Thames Water: Why Steve Reed needs a haircut

What’s happening at Thames Water is complicated, but everyone who thinks sewage dumping is a national scandal and everyone who is a customer of a water company needs to understand it. 

The incompetence of Ofwat allowed Thames’s greedy foreign owners to extract huge sums from the business leaving it groaning under billions of pounds of debt that it can’t repay. What it wants to do now is raise your bills by 59%, plus inflation, over the next five years. These stonking great price rises mean you will pay for the greed of its owners. And they still won’t fix the problem.

What is true for Thames Water is true for the industry as a whole. The water companies are carrying too much debt, this debt means they haven’t invested in water infrastructure in the past, and it means they won’t invest in fixing water infrastructure in the future.

The Water Industry Act 1991 anticipated this might happen. It created a statutory fix called a “special administrative regime”. If a water company enters a special administrative regime its business is handed over to someone else to manage. It can happen where a water company goes bust, and it can also happen where a water company is in serious breach of its obligations to, for example, treat sewage properly rather than dump it into our rivers or the sea.

What happens during the special administrative regime is that the problem gets fixed. The lenders, who own the business when it is insolvent, take a “haircut”. Their debts are cut and will never be repaid.

Sounds good right?

Things are so bad at Thames Water that pretty much everyone thinks there needs to be a special administrative regime. But the only person who can trigger one is the environment secretary, Steve Reed. And he doesn’t want to. 

Why not?

Well, the government thinks that even a temporary special administrative regime for Thames Water – which is both hopelessly insolvent and in serious breach of its obligations – will have a domino effect on all the other water companies. It thinks this will mean nationalisation – and it thinks nationalisation is bad.

At Good Law Project we disagree. We don’t want to pay higher prices to reward the greed of the owners. We think a haircut is exactly what they need – so that your bills are no longer spent servicing their debts.

• Join us now and write to Steve Reed to demand he stops the bailout and puts Thames Water into special measures.