unemployment rate, and shortage of workers, was another factor.

Pill explains:

“The likelihood of second-round effects is much stronger when there is a tight labor market. The impact of the shocks is not additive to one another but has an important multiplicative moment.”

Updated

A former senior Thames Water employee has told the Guardian that it is “such a beast” of a company to fix.

Following Sarah Bentley’s resignation as CEO yesterday, they explain:

“Sarah came in with positive energy, and never had any illusions that her turnaround plan would be a long-term challenge, but it’s such a beast of a company to put right.

She inherited a major challenge, and on top of that the cost of energy and chemicals has rocketed as interest rates have climbed too. There’s no will within the company to fail but there also doesn’t seem to be any way to succeed.

Updated

Thames Water faces “intractable” problems after century of underinvestment

A former Thames Water executive told the Guardian that the water company faces “intractable” problems which are rooted in “over 100 years of underinvestment”.

The executive, speaking anonymously, said:

“We have Victorian pipework which just hasn’t been able to keep pace with massive population growth and the impacts of climate change.

Thames’ debt was intended to accelerate its work correcting the infrastructure gap but no investor would want to cover the cost of the challenges it now faces without a return.”

Shareholders in Thames Water, which include major pension funds, have not taken a dividend since 2017.

The executive explains:

“Thames’ investors thought they would get a 3-4% return. This has been an absolute bloodbath for them. It was supposed to be a stable, long-term infrastructure investment but has become a joke of a situation.”

The source said Thames corporate finance boss Tom Bolton is understood to have left the company just before Christmas last year “without a new job to go to”. According to his LinkedIn profile he joined Omers Infrastructure - Thames’ biggest investor.

“He had a wealth of experience in debt capital markets behind him. I thought: if he can’t keep the show on the road that’s it, it’s all over.”

The executive adds that the problems at Thames Water are “so intractable” that it’s not clear that anyone else could have done a better job as CEO than Sarah Bentley, who resigned yesterday.

They added:

The reputation of [chairman] Ian Marchant has been battered - this is the second failed Thames CEO on his books.”

Updated

The urgent question over the water industry ended with Bob Cryer MP questioning the claim that Thames Water has not paid dividends since 2017.

Cryer says Defra minister Rebecca Pow may have ‘inadvertently’ misled the House, when she said Thames Water hasn’t paid dividends in the last six years.

Cryer says Thames Water has not paid dividends in the usual way, but it did pay a dividend to its parent company last year.

Pow says she will check this out, as she would hate to mislead the House – and will correct the record if needed.

PM spokesperson: water sector financially resilient

Elsewhere in parliament, Prime Minister Rishi Sunak’s spokesperson has told reporters that Britain has “appropriate scenarios” in place for the water industry.

But, the spokesperson declined to comment on reports that Thames Water, Britain’s biggest water supplier, could be rescued by the state.

The spokesperson said speculation around an individual company’s performance was “first and foremost for them”, adding that “in general terms, the whole sector is financially resilient”.

They added:

Ofwat is monitoring the financial position of all key water and wastewater companies as you’d expect, and the government always ensures that we would have the appropriate scenarios in place across regulated industries, including water.”

Q: If Thames Water is taken into public hands, shouldn’t it stay there?

Defra’s Rebecca Pow says she isn’t aware of the situation being referred to.

Ofwat is “working very, very closely with Thames Water to ensure there is a viable business there”, Pow adds.

Updated

Defra minister Rebecca Pow is then asked about reports that water companies plan to raise bills by an average of 25%.

Pow replies that these plans are being assessed now, and will be closely analysed.

Labour’s Rebecca Long-Bailey says the privatised water companies actually received a ‘green dowry’ of £1.5bn in 1989.

Since then, they’ve taken on billions of debt, diverted money from customer bills to pay dividends, and interest payments, and raised bills by upwards of 40% in real terms.

Q: Do consumers hail privatisation as a success?

Defra’s Rebecca Pow replies by explaining the funding model in the water industry.

Ultimately, customers pay for investment in the industry, but over a very long period of time, so if companies don’t pay dividends they would struggle to get finance to fund future investment, Pow explains.

Updated

Labour’s Dan Jarvis asks whether the minister still believes the system of water regulation is fit for purpose, as she did in January.

“Yes,” Defra’s Rebecca Pow replies.

Updated

Clive Betts, Labour MP for Sheffield South East, reminds parliament that other water companies are failing customers too.

He says some of his constituents have been flooded by raw sewage – Yorkshire Water accepts it’s their sewage, but won’t help fund the clean-up, Betts says.

Defra minister Rebecca Pow is happy to meet to discuss the issue, saying that water companies must invest £56bn to deal with sewage issues.

Labour MP Angela Eagle points out that water companies were privatised with no debt on the books.

They started with zero. Since then they’ve borrowed £53bn and much of this has been used to pay £72bn of dividends.

The investmet has been made by borrowing, and put onto customers’ builds.

Now, Eagle tells parliament, rating agency S&P has a ‘negative outlook’ on two-thirds of the water companies it rates.

That’s because they are over-leveraged and taken out too much debt in an era of low interest rates which they now have to pay, she explains.

Eagle says:

This isn’t a triumph. It’s actually a huge problem for the resilience of our water industry.

Q: What will the minister do when water companies start falling over?

Defra minister Rebecca Pow replies that Thames Water hasn’t paid dividends in the last six years, and that Ofwat holds companies to account if they don’t link dividends to performance.

Munira Wilson, MP for Twickenham, reminds the House of Commons of Thames Water’s failures.

Wilson says her constituents are “fed up to the back teeth” with the company, given it pumps sewage into the river Thames, floods streets with sewage when there’s heavy rain, and now plans to pump treated sewage into the Thames when there’s a drought.

Q: Will the minister back the Liberal Democrat’s proposals to reform water companies into ‘public good companies’? (see earlier post for details).

Defra minister Rebecca Pow replies that the Thames Super-sewer will soon be open, in the “not too distant future”, and help Londoners.

The project has been dogged by delays and cost over-runs.

Q: Will Thames Water’s customers day-to-day services be protected, whatever happens, and will much-needed upgrades still be delivered?

Defra minister Rebecca Pow repeats that customers should be assured that water supplies and waste water services will continue.

Conservative MP Richard Fuller makes an important point – a quarter of the UK economy is covered by regulators, but there isn’t a toolkit to assess their performance.

Q: Can we improve the oversight of regulators such as Ofwat?

Minister Rebecca Pow says it’s absolutely essential to have fully-functioning regulators. Ofwat have done an “enormous amount” to improve the industry, she insists.

Thames Water customers should 'rest assured', says minister

Defra minister Rebecca Pow is then asked whether Ofwat is working in the best interest of customers.

Pow repeats that Ofwat is working “very very closely” with Thames Water.

Customers should rest assured that their service will be protected, both for water supplies and for removal of waste water, Pow adds.

Minister: Lot of work going on behind scenes with Thames Water

Q: When was the government told about the financial plight at Thames Water, and what’s the plan if it goes under, as it supplies a quarter of the UK population with water, asks Labour MP John Cryer.

Defra minister Rebecca Pow says Ofwat has been working closely with Thames Water.

Overall the water companies are considered resilient, but there is a lot of work going on behind the scenes with Thames Water to ensure that cutomers will not be impacted.

There is a process in place, if necessary, to move us to the next stage.

That, presusmably, is the special administration regime (SAR) that could take the company into temporary public ownership.

Stephen Timms MP asks what impact the collapse of Thames Water would have on the UK pension sector, if it fails.

This is a very important question, but DEFRA minister Rebecca Pow doesn’t address it.

She says:

There is a structure, there is a process for working through this. It’s up to the individual water companies and the regulator to work with them to ensure they are resilient.

We need our water companies to be fully functioning, and attracting the investment needed, Pow adds.

Minister: We're confident Ofwat is on the case

Jim McMahon MP then asks when DEFRA were first made aware of the financial situation at Thames Water, how much might a taxpayer bailout cost, and what is the impact on UK pension funds who invest in the company?

And is this an isolated case?

DEFRA minister Rebecca Pow replies that the debt-to-equity ratio in the water industry fell by 4% last year, “making it more resilient”.

And defending privatisation, she says investment in the water industry was 84% higher after the sector was sold off.

But on Thames Water, Pow refuses to comment on the financial position of a water company.

Ofwat is looking at that issue, she explains, telling MPs:

Water companies are commercial entities, and it is for the company and its investors to resolve any possible issues.

Government, of course, is confident that Ofwat as the economic regulator for the water industry is working with any company that it facing financial distress.

Jim McMahon MP is disappointed the DEFRA secretary Thérèse Coffey isn’t in parliament to answer the urgent question on the water industry.

McMahon says:

Literally, one of the largest water companies in Britain potentially is going to go to the wall, and the secretary of state is missing in action.

McMahon says that vital investment to end the sewage scandal and tackling water leaks had been sacrificed in favour of a gold rush for shareholders – and that culture was never sustainable.

Last year, when raw human sewage was being pumped out across the country, £1.4bn was paid out to shareholders, McMahon says (to a cry of “disgraceful” from one MP).

He adds that warnings about the water sector are now coming to pass…

Leaks are leading to water shortages, sewage dumping pollutes our rivers, lakes and seas, and the only thing on the up is debt, at £60bn.

The Consevative party cycle of privatising profit and nationalising risk isn’t sustainable, McMahon adds, and isn’t a fair deal either.

He says the water industry was handed over at a knock-down price to investors, with few safeguards for the national interest, national security or bill payers.

Urgent Question on water industry in parliament

Jim McMahon, Shadow Secretary of State for Environment, Food & Rural Affairs, is asking an urgent question in parliament now about the financial resiliance of the water industry. Will the secretary of state for DEFRA give a statement?

We mentioned earlier that Thérèse Coffey has been visiting the regenerative farming festival Groundswell in Hertfordshire this morning, so DEFRA minister Rebecca Pow responds.

Pow starts by telling MPs that water makes life possible on our planet, and is essential for our health and wellbeing (I don’t think this was in doubt, though).

She says the government has taken ‘significant steps’ to ensure the waer industry delivers outcomes which bill payers expect and deserve, and that the industry has invested £190bn since the sector was privatised in 1989.

Pow insists that Ofwat and the government “take the resilience of water sector very seriously”.

The sector as a whole is financially resilient, she pledges, citing Ofwat’s latest financial resilience report.

Pow also points to Pennons’s takeover of Bristol Water (in 2021) as proof of market confidence in the sector.

Since privatisation, total capital investment has outstripped dividends by 250% since privatisation, Pow reports.

She then cites Ofwat’s new powers to take action against companies who do not link dividends to performance, and its position that shareholders, not customers, should fund pay awards that do not reflect performance.

We support Ofwat’s work, and we urge all companies to take this opportunity to review their policies.

Updated

Over in parliament, Prime minister Rishi Sunak has told MPs that the UK’s economic regulators will make an announcement later on "their plans to ensure fairness of pricing in supply chains to ease the burden on consumers”.

That follows their meeting with chancellor Jeremy Hunt this morning.

Our Politics Live blog has all the details from Prime Minister’s Questions:

Water regulator Ofwat says it has been holding discussions with Thames Water, and says the firm needs a “robust and credible” turnaround plan.

A spokesperson for Ofwat said:

“We monitor the financial position of all the key water and wastewater companies.

“We have been in ongoing discussions with Thames Water on the need for a robust and credible plan to turn the business around and transform its performance for customers and the environment.

“We will continue to focus on protecting customers’ interests.”

Environment secretary Thérèse Coffey has declined to comment on the potential collapse of Thames Water but said she did not agree it was a sign that the privatisation of the water industry has failed, my colleague Patrick Greenfield reports.

On a visit to the regenerative farming festival Groundswell, Coffey told the Guardian that water had got cleaner under privatisation. She also defended the government’s plan for meeting its net zero targets after a report by its own advisors found targets are being missed on nearly every front.

When asked about Thames Water’s potential collapse, Coffey said:

“It is not appropriate for government ministers to be making comments about individual water companies.

There is already financial resilience in the sector. Ofwat’s role is to work that through. That’s why we always have these contingencies. I’m not going to say anymore,”

She added:

“Privatisation has certainly brought tens of billions of pounds of necessary investment into our water network and I think that’s shown up well as we’ve seen water get cleaner. We continue to strive to make it even cleaner.”

When asked why the government was off track on meeting its net zero according to a new report by the Climate Change Committee, she said the UK needed to continue to innovate.

Coffey said:

“We have been achieving our carbon budget so far. I recognise Lord Deben is concerned about what is happening with carbon budget six in particular as we make progress towards 2050. But we have delivered on existing budgets. We just need to continue to try and innovate.”

Updated

Lib Dems table bill to reform water sector

Politicians are using the potential collapse of Thames Water to criticise the government and the water industry, with an Urgent Question tabled by Labour’s Jim McMahon expected to be heard in Parliament shortly.

He is likely to be excoriating about what he will call the government’s failure to get control of the water industry.

The Liberal Democrats are also getting involved in the action and have quickly put together a bill to reform how water companies are governed. The new bill, tabled by the party’s environment spokesperson Tim Farron, would make the firms into “Public Good Companies”.

The Lib Dems say that this would mean the companies would no longer “prioritise profit over the environment”, requiring the companies’ boards to include environment experts and be more open to the public.

Currently, water firms are not obligated under law to provide information to the public, and can refuse to answer Environmental Requests for Information.

Farron said:

“There is no time to waste in ripping up this scandal ridden industry. Thames Water is treating the country like fools, by forking out insulting payouts to overseas investors and senior executives, all whilst pipes leak and rivers becoming polluted with sewage.

“It is time for change. The water industry has become like the Wild West. It is a lawless and chaotic industry full of profiteering investors trying to make a quick buck.

“Water firms must stop putting profit before the environment. These firms need reforming from top to bottom. This law would be an important first step to finally turning around this sinking ship.”

Thames Water: we're working constructively with shareholders on funding

Thames Water says it is working “constructively” with its shareholders over the extra funding it needs.

In a statement just released, they say they are keeping regulator Ofwat ‘fully informed’ about the situation, following the reports that it could enter emergency nationalisation.

Here’s the statement:

Thames Water Utilities Finance plc notes recent press speculation concerning Thames Water Utilities Limited (‘Thames Water’).

As envisaged in June 2022, Thames Water received the expected £500 million of new funding from its shareholders in March 2023 and is continuing to work constructively with its shareholders in relation to the further equity funding expected to be required to support Thames Water’s turnaround and investment plans. Ofwat is being kept fully informed on progress of the company’s turnaround and engagement with shareholders.

Thames Water remains focused on delivering for its customers, the environment and stakeholders.

Thames Water continues to maintain a strong liquidity position, including £4.4 billion of cash and committed funding, as at 31 March 2023.

Updated

One government official has told the Financial Times that “theoretically” Thames Water could end up in a special administration regime (ie temporary nationalisation), but that this is a contingency plan rather than a preferred outcome.

Here’s Sky News’s Paul Kelso on the Thames Water situation…

…and journalist Paul Mason:

Updated

Alex Jay, partner and head of insolvency and asset recovery at law firm Stewarts, predicts “some fireworks” if Thames Water is placed into a Special Administration.

Jay explains:

By way of comparison, similar draconian processes were put in place for Carillion – which triggered a £1.3 billion claim against its auditors; and Bulb – which traded for a time out of necessity before being sold amidst a host of Court challenges.

This type of regime really is a last resort, and the fact it is being considered suggests there are very serious problems at the company.”

The failed privatisation model for the water industry should be broken up, says Mathew Lawrence, director of the Common Wealth think tank.

Lawrence explains:

“The imminent collapse of Thames Water is shocking but not surprising.

Extractive ownership models - which have loaded the company up with debt, increased household bills, all while paying shareholders billions - are the root cause.

As the privatised utilities model comes under ever-greater strain, from water to the grid to energy suppliers, it is unlikely to be the last. The most prudent solution is to break with this failed model and return to public ownership, as successfully used in Scotland, Wales, and across Europe. It is time to put people above profit.”

We Own It: Water privatisation has totally failed

The potential collapse of Thames Water has, of course, sparked conversations about whether water companies should be nationalised.

At the moment, this is not a policy being discussed by major political parties, but campaigners are hoping it will be on the table.

Cat Hobbs, Director of public ownership campaign group We Own It, said:

“Water privatisation has totally failed and Thames Water being on the point of collapse makes this painfully clear.

England has chosen to hand over its essential water infrastructure wholesale to privatised monopolies, owned by a handful of shareholders around the world. They’ve extracted £72bn in dividends while letting pipes leak and pouring sewage into our rivers and seas. And they’ve collectively built up a debt mountain of £53bn, although they started out in 1989 with zero debt.

This is unsustainable on so many levels. We are calling for the government to set up shadow public water authorities across the country in every region, which can be ready to take over from the failing private companies.

Publicly owned structures would be able to reinvest profits and work with communities to clean up our rivers and seas.”

The Labour Party have tabled an urgent question in parliament, asking for a government statement on the ‘financial resilience’ of the UK water industry.

It’s scheduled for after Prime Minister’s questions, so after 12.30pm, the Labour Whips office has tweeted:

Labour MP Gareth Thomas says government ministers and the regulator both failed to prevent the failings at Thames Water – and customers deserve better:

A petition calling for a public inquiry into the running and management of the water industry is running on parliament’s website.

It calls for an inquiry into the running and management of the water industry, and whether it has delivered value for money for bill payers and consumers. More here.

Following CEO Sarah Bentley’s surprise resignation yesterday, Thames Water is now being run by two joint interim CEOs – chief finance officer Alastair Cochran and Cathryn Ross, their Strategy and Regulatory Affairs Director.

Ross, who joined Thames Water in 2021 from BT, is a former CEO of water regulator Ofwat.

Environmental campaigner Feargal Sharkey says that Ofwat is responsible for the ‘sorry mess’ in the water sector today.

The bosses of the UK’s regulators have declined to comment as they left their meeting with Jeremy Hunt on Wednesday.

Sarah Cardell from the Competition and Markets Authority, David Black of Ofwat and Jonathan Brearley of Ofgem all declined to comment as they left 11 Downing Street, PA Media reports.

The chancellor was expected to press the regulators for the energy, water and communications sectors on whether the UK has a profiteering problem and what they can do to tackle it.

UK: prepared for range of scenarios in water sector

The British government says it is prepared for a range of scenarios when asked about contingency plans for indebted water company Thames Water.

A government spokesperson insisted that the water sector as a whole was ‘financially resilient, following reports that contingency plans are being drawn up for Thames Water collapse.

They say:

“This is a matter for the company and its shareholders.

“We prepare for a range of scenarios across our regulated industries - including water - as any responsible government would.

The sector as a whole is financially resilient. Ofwat continues to monitor the financial position of all the key water and wastewater companies.”

Updated

There has been a strong reaction to the news of the potential collapse of Thames Water from political figures this morning, my colleague Helena Horton reports.

They highlight that Thames Water has been a major problem within a system which has fleeced consumers and enriched shareholders, and which could now leave taxpayers picking up the bill.

Labour’s Angela Eagle said:

“All the billions of debts they left us with can be paid by the taxpayer, while they get away scot free with the billions in executive pay & dividends they’ve extracted.”

The Liberal Democrats have been campaigning locally on water issues, which won them many council seats at the recent local elections.

Local campaigner against Thames Water and Liberal Democrat Parliamentary candidate for Guildford Zoe Franklin added:

Thames Water has been a disaster for Guildford. They left villages without running water for days on end and have polluted our rivers. People are furious with them and want big change.

Our bills should stop funding their insulting dividends and bonuses, and instead start fixing the leaks and sewage. Its not rocket science but the Government just seems to let them get away with it.”

Here’s Labour MP Angela Eagle on the prospect of the emergency nationalisation of Thames Water:

Mel Stride: Water will keep flowing, whatever happens with Thames Water

Work and Pensions Secretary Mel Stride says he is confident that “water will continue to flow”, whatever happens with Thames Water.

Appearing on LBC radio, he indicated the Government and the regulator Ofwat were prepared for any eventuality.

He said he could not speculate on the specific company, but added:

“Ofwat has as part of its remit a requirement to look at the resilience of the entire sector and will have been looking at and continue to look very closely at Thames Water.

“Government as well has contingency arrangements in place to cover any scenario which may play out and what I’m supremely confident of is whatever the situation is at Thames Water, the water will continue to flow.”

Stride would not say whether the Government would bail out Thames Water if it became necessary, but added:

“There will be numerous conversations going on between Ofwat and Government, and Government and that company, and the company and Ofwat, I’ve no doubt, but as I say I can’t speculate on exactly what’s going on at the moment

“I can reassure your listeners that contingency plans will be well advanced and are there through time, generally, for that sector.”

Bloomberg reports that Thames Water’s junk-rated bonds due in 2026 plunged 14 pence on the pound today to about 72 pence.

That’s the biggest drop and the lowest price since they were issued in November 2020, according to CBBT data.

Reports that the government has begun drawing up contingency plans for the collapse of Thames Water have not caused any ructions in the City, reports Neil Wilson, analyst at Markets.com.

He says:

“Investors shrugged off drama in the water sector with reports that Thames Water might have to be placed into temporary public ownership. While it is not a listed business, such news would normally cause investors to speculate what might happen to other companies in the sector.

“Shares in United Utilities, Severn Trent and Pennon barely moved, suggesting that investors see Thames Water as a company-specific problem (drowning in debt) rather than the start of broader trouble.”

Full story: Contingency plans reportedly being drawn up for Thames Water collapse

Contingency plans for the collapse of Thames Water are reportedly being drawn up by the UK government and the water watchdog, amid fears that Britain’s biggest water company cannot survive because of its huge debt pile.

Ministers and Ofwat are holding discussions about the possibility of placing Thames Water into a special administration regime (SAR) that would take the company into temporary public ownership, according to Sky News.

The news comes as the chancellor prepares to meet the competition and utilities regulators later on Wednesday to address how they are cracking down on companies that are exploiting rampant inflation by raising prices.

Jeremy Hunt, the Competition and Markets Authority and the watchdogs for energy, water and communications are expected to discuss reports that water bills across England will rise by up to 40% next year to pay for the cost of tackling the sewage crisis.

Citing public consultation documents, the Times said annual bills could increase from an average of about £450 to £680, plus inflation, in parts of the country.

Jeremy Hunt’s meeting with UK regulators today is part of the government’s attempt to deflect some of the blame for the cost-of-living squeeze onto corporate Britain, says Bloomberg.

Vicky Pryce, chief economic adviser at the Centre for Economics and Business Research, says the chancellor’s meeting with Ofwat,Ofgem, Ofcom, the Competition and Markets Authority and the Financial Conduct Authority is about “politics and optics,” rather than major change in the cost of living crisis.

“The main reason he’s doing it is to be seen to be doing something,” Pryce told Bloomberg, adding that Hunt “has very limited direct power to intervene, but he can encourage the regulators do their job properly.”

Accounting professor Prem Sikka tweets:

Estimates that UK water bills could rise by 40% are “probably not unrealistic”, according to Sir John Armitt, the chair of the National Infrastructure Commission.

Armitt tells Today that the government’s focus has been to keep bills down, meaning bills didn’t rise in real terms over the last 10 years.

But there has also been under-investment in the UK’s water system for “a very long time”, he points out.

So bills arguable need to go up to fund higher investment, either through a nationalised company (in which case taxpayers fund it) or through a private company (where customers pay through their bills).

Armitt adds that the estimates for infrastructure spending are very significant.

It is thought that £50bn needs to be invested to bring sewage overflows down to “an acceptable level”.

Plus, it’s estimated that £20bn is needed to ensure we have enough water by 2050.

Armitt says:

So as you can see, we’re talking about very large sums of money to restore and enable our water infrastructure and our sewage infrastructure to be fit for purpose.

The country must decide what quality of infrastructure we want, and then decide how we will pay for it, and what we can afford, he concludes.

Darren Jones MP adds that renationalisation is an option “if the company goes bust”.

He tells the Today programme that:

At the moment Thames Water, to take an example, is having to scrabble around trying to find a private finance solution to its problems, which should never have happened in the first place.

The government is always the supplier of last resort, because people need water and electricity, so it must step in if a company which is too big to fail is in serious trouble.

Jones says:

If we end up in a situation where the private owners of these companies have completely messed it up, then there is no choice for the government other than to bring it into public ownership and to run it.

He adds that, as some water companies are in better financial health than others (such as Thames Water), the wholesale nationalition of every water company across the counrty probably isn’t the answer.

But, the companies must be put onto “a sustainable footing”, in whatever form of ownership that is, based on better, closer regulation and better conduct by firms’ directors.

Darren Jones MP: Water industry suffered from poor corporate behaviour and regulation

Darren Jones, the Labour MP who chairs parliament’s Business and Trade Committee, says the water regulator, Ofwat, has a case to answer over the problems in the industry.

Speaking to Radio 4’s Today programme, Jones says he is “increasingly sick” of seeing the same failings.

Jones explains:

We know that companies that are too important to fail must be regulated differently to other companies.

These regulators were set up, not just to try to keep consumer prices down after privatisation, in natural monopolies, but to ensure that the conduct of the owners and managers of these companies acted in the interest of the country and consumer.

And for too many years, decades even, we’ve allowed these companies to be operated with high risk stakes, with high levels of debt, with wealth being extracted from the companies, with investment not being high enough.

And then, once again, we’re in a situation where we’re being told that customers, taxpayers are going to have to pick up the bill for a failure of good corporate behaviour at these companies, and by the sounds of it poor regulation.

Q: Would renationalising this industry lead to a better result?

Jones says it’s an option, but not necessarily the right one.

The issue here isn’t about the ownership model, it’s about the conduct, he insists, and “the behaviour of the directors and the shareholders who own and operate these businesses”.

He cites debt levels, the cost of debt, the areas that the companies are putting their money into, dividends to shareholders,and executive pay as areas where water companies have had the wrong priorities. The energy industry has the same problems, Jones warns.

He says:

These companies have been allowed to not invest for the future, even though we know in many ways what we needed them to do for the future, and the regulators have allowed them to get away with it.

Mike Keil, senior director at the Consumer Council for Water, has said there must be a ‘strong safety net’ to protect households who cannot afford higher water bills to fund investment in the industry.

With nearly a quarter of households struggling to pay their water bills during the cost of living crisis, Keil told The Times:

“Customers support the need for investment in enhancing the environment and the resilience of our water and sewerage services but we know that could lead to some substantial bill rises.

“Investment on the scale being proposed must come with a strong safety net to protect households that cannot afford their bill.”

Ofgem proposes binding rules to protect struggling customers

Elsewhere in the cost of living crisis, the energy regulator is proposing that new rules brought in to protect struggling prepayment meter customers should be a compulsory part of licence conditions for suppliers.

The voluntary code of practice, unveiled in May, bans forcibly installing prepayment meters (PPM) into the homes of people over the age of 85 and gives extra protections to vulnerable households.

All UK household energy suppliers signed up the code but regulator Ofgem said it now wants to make the voluntary arrangements “binding”.

It has also proposed that suppliers get compensated for a type of credit offered to the most vulnerable PPM customer, PA Media explain.

Neil Kenward, director for strategy for Ofgem, said:

“We are committed to ensuring robust protections are in place for vulnerable customers.

“The voluntary code of practice for prepayment meters enhanced protections, setting clear rules for when a prepayment meter is or isn’t acceptable, as well as new requirements around the installation of prepayment meters.

“We are now seeking to make these voluntary arrangements binding, and we welcome all views on this statutory consultation.”

Minister: some water companies are in difficult positions

Children’s minister Claire Coutinho has declined to comment directly on reports that the Government has been drawing up contingency plans to prepare for the possible collapse of Thames Water.

Coutinho told Sky News:

“I certainly think there are water companies like Thames Water which are in difficult positions, but I think our position as Government is to make sure that we have the right policies in place to see consumers protected but also that we’re dealing with things which are really important to the country, like dealing with the sewage leaks.

So what we’ve been asking companies to do is to make sure they’re putting forward investment plans and then what we’ve separately been doing is helping households with their family finances through cost-of-living support.”

George Eustice, the former secretary of State at the Department for Environment, Food and Rural Affairs, has predicted that water bills will not rise as fast as the industry wants.

Speaking on Radio 4’s Today programme, Eustice explains that the ‘pricing rounds’ agreed with the industry mean bills won’t rise until 2025.

The investments needed in new storm overflows were expected to raise bills by £42 on average between 2025 and 2050, Eustice explains, but “inflationary pressure, and new obligations put on water companies” mean this may be “quite a bit higher”.

Q: So are bill increases of 40% possible?

Eustice says this figure has been put out by the industry ahead of their negotiations with Ofwat.

I think the figure will be far lower than that, when it comes to it.

There is some variation across the country, Eustice adds, saying investment costs were higher in post-industrial towns in the north Midlands, where there were more storm overflows to deal with.

Q: Shouldn’t companies have spent more on intrastructure in the past, rather than paying out billions of pounds in dividends?

Eustice argues that pension funds and investment funds expect to see a return, if they’re putting money up for investment.

One challenge at the moment is that the political noise around this issue “drives away investors and makes it harder to raise the money,” he warns.

Ministers 'weigh contingency plan for collapse of Thames Water'

In another worrying development, Sky News is reporting that the government has begun drawing up contingency plans for the collapse of Thames Water.

The news comes less than a day after the surprise exit of Thames Water’s CEO, Sarah Bentley.

Sky says there are “growing doubts” in Whitehall about the ability of Britain’s biggest water company to service its £14bn debt-pile.

One option could be to put Thames Water into a special administration regime (SAR), as happened with energy company Bulb in 2021.

Sky reports:

The talks within Whitehall, which involve the Department for Environment, Food and Rural Affairs (DEFRA), Ofwat and the Treasury, remain at a preliminary stage and relate at the moment only to contingency plans which may not need to be activated.

Thames Water serves 15m customers across London and the south-east of England, and has come under intense pressure in recent years because of its poor record on leaks, sewage contamination, executive pay and shareholder dividends.

Updated

Introduction: Water bills "to rise 40% to fix sewage pollution crisis"

Good morning, and welcome to our rolling coverage of business, the financial markets, the world economy, and the cost of living crisis.

UK households have been warned that their water bills could surge by up to 40% by the end of the decade, as companies look to pass on the cost of tackling the sewage crisis and fighting climate change.

The rises are due to be announced next year, The Times reports this morning, adding hundreds of pounds to average bills.

The move has apparently alarmed ministers, as they try to get to grips with the cost of living crisis, but water companies say they needed the extra money to meet strict pollution targets.

UK households have already been hit by the biggest increase to water bills in almost two decades.

But The Times reports that customers are going to be squeezed much harder, to fund investment plans to tackle the UK’s sewage crisis.

They say:

Under a process being run by Ofwat, England’s water companies have been asked to submit investment plans by October to fulfil commitments to tackle pollution from sewage. These include improving storm overflows discharging in or near designated bathing spots and improving 75 per cent of overflows discharging to high-priority nature sites.

Public consultation documents seen by The Times show that, to pay for the work, most companies are asking the regulator to approve real-terms price increases of, on average, 25 per cent between 2025 and 2030.

Southern Water, they say, plan to increase its charges to customers from £432 to a minimum of £677 by 2030, although it suggests the figure could be as high as £793.

Fresh from bringing in a hosepipe ban, South East Water, is planning to increase its bills by as much as 39% by 2030.

Wessex Water wants to put up its prices by 30%, while Thames Water is proposing rises of 20%.

Yesterday, Thames Water surprised the industry by announcing the sudden departure of chief executive Sarah Bentley, as the UK’s largest water utility struggles with its massive £14bn debt pile and battles to improve its environmental track record.

Also coming up today

Chancellor Jeremy Hunt will meet with the UK’s regulators to discuss the cost of living crisis, and whether firms are competing as they should.

The Treasury are concerned that companies are not passing on their easing cost pressure to consumers fast enough, undermining the government’s target of halving inflation by the end of the year.

Hunt is expected to ask the Competition and Markets Authority (CMA), and the watchdogs for energy, water and communications whether there is evidence of price gouging by companies and if so what they intend to do about it to help households.

Hunt will have “food companies, energy suppliers and banks in his sights”, the FT says.

As we reported yesterday, the UK’s largest mobile and broadband companies have been accused of fuelling “greedflation” after pushing through the biggest round of price hikes for more than 30 years.

We’ll also hear from the head of the Bank of England, Andrew Bailey, and its chief economist Huw Pill, as they attend an annual gathering of central bankers organised by the European Central Bank in Sintra, Portugal.

The agenda

  • 7am BST: GfK’s German consumer confidence report

  • 11.30am BST: ECB holds panel on “Lessons from recent experiences in macroeconomic forecasting”, including Bank of England chief economist Huw Pill

  • 2.30pm BST: BoE governor Andrew Bailey appears on ECB ‘policy panel’, alongside ECB president Christine Lagarde, Fed chair Jerome Powell and BoJ governor Kazuo Ueda


Updated

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