Thames Water has returned to profit after hiking bills by 40%, posting a post-tax profit of £113m for the 12 months to the end of March, swinging from a £1.51bn loss the previous year. But the deeply troubled company is far from out of the woods. Its net debt swelled to £18.5bn from £16.8bn, and it warned it has enough cash to last only until the end of this year. The money customers are paying in bills is nowhere near enough to fund the massive infrastructure upgrades needed after years of underinvestment.
The crisis poses a major test for Andy Burnham, who is expected to become prime minister on Monday. Burnham has previously called for Thames Water to be nationalised, and his response to the fast-approaching problem will offer a first glimpse at what his ambition to bring key utilities under “public control” really means.
“Thames Water posts £113m profit but debt swells to £18.5bn, testing incoming PM Andy Burnham's plans for public control.”
The first option on the table is a rescue deal put together by its lenders, which would see some debt written off and new cash injected in return for leniency on environmental targets. Lenders argue it is pointless throwing money at fixing long-standing problems if it goes straight out the door again in fines. But Environment Secretary Emma Reynolds recently rejected this plan as “weak” and not offering enough protection for consumers and the environment.
Another option is Thames Water entering a form of administration, with government-appointed officials running the company on the public’s behalf. That would leave the government on the hook for its existing debts and require billions of pounds of public money in investment. The so-called “special administration” is designed to be temporary, and the government would recoup some taxpayer cash if the business was sold on again to a private buyer.
But with Burnham intent on taking more control of key utilities, how likely is he to want to return Thames Water to private owners? Getting taxpayers in the north west to subsidise a London water company might be a hard sell for Mr Manchester. Greater public control could just mean tougher regulation, or capping the amount companies like Thames Water can borrow, but that would arguably make it harder to raise and use the money needed to fix its problems. There is no easy answer — but how Burnham responds will define the start of his premiership.