The government has thrown a £10bn rescue deal for Thames Water into doubt, pushing the UK's largest water company closer to temporary public ownership after the environment secretary warned the plan would place an “undue burden” on customers.
Emma Reynolds wrote to Iain Coucher, chair of the regulator Ofwat, on Monday raising three specific objections: the unfair cost to consumers, delays to vital infrastructure investments, and delays to environmental improvements. In a statement to the House of Commons, Reynolds said she was “not convinced about the proposal’s request to reduce performance standards” and feared the “long-term resilience of the water and wastewater systems may not be adequately protected”.
“Environment secretary objects to Thames Water rescue deal, pushing UK's largest water company closer to temporary public ownership.”
The rescue package, put forward by a group of Thames Water’s existing lenders calling themselves London & Valley Water (L&VW), would have seen £3.35bn in new cash injected into the company alongside a new £6.55bn debt facility – part of a £10bn business plan running until 2030. The lenders also offered to write off £9.4bn of Thames Water’s near £20bn debt pile. In return, they sought leniency from future pollution fines for the next four years.
Thames Water, which supplies 16 million customers across London and the south of England, has been battered by years of criticism over sewage discharges, pipe leaks, and underperformance. In May last year, Ofwat handed it a record £122.7m fine for breaching rules on sewage spills and shareholder payouts. Reynolds said customers had “been let down for far too long, with 15 years of underperformance, increasing serious pollution and customers left to pick up the bill”.
A spokesperson for L&VW hit back, insisting their plan was “by far the fastest route to improve outcomes for customers and the environment, without any government funding or any cost to taxpayers”. But Reynolds countered that she did not want “a scenario where Thames Water customers had to pick up the bill for the company’s failures”. She told reporters the government “stands ready for all eventualities”, including a special administration regime – a form of temporary nationalisation.
Pressure has been building from parliament as well. On Tuesday, 107 MPs – including 42 from Labour – signed an open letter to Ofwat and Reynolds calling for the creditors’ deal to be rejected and for the company to be brought into public ownership. Andy Burnham, the Labour candidate in Thursday’s Makerfield byelection who has previously said Thames Water should be nationalised, told the Guardian that public ownership would “absolutely be an option” if he became party leader.
Since Thames Water was sold under Margaret Thatcher, successive private equity owners have loaded the company with £17.6bn of debt, leaving it on the brink of collapse. If the rescue deal collapses, the government could step in to maintain services – but customers will still have drinking water and sewerage regardless, Reynolds confirmed. The question now is whether the lenders can revise their proposal enough to satisfy the government, or whether temporary nationalisation becomes the only way forward.