Thames Water: a sinking feeling

A Thames Water van
A Thames Water van

In a properly functioning market, a badly-run business that cares little for its customers and accumulates massive debts would go bust. But the water industry does not seem to operate in such a market. When a firm gets into difficulty, as Thames Water has done, it seeks to put up prices or expects the Government to bail it out.

The idea that a utility providing an essential service might go bankrupt seems inconceivable. But should it be? How else is market discipline to be reimposed on the country’s largest water company, serving some 14 million people?

Thames has an £18 billion debt mountain which it proposes to reduce by increasing average bills by 45 per cent over the next five years. Shareholders had promised a £500 million injection as part of a planned £3.75 billion funding package designed to see the company through to 2030.

But the cash has not been forthcoming from investors, who were happy to see dividends paid even as the business languished. The sense that people profited from this mismanagement and seem to have taken little risk is one of the more unappealing aspects of this episode.

They are now desperate to stop the company going bust or from being renationalised. They have been threatened with a special administration regime which would also mean huge losses for investors and creditors. A collapse, furthermore, would have serious ramifications for the pension and infrastructure funds that have invested in the utility.

Thames Waters’s plan has to be approved by the regulator Ofwat, which must protect consumers and ensure continued investment. What is needed above all is new management.