In a report published earlier this year, I suggested that the English water companies were what I described as 'environmentally insolvent'. By that I meant that they were unable to supply clean water and rivers and beaches in the UK and remain financially solvent at the same time: trying to combine these demands was an impossibility that I suggested that they could not manage.
Some predictions come true a little sooner than I expect. This morning, The Guardian reports that:
The parent company of Thames Water has been warned by its auditors that it could run out of money by April if shareholders do not inject more cash into the debt-laden firm.
In accounts signed off in July and published on the Companies House website last week, PricewaterhouseCoopers said there was “material uncertainty” about whether the main company behind the water supplier can continue as a going concern.
Let's be clear that this does not mean Thames Water will go bust. It might find the borrowing that it needs. The auditors just do not know how as yet.
My suspicion, however, is that they will find this hard, precisely because I think they are environmentally insolvent. That will be as apparent to anyone who is now being asked to lend them money. As my report showed, the numbers just cannot be made to stack up.
For the same reason, I suspect the other water companies will follow the same course sometime soon.
This is an industry heading for nationalisation that has massive investment funding needs, and no politician thinking about how to take that problem on when both the Labour and Tory parties are dedicated to cutting both spending and investment.
The problems at Thames Water are not, in that case, just a little bit of corporate botheration: they might become the epicentre of the challenge to the way that we manage this country from hereon.
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When the financial crisis came it all happened very quickly. With hindsight, most might agree that quite a few players that should have lost money walked away “whole” – senior management, subordinated bondholders for example. However, Alistair Darling and Gordon Brown did, in my view, an excellent job in very difficult, fast moving circumstances.
Water supply is as (more?) critical than banking. However, we can see what is coming down the pipe (excuse the pun); we have time to ensure the restructuring is done fairly. Perhaps this blog could come up with what a plan should look like?
Hindsight is 20-20; the real villains – those that privatized the system are beyond reach… as are Macquarie Bank that loaded the company with debt before unloading it to gullible investors. Not much can be done about them but shareholders, bond holders, management customers, contractors and others… how do they get treated?
If a water company does go bust, then the usual rules of capitalism should hold. The shareholders bond holders, and unsecured lenders, should lose everything. The company should go into administration. Then the government should buy it for a nominal sum, say £1.
The Conservative government makes a big deal of market forces (capitalism, neoliberalism). It should play out in this case. We should not, as we did for the banks, bail out failing companies. We should not take a shareholding to spare existing shareholder. Failed companies should go bust. They should not have corporate welfare.
I tend to disagree
I may do a blog on this
Please do explain why a privatised company shouldn’t be allowed to ‘fail’ so it’s investors lose their capital (after having taken dividends or interest previously). If these natural monopolies and others providing public services are best held under some sort of public ownership, how is that to be achieved? Or do you prefer some sort of state administration and regulation (of service level, prices etc) but operations delivered under a franchise, by a single company (as planned for some city or regional bus services)?
Give me time
Good post, agree 100%.
Time to stop “corporate socialism” (socialise losses, privatise gains).
Well put.
The reason why I get really angry with Labour is that there is no acknowledgment of how the crises in our country have come about.
Put simply, it is about austerity and BREXIT.
Even more simply, both these have caused a lack of money to exist (day to day and investment) which has been withdrawn. Money has been withdrawn by the Tories. Their low wage economy and wage cuts have also contributed to this.
In the water ‘industry’, money that could have been invested to improve how we deal with sewage for example has simply gone into the pockets of investors and senior managers.
So we are where we are because of a lack of money being supplied and misallocated.
So surely the answer is to put the money back in?
By government admitting that austerity was a mistake and went too far so they should be investing.
By encouraging better wages to help the funding that it needs from taxation (wrong though this thinking may actually be).
By stepping in and doing the job the privatised utilities have failed to do by nationalising them and taking back control.
By starting to re-join the EU (but no Euro please!).
I’ve not heard anything from Labour about any of this and I’m sure there are other things it could do.
A lack of money – through austerity and mis allocation of – has got us to this point. It seems obvious to every man and his dog what the country needs.
Except the parliamentary Labour party it seems.
Starting to rejoin the EU?
https://northeastbylines.co.uk/lammys-mood-music-sidestepping-towards-rejoin/
I wonder if Lammy is going to be the next one removed from the front bench.
https://weownit.org.uk/act-now/bring-thames-water-into-public-ownership
Can’t remember when weownit started this petition, but the last signature was 3 days ago, so it’s still going. Got fewer than 17000 signatures, though, so a few thousand more won’t go amiss.
What will the government do to prevent the water companies from going bust? In my opinion, they will not want to invest in the water companies by re-nationalising them. It would be, after all, against everything they believe. So, they will guarantee the investment money put in by whoever can be persuaded to do so. That way, the companies remain private enterprises, government pays out nothing, and nothing will change. They certainly won’t add regulation to ensure the money goes into the infrastructure, but we’ll get the bill in the end. Plus ca change.
I will write about this asap
Heavily bogged down in other work today
Looking forward to it. I would suggest…..
We want a public owned system. We want to get there with as little cost to the public purse as is reasonable.
Treatment of shareholders is fairly straight forward but creditors come in different flavours (senior/subordinated/holding company/operating company/related parties etc.) and will need careful handling to remain within contract law and deliver some justice. (Here, I think all bondholders should take a hit of varying degrees but not 100%)
The big problem will be that existing owners will potentially try and hold us all to ransom saying “we are going over a cliff…. but we will take you with us unless you throw us a bone”. (As RBS did in 2008).
At the end of the day, Government has very wide ranging powers – and should use them.
This is what I am musing on
Another petition by weownit. They have ideas of what to do. Why should the public buy out shareholders who have made lots of money off the back of Thatcher’s privatisation?
https://weownit.org.uk/act-now/take-shares-not-fines
I assume, Jacqueline, that you read and signed the first one.
Take shares instead of fines does not mean buying shares.
Thanks for publishing this petition. It makes perfect sense!