As the Guardian reports this morning:
Thames Water has said it will be unable to recover from its funding crisis if it is blocked from charging customers significantly more, as it proposed to pile an extra £228 a year on to household bills.
It added:
The debt-laden company said the increase to bills that has been proposed by the industry regulator, Ofwat, leaves its activities “neither financeable nor investible”.
If Thames was not allowed to raise bills by 59% – £228 a year by 2030 – it “would also prevent the turnaround and recovery of the company”.
Ofwat refused a request from Thames to increase bills by 44% in July, saying it would only allow 22%, equivalent to a £99 increase to £535 by 2030.
In summary, then, Thames has said it cannot survive as a going concern within the regulatory framework that exists, and it can't deliver clean water as required within that constraint, as it is required to do under the terms of its licence
A responsible government would, in that situation, do one of three things.
First, it could cancel the licence Thames Water has as it says it cannot deliver.
Second, although rather naively, it could invite others to bid for that licence. I suspect no one would do so: this is clearly a commercially poisoned chalice.
Third, it could nationalise Thames Water, recognising that the supply of clean water is a matter that cannot be gambled on, and for which it has to assume responsibility.
The first and third of those are sensible: the second would provide Labour with another chance to prevaricate, which is why I think it will happen.
But what I am quite sure of is that there is no excuse for inaction now: Thames has admitted it cannot do the job required of it within the framework that it agreed to comply with, and so it is game over for it. When will the government say so?
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As the company is insolvent, it claims, surely it has zero value, so nationalisation will be zero cost with a rising income stream to both invest and give any extra to the exchequer.
Or is the company lying and in fact it still has assets it can dispose of to fund it’s operations, merely can’t pay it board and shareholders their inflated takes.
The shareholders have no value – agreed
The question is whether the lenders to it get anything
Agreed. I do not expect Labtory to have the backbone to do the right thing for the benefit of the long suffering customers and/or the environment.
The second option would be more characteristic of the response of a failing state; but of course, Britain looks more and more like a failed state every day.
Meanwhile Shetland is now hooked up to the grid so that the new surplus renewable energy from a big wind farm can be funnelled south to help fix Britain’s energy problems (but not reduce the price consumers pay for energy, because that is determined by the international gas price, whether you are using it or not). The real absurdity however is that the further you are from London, generally the more you pay for energy – among the highest in Shetland (you figure it out); the grid costs are constructed to ensure the people nearest to renewable energy generation pay the most for energy. If London cannot find any other clever or sneaky way to rip you off, it just rips you off anyway – and knows neither press or politicians will choose to notice. They know what side butters their toast. This is a reminder that Scotland is tied to the anchor of a the sinking, and failing British ship-of-state; and is regularly thown into the water first.
Remind what London and the City does for us all; oh, yes provide an environment most convenient to and helpful for international oligarchs. that’ll work as a strategy for growth. It has worked so well……….
Much to agree with
Mr Warren, you have it all so wrong, the faults/problems you identify show that markets (as per neo-lib design) are working perfectly & I am certain that Mr Starmer and Mrs Reeves are perfectly happy with the situation.
Moving back to the main thrust of the article: UK serfs = human cash dispensers to profit-maximising monopolies (confirmed by Mr Warren’s comment on elec). Given the reality that LINO is wedded to PFI, the idea that Thames could be nationalised (by any route) is dead in the water. It is a racing certainty that after a bit of deckchair rearrangment, LINO will allow Thames (look under new ownership!) to continue its money-extracting activities. In fairness, UK serfs voted for LINO (yes I know not that many – but enough) and failed to educate themselves with respect to what they were voting for (= PFI/Tory II).
Exactly, we are still suffering from forty years of Tory failure and privatised water companies polluting our waterways. Pointless privatisations of the energy companies.
Public ownership is essential. But several questions need answers.
Can a good service be delivered for the price that the regulator is suggesting? If not, who pays? If central government how would non-TW folk feel about subsidizing Londoners?
TW shareholders will lose everything but how should lenders be treated?
Richard and I have different views on this but I am wondering… TW says it needs £129 a year more than the regulator will allow. How about making lenders take a hit equal to the present value of the difference?
At least that…
And all the other companies will fail Clive
Not one of them can be considered solvent given the demands on them. It will just take longer for that to become apparent.
Like energy and railways the attempted privatisation of water is a basket-case paradigm of gross greed, cupidity, ignorance and rank stupidity. When such a deep and spectacular mess is made of everything in the industry privatised, there is no perfect way to fix the mess. There is no harmless solution. That cannot be used as an excuse not to fix it; nor to make the long abused consumer pay most of the price. Frankly, in a just and equitable world the people who made the big decisions should be banned from participation in the industry; and probably, any industry, in a senior position
But it will all be fudged and forgiven, because the only people never, ever harmed, or allowed to suffer from the full and real consequences of their freely embraced actions – are the culpable.
You really cannot go on like this. Look at the depth of the mess we are in. Let’s fudge it, and make things worse; and fuge it again; and again.
I posted an exert from an article yesterday on this blog where the company that operates Thames Valley water stated that without the increase in water rates they could not attract new investors, service the debt nor pay investors dividends.
Nationalization of Thames Valley Water by the UK government would eliminate the need for new investors, debt service and investor dividends.
Nationalization sounds like a no-brainer to this Yank.
I suggest you read Prof Sir Dieter Helm’s take on Thames Water here
https://dieterhelm.co.uk/publications/a-bad-answer-to-the-wrong-questions-ofwats-interim-determination-and-its-turnaround-oversight-regime-for-thames-water/
Why?
It is prevarication as far as I can see
I suggest that Helm (who is an expert on power – not water) reads “Late Soviet Britain”. Although Helm claims that water (& sewage) is simple – he goes on to show that it ain’t (thus undermining his argument that Ofwat is capable of regulating). As Innes shows in “Late Soviet Britain” once there is significant asymmetry of knowledge between the regulator and the regulated – only bad things (in favour of the regulated) can happen. Helm thus make a utopian assumption: regulation of monopolies works – as the last 34 years has shown, it does not & cannot. Helm is part of the “markets & more markets” problem & provides cover for imbeciles that want to avoid a reality: privatised and regulated monopolies providing vital puiblic services have not worked and cannot work.
They work in the sense that they are better than the alternative. Have you seen the state of the River Wye. It’s really bad
The thing that screams to me is that apparently the cause of concern is that Thames is “neither financeable nor investible”. Well, so much for priorities.
If there is a red light for Labour it is in that statement.
This is financialization gone mad and is as far as I am concerned and should lead to a green light for nationalisation and a public enquiry with the possibility of it being underpinned by the law with those involved facing penalties.
The ACTUAL purpose of Thames water is to provide clean drinking water and deal with human waste safely (so that it can deliver clean drinking water) and storm water effectively. Even the Victorians knew that dealing with water borne waste effectively helped human health, and the value of clean drinking water.
What is more, Thames Water operate in what of the most overcrowded areas in the UK.
But their investment value and ability to attract money from the market is what seems to be the headline.
This is through no act of God or misfortune. This has happened because the investors and management have been gorging on income streams and taking a disproportionate share that has undermined the service’s long term viability.
This is not even deserved of the name ‘capitalism’; it is daylight robbery and mismanagement by the ‘regulator’ and Thames Water who need the book throwing at them. The fact that now service users have to stump up the cash is an outrage.
How many times must we see stuff like this, and how many times will ideology break things that work and leave ordinary people to pick up the pieces?
This deserves a people’s march on parliament. A big one, to put the wind up the fat and complacent arses of those run the country who refuse to acknowledge the problem and learn and change.
Outrageous!!!
In the context of Thames Water, this study is most interesting:
https://www.mdpi.com/2073-4441/12/1/225
Top of page 5 contains the meat. 26% of water is lost due to leaks and the company although generating some elec itself (20%), there is the the possibility to generate vastly more (and typically @ half the price of that via the networks) is not mentioned. As it notes, elec accounts for 14% of operational costs – just think if that was cut in half. This will not happen under this or any gov, the only way it would happen is via nationalisation with decisions passed to engineers rather than the current crew of chancers and half wits.
I do apologise Mike for a less than succinct response, it’s a combination of old age as well as habit, and for the record I’m a retired water engineer/specialist.
Do bear in mind the study is on energy use, although I do agree very much more could be done to increase generation and conserve energy to minimise commercial supply costs, but what does it matter when there is insufficient raw water to process ?
This is by far the greater problem for Thames et al – They are struggling for raw sources for potable supply having effectively exhausted them over decades, look what happened to the once renowned chalk streams, a year long hosepipe ban continuing in north devon, and I’m sure there are plenty of others…
HMG were warned of this 50 odd years ago and advised to begin phasing in ca 60 desal plants across southern England before landward sources dried up inside of 30 years – They flogged the problem off under privatisation in the absurd belief ‘the market would respond and solve their problem at no cost to HMG.
And do please remember this was before a lettuce was a even a semi-serious contender for PM.
They built 1 RO, in Beckton – That’s it.
The problem is very much more than 26% leakage, it is the financial justification for it I first came across with Yorkshire Water – It is cheaper to allow the leaks to continue than repair them – I kid you not, running out of water doesn’t figure in their calculus, and with no offence intended to accountants, that’s pretty much nuts !
Are ‘black-hole’ Starmer and Freeze Reeves about to consider ‘Change’ to any of this ? Not a chance in hell…
Ace response. I guess it comes down to: what is the population limit in the Thames Water area? said limit imposed by the water it can access. I guess not losing 25%(ish) & thus not having to pump so much would improve things – but it all comes down to: how many people can you service with water & sewage in a given area. I’ve not seen it posed like that. perhaps it is time we did. Also, perhaps it is time we ask – why do we flush bogs with drinking water? 🙂
PS: I am certain there is no “good” solution – just sub-optimal stuff – but it cannot be beyond the wit of man to make it mandatory to conserve run-off from roofs for bog flushing – not a total solution – but gets one part of the way there.
Big companies like Thames Water’s aim is to maximise the CEO’s bonus. Fixing leaks and stopping sewage getting in to the rivers costs money and so will not increase the CEO’s bonus thus there is no chance of the leaks being fixed and the sewage treatment capacity increased.
All you Neo-Liberals out there why do you not understand the your ideas always fail and the whole concept is unworkable. You have destroyed hundreds of companies.
The group behind the Don’t Pay campaign have now started a campaign called Take Back Water which intends to force re-nationalisation by driving the Water Companies into bankruptcy through a campaign of non payment. With any luck it will gain traction.
I never advise non-payment
In a cruel world of credit ratings the price is too high for many to bear
What you highlight here is how this system has people trapped entirely within it, and leaves them utterly exposed to its whims. There is literally no action people can take beyond pay up and sink, or don’t pay and sink.
Could there be a problem if Thames Water’s assets are held as security by the firms that made the loans? So that although Thames Water is worthless, nationalising it will not give us possession of its assets. It is Thames Water that has contractual obligations to provide potable water and to treat sewage. But its assets will be held by companies with no such obligation, who can withold services until they are paid off in full.
The answer to that is straightforward: nationalise the asset at market value, irrespective of the charge.
In truth, for all key assets only market value could be recovered and what is a sewage works worth if no alternative use is permitted and no other owner is available?
Are we asking the right questions with respect to Thames Water? Yes the company was financially excavated by various pirates – the money could have been spent reducing leaks etc. But is the question that needs to be answered: what is the size of population that can be served with clean water and properly treated sewage within the Thames Water area?. I offer in evidence this video – from Northern Ireland about the death of LoughNeag. The area is not heavily populated, but it does seem that a number of factors have contributed to the death of the Lough (or at the very least – to make it poisonous (literally) at certain times of the year). It is clear that the environmental impact of human activities has destroyed the eco-system. Is it possible to make a similar argument with respect to London? Too many people? too much of an impact?
https://www.youtube.com/watch?v=HXT1yMD2kZA
Back to Keynes. We can do whatever we can afford. Affordability is determined by water supply here. There is always a constraint.
We have to go back to basics. The purpose of Thames Water and other statutory water undertakers – as with its predecessors back to the Middle Ages and earlier – is to deliver clean drinking water and to safely dispose of rainwater run off and human waste (the Romans knew a thing or two about bringing in clean drinking water and disposing of human waste; and there were culverts and conduits delivering water into London from very early times).
The sole purpose of Thames Water as a privatised utility is to do that job as “efficiently “ as possible. We can safely say that as a marketised but regulated function, it has failed. It is not efficient at doing its job.
It is not even efficient in financial terms, if shareholders are wiped out and lenders don’t get their money back. The public purse will bear the cost of dealing with market failure, after any temporary profits have been privatised.