It’s time to renationalise our failing water industry

Editorial: Like a high street bank, a water company cannot be allowed to go bust. If Thames Water, with its eye-watering debts, is no longer commercially viable, it has to be taken over by the state

29 March 2024 (Dave Brown)

Ever since the Conservative manifesto for the 1987 general election disingenuously promised to “return to the public the Water Authorities” – in other words, privatise the ones in England and Wales – there has been an on-off national debate about whether the supply of water, sewerage and associated services should, in fact, be owned and controlled by the state or in the hands of free enterprise. Soon, however, the issue, at least in the case of Thames Water, will be resolved not by a popular vote but through commercial pressures.

Thames Water, to put it bluntly, is going bust and will run out of money by May 2025. Given that its wide range of well-resourced shareholders, including major pension funds, are warning that the business is now uninvestible, it seems inevitable that Thames Water will before much longer pass into a special administrative regime, and, in effect, be nationalised. The alternative, which is that the taps run dry and the loos no longer flush in the capital of the United Kingdom is rightly an unthinkable consequence of subjecting what is, at base, a public service to the worst emanations of capitalism.

Thames Water has many problems, not all of them of its own making. Britain’s Victorian sewers and water pipes are crumbling, inadequate, prone to leaks and sewage dumps, and expensive to replace. The infrastructure was neglected under many decades of municipal ownership long before it was floated on the stock market in the exciting though transient era of mass share ownership promulgated by Margaret Thatcher. The regulators have also failed to be tough enough over water purity and pollution, to an unbelievable extent.

Yet the biggest single problem faced by Thames Water, and the cause of its present misfortune, is debt: around £15bn of it. It is an operationally profitable business with high and steady margins, and it hasn’t actually paid out a dividend to shareholders since 2017, but it’s had to spend far too much of its income on servicing the debts owed to bondholders. Those debts were run up by a previous generation of shareholders, long after the army of individual shareholders had sold up and the company was technically renationalised by being taken over by a water company owned by the German state. After the Germans departed there came an array of private shareholders who seem to have loaded the enterprise with debt and extracted an extremely handsome stream of dividends in return.

That is not the entire explanation but in terms of where the money went it is about half of it at least. The real weakness in regulating the water companies has thus not been so much the manifest failures to control sewage spills, fix pipes, build drains and dig new reservoirs, grievous though they have been, but in the prudent financial oversight. Clean running water is an even more basic requirement of civilisation than a functioning and safe banking system but Thames Water and its peers were never subjected to the kind of regulations that banks are (or should be). Like a high street bank or building society, or for that matter a privatised train company, a water company cannot be allowed to go bust, and if it is no longer commercially viable then it has to be taken over by the state. The aim since it was sold off in 1989 should have been to ensure Thames Water was not so overburdened by debt obligations that it couldn’t fulfil its basic obligations, either to the environment, customers or, indeed, the present group of shareholders.

Soon, therefore, this chapter in the life of the water industry will draw to a close, whatever Sir Keir Starmer or Rishi Sunak choose to put in their respective manifestos. Whether they like it or not, the taxpayer will be left with the debt-laden mess created by what turned out to be a careless privatisation and a huge failure of regulation. In effect, as the campaigner Feargal Sharkey points out, Thames Water’s customers and taxpayers will be left to repay the funds drained from the system when the company was loaded with debt and turned into a cash machine for its previous owners. What befell Thames Water is a scandal. It should be subject to a full inquiry and those responsible have to take responsibility, and sooner rather than later. The even greater concern is that the Thames Water scandal may not be the last of its kind.