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Ministers have accepted that Thames Water’s bills will have to rise, in a bid to persuade investors to pump more money into the ailing company and stop it sliding into politically disastrous nationalisation.
Steve Barclay, the environment secretary, has told the company and the regulator, Ofwat, that he does not want to see any relaxation of the regulatory regime that would allow Thames Water to pump more sewage into rivers.
But ministers admit something must be done to stop investors abandoning the company after Thames Water shareholders this week ruled out injecting £500m of capital.
“We are not happy about the rising bills,” said a cabinet member close to the discussions with Ofwat and Thames Water. “But if you have to donate somewhere, it should be on your bills.”
Thames Water has asked to be able to increase bills by 56% by 2030, including inflation, or around £262 per household. But the Consumer Council for Water (CCW) has warned that the increases will be unaffordable for many families and that there is a growing campaign calling for bills not to be paid.
“Thames Water customers understand that investment is needed, but they should not have to pay for Thames Water’s past failures. They have already paid a high price due to the companies’ poor levels of complaints and service,” said CCW CEO Mike Keil.
Ofwat is weighing its decision, with a draft ruling expected in June, when the company is expected to renew efforts to raise billions of pounds of capital from new and existing shareholders. The company needs the bill increases to support any shareholder investments.
While Barclay accepts that customers already feel they are paying too much for water, there is also widespread anger at the state of Britain’s waterways; The Liberal Democrats are putting the campaign against sewage spills at the heart of their election campaign.
The issue will once again come into focus on Saturday when the Oxford-Cambridge race takes place, despite warnings of “dangerous” pollution caused by sewage in the River Thames.
Barclay met with the new management of Thames Water earlier this month and, according to colleagues, wants to give them a chance to change the situation. “It appears they have a plan to do this,” a government official said.
Franck Petitgas, business adviser to Prime Minister Rishi Sunak, has been involved in discussions to find a way out of the Thames Water crisis, as Downing Street joins efforts to try to prevent the company’s collapse.
Thames Water is also calling for limits on regulatory fines for wastewater pollution and other failings, as the company says they reduce the company’s liquidity, making it harder to improve its performance.
Two directors, including company secretary Rachael Hambrook, left parent company Kemble on Thursday in a sign of the water monopoly’s growing difficulty.
Chris Weston, chief executive of Thames Water, said this week that the company was “a long way off” from temporary nationalisation, but did not rule it out as it represents a big problem for Sunak in an election year.
Margaret Thatcher privatized the water sector in the 1980s and the forced renationalisation of Thames Water would confirm in voters’ minds that it had been a costly failure.
Michael Gove, communities secretary, appears to confirm some of these doubts this week. “I think for years now we’ve seen Thames Water customers take advantage of successive management teams who have taken profits and not invested as they should have,” he said.
Neither the Conservatives nor Labor want to renationalise the sector and must take the blame for rising bills and sewage spills or, in the case of Thames Water, become responsible for providing water and sewerage services to millions of customers.
Rachel Reeves, the shadow chancellor, said last year: “Spending billions of pounds to nationalize things is simply not against our fiscal rules.”
A government spokesperson said: “We prepare for a range of scenarios across our regulated sectors, including water, as any responsible government would.”
Labor, however, promised to give Ofwat the power to block the payment of any bonuses until water bosses had “cleaned up their mess”, the party said, adding that executives who oversaw Repeated violations of the law will face criminal charges.
The Labor Party said on Friday that its analysis of NHS hospital admissions linked to waterborne diseases, including dysentery and Weil’s disease, had increased by almost 60% since 2010.