Thames Water is a major test for Andy Burnham and may help determine what the incoming prime minister’s ambition to bring key utilities back under “public control” really means.
Despite returning to profit after hiking bills 40%, the deeply troubled company is far from out of the woods.
Its debt pile is growing and its cash reserves are dwindling as the money customers are paying in bills is nowhere near enough to fund the massive infrastructure upgrades needed after years of underinvestment.
The company reported a post-tax profit of £113m for the 12 months to the end of March, swinging from a £1.51bn post-tax loss the previous year.
However, the firm’s net debt also swelled to £18.5bn from £16.8bn as it said it only had enough debt funding to keep the business going until the end of 2026.
And Thames Water warned it has enough cash to last until the end of this year – so by then, something has to happen.
The first option is the government agreeing to a rescue deal put together by its lenders which would see some debt written off and new cash injected in return for leniency on its environmental targets in the coming years.
They argue it is pointless throwing money at fixing long-standing problems if it goes straight out the door again in fines.
Environment Secretary Emma Reynolds recently rejected this plan as “weak” and not offering enough protection for consumers and the environment.
Another option is Thames Water entering a form of administration, with government-appointed officials running the company on the public’s behalf.
That would leave the government on the hook for its existing debts and require billions of pounds of public money in investment.
The so-called “special administration” is designed to be temporary and the government would recoup some taxpayer cash if the business was sold on again to a private buyer.
Burnham is expected to become prime minister on Monday. He has previously called for Thames Water to be nationalised.
But with Burnham intent on taking more control of key utilities, how likely is he to want to return Thames Water to private owners?
How temporary would the nationalisation be – and how much might it cost the taxpayer?
Getting taxpayers in the north west to subsidise a London water company might be a hard sell for Mr Manchester.
Greater public control could just mean tougher regulation, or capping the amount companies like Thames Water can borrow, but that would arguably mean Thames Water would find it harder to raise and use the money needed to fix its problems.
There is no easy answer – but how he responds to the fast-approaching problem will offer a first glimpse at what exactly Burnhamism will look like.
Thames Water chief executive Chris Weston told Reuters on Wednesday that its lenders “want to see what the new Burnham government thinks before providing more funding”.
Thames Water also said on Wednesday pollution incidents had fallen by 18%. It hit just over half of its performance targets.
The firm said it was below target when it came to customer complaints, which jumped by 77% to 122,798 in a year.
Bill complaints made up over three quarters of the total and doubled compared to the previous year.
Dr Heather Smith, a senior lecturer in water governance at Cranfield University, said a “possible outcome” for Thames Water was “a special administration regime, which is sort of a temporary public control”.
“That’s not the same as full nationalisation,” she added, saying it could be used if the business goes bust “but just to get it to a new buyer”.
“Long-term nationalisation, I think, would be a struggle because I think the costs of what we need for infrastructure upgrades are such that it would be a real struggle for the public purse to handle – more so than the private sector.”
Elsewhere in the financial results, Thames Water reported that Weston’s pay had risen by £128,000 to £1.163m from £1.035m.
Weston did not receive a bonus, but the firm paid out £4.1m in bonuses to other directors, up from £2.8m the previous year.
Reynolds said: “It’s outrageous that one of the worst-performing water companies is handing out bonuses and inflation-busting pay rises to its executives.”
“It flies in the face of basic fairness, and the British public are right to be furious. We’ve banned bonuses for polluting water bosses and will be taking action to prevent bonuses by any other name.”
