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The Guardian - UK
The Guardian - UK
Business
Jasper Jolly

Michael Gove has ‘zero sympathy’ for ‘arrogant’ Thames Water in funding crisis – as it happened

A photo of a Thames Water employee working in Windsor fixing leaking pipes in July 2023.
A Thames Water employee working in Windsor fixing leaking pipes in July 2023. Photograph: Maureen McLean/Shutterstock

Closing summary: Thames Water faces the ire of the government and its shareholders

Thames Water, the UK’s largest water company, edged closer to being taken over by the government on Thursday after its shareholders balked at the prospect of giving it £500m after the regulator refused to allow it to raise prices as high as they wanted.

The refusal to stump up the cash could mean that Thames Water is forced into special administration if it is unable to find new investment before its cash reserves run dry at some point next year.

The company’s chief executive, Chris Weston, said it is “a long way off” temporary nationalisation, but did not rule it out.

The debacle has raised questions about what Labour’s approach will be if – as generally expected – it wins a general election in the next year. Labour and the Conservative party’s Michael Gove said they do not want taxpayers or bill payers to pay the cost, but neither have so far backed nationalisation either temporarily or permanently.

In other business news today:

You can continue to follow our live coverage from across the world:

In the UK, Keir Starmer launches Labour local election campaign and defends ‘difficult decisions’ over dropped pledges

In US politics, a judge hears Trump attorney’s free speech arguments in Georgia election subversion case

In US news, Sam Bankman-Fried says ‘I am sorry’ in court before sentencing

In our coverage of the Russia-Ukraine war, Russia blocks renewal of North Korea sanctions monitors

In our coverage of the Middle East crisis, the US and Israel are in talks to revive Washington trip to discuss Rafah

Thank you for reading our live business coverage in this shortened week. Enjoy your Easter eggs and do join us again on Tuesday. JJ

BuzzFeed UK taken over by Independent owner

The owner of the Independent news website has taken over the UK arm of publisher BuzzFeed, in a deal that brings to an end the latter’s volatile time operating on its own in the UK.

The Independent will gain BuzzFeed Inc’s UK website, editorial staff and website technology as part of a long-term licensing deal.

BuzzFeed burst on to the UK media scene in 2013, and garnered large audiences – particularly among younger readers – with viral articles and “listicles”, before branching out into a respected news operation.

However, it struggled to convert its audience numbers into profits. In 2017 it cut back its workforce, before disbanding its BuzzFeed News UK team entirely in 2020. Last year it closed the US news team as well.

Under the deal the Independent, which has also faced financial problems that forced the closure of its print newspaper operation, will also take over HuffPost in the UK, food website Tasty, and Seasoned, a brand aimed at black British audiences.

The Unison union also wants the government to renationalise Thames Water to prevent jobs from being at risk.

It is unclear how many – if any – jobs are under threat. Cuts might be conceivable if the company decided to try to cut costs in the future, but for now it is insisting it is “business as usual”.

Donna Rowe-Merriman, Unison’s head of environment, said:

It’s clear the business model for Thames Water has failed and the company is unviable. Even Thames Water’s own shareholders refuse to keep it afloat.

Yet again, staff are facing an uncertain future with jobs at risk and no hope of much-needed investment. Customers will have to contend with poor water quality and rising bills.

This utter chaos is further evidence the government needs to renationalise Thames Water now.

The leader of the Liberal Democrats, Sir Ed Davey, has responded to Michael Gove’s anger about Thames Water. He said anger is not enough from the government.

The Lib Dems have been calling for special administration for Thames Water – a temporary nationalisation – for the last fortnight, arguing that it would keep bills down.

Davey told BBC Radio 4’s World At One programme (via PA) that the government, and communities minister Michael Gove, need to take action against Thames Water.

Davey said:

And it’s alright Michael Gove being cross, well where are the Conservatives in this? The Conservatives have failed to tackle this over all their time, and we really need now to get a grip of this.

People are fed up of this sewage problem across our country, Thames Water one of the worst examples of it, and they’re looking to the government to take some action.

Michael Gove: Thames Water leadership has been a 'disgrace'

Thames Water must “carry the can” for the company’s management failings and not pass higher bills on to consumers, housing and communities secretary Michael Gove has said.

The company – and by extension its shareholders – have taken advantage of customers (who cannot switch provider from the natural monopoly) and have not invested enough he said in broadcast interviews. Via PA, Gove said:

I think the leadership of Thames Water has been a disgrace. I think for years now we have seen customers of Thames Water taken advantage of by successive management teams that have been taking out profits and not investing as they should have been.

When I was environment secretary I called this out. They haven’t changed their ways. I have zero sympathy for the leadership of Thames Water. In my own constituency I have seen how they have behaved in a high-handed and arrogant way towards the consumers who pay their bills.

So the answer is not to hit the consumers, the answer is for the management team to look to their own approach and ask themselves why they are in this difficult situation, and of course the answer is because of serial mismanagement for which they must carry the can.

US economy grew faster than first thought at 3.4% annual rate

The US economy grew at a faster rate than thought at first in the final three months of 2023, surprising economists who had not expected an upward revision.

US GDP grew by 3.4% in the final quarter compared to the same quarter a year earlier, according to the final estimate by the Bureau of Economic Analysis (BEA). That was up from the 3.2% measured in the second reading.

The BEA said the faster growth was thanks to upward revisions to consumer spending and non-residential fixed investment.

Reuters reports that the growth rate is well above what the Federal Reserve, the US central bank, would consider as non-inflationary – suggesting that more interest rate hikes could be ahead.

The economy is growing above what Federal Reserve officials regard as the non-inflationary growth rate of 1.8% and continues to outperform its global peers despite 525 basis points worth of interest rate hikes from the US central bank since March 2022 to quell inflation.

The ship that crashed into a Baltimore bridge, causing its collapse, radioed for help saying that it had lost all power, according to US government officials.

Investigators from the US National Transportation Safety Board have started to carry out interviews with crew on the ship during the disaster, which killed several people, including maintenance workers and people driving across the bridge in the early hours.

Reuters reported:

The pilot was heard calling for tugboat assistance several minutes before the crash, the first indication of distress to harbor officials, followed by a radio report that the ship had lost all power and was approaching the bridge, NTSB officials said at a news briefing on Wednesday night.

That account tallies with video of the ship which appears to show all of its lights flicking on and off before the impact.

UK's Sellafield nuclear waste dump to be prosecuted over alleged IT offences

The Sellafield nuclear waste dump is to be prosecuted for alleged information technology security offences, the industry watchdog has said.

The Office for Nuclear Regulation (ONR) said on Thursday that it had notified the state-owned Cumbrian nuclear company that it would be prosecuted under industry security regulations.

The prosecution follows the Guardian’s revelations last year of multiple cyber failings at the vast site, part of a year-long investigation into cyber hacking, radioactive contamination and an unhealthy workplace culture at Sellafield.

You can read the full story here:

And you can read the original revelations, from the Guardian’s Anna Isaac and Alex Lawson, here:

Most of the pressure on Labour to back a permanent nationalisation of Thames Water, the UK’s largest water company, is coming from the left, both within the party and without.

If a Labour government were to take power in a general election, which will take place in the next year, then the pressure on it to address the problems facing the privatised water utilities would mount.

Green party MP Caroline Lucas, who plans to stand down at the next election, said that the UK should nationalise all of the privatised water companies in England and Wales. (Water companies in Scotland and Northern Ireland are controlled by the government.)

And Labour Lord Sikka said the government should not give a “bailout” to Thames Water shareholders. Instead, it should let it go bust, then nationalise it, he said.

The GMB union, which represents many of Thames Water’s workers, has accused the company’s shareholders of “essentially blackmailing” customers and Ofwat.

The investors have refused to invest £500m previously promised, because regulator Ofwat wants to enforce conditions that would hit their investments.

GMB said that the shareholders should follow through on the investment.

Gary Carter, GMB national officer, said:

Thames Water investors are essentially blackmailing customers and Ofwat.

Assets and infrastructure are falling apart – instead of putting the money in to fix it, shareholders are refusing to pay a penny unless bills are allowed to rocket.

Holding bill payers to ransom for costs after years of underinvestment is completely unacceptable.

Shareholders need to think again and invest in Thames and the 8,000 strong workforce who keep the company afloat.

The Thames Water investors were approached for comment.

Thames Water’s parent company, Kemble Water Finance, has said that it will be unable to repay a debt that comes due in April, underlining the financial difficulties faced by the water company.

The parent company has appointed advisers from turnaround consultant Alvarez & Marsal to handle negotiations with lenders and the holders of its debt. Thames Water’s complicated capital structure also means that debt related to subsidiary Thames Water (Kemble) Finance Plc will be affected.

The companies (which are controlled by a motley crew of sovereign wealth funds and pension funds) said:

Absent an investible proposition for the shareholders to provide new equity, Kemble Water Finance Limited (KWF) considers at the current time that it will not be possible to pay further interest payments and, unless an extension to the maturity of the facility is granted by lenders, it will not be able to refinance or repay a £190m facility which matures on 30 April 2024.

In light of the above, KWF and Thames Water (Kemble) Finance Plc intend to approach their lenders and noteholders and request continued support in order to provide a stable platform while they engage with all key stakeholders.

Water regulator Ofwat has said that the water sector must be “fair to bill payers”, who would be likely to pay higher prices for water if shareholders are to receive financial returns for investment.

The regulator also sought to reassure customers that their water services are protected.

An Ofwat spokesperson said:

Safeguards are in place to ensure that services to customers are protected regardless of issues faced by shareholders of Thames Water.

Today’s update from Thames Water means the company must now pursue all options to seek further equity for the business to turn around the performance of the company for customers. Thames Water is a business with a regulatory capital value of £19bn, with £2.4bn of liquidity available, and an annual regulated revenue of £2bn and new leadership team.

Ofwat’s PR24 [five-year plan] price control will put customer and environmental priorities at the heart of the water sector. In order to drive this change, we need to ensure that the sector attracts investment and is fair to bill payers. Since 2020 nearly £4.6bn new equity has been injected into the sector. We will set out our draft determinations in June this year.

We also need to see companies deliver the performance that customers expect and that they are run in a way that meets customers’ expectations.

Prospects for Thames Water nationalisation increase after funding collapse

The chances of Thames Water being nationalised have risen after shareholders refused to inject £500m in emergency funding.

The shareholders rejected conditions by the water regulator, Ofwat, that would have damaged their financial returns.

Thames Water’s boss, Chris Weston, today said that if no funding could be found by the end of next year there was a prospect of special administration, under which the government takes control of failed essential utilities. However, Weston said “we are a long way from that point at the moment”.

The Liberal Democrats have said the government should immediately take control of Thames Water’s operations and then nationalise it.

Labour, which is likely to lead the next government, according to polls, said it would make sure that “new investment comes through to fix the broken sewage system without taxpayers being left to foot the bill”. It did not mention nationalisation.

The Green party’s Lady Jones has suggested that Thames Water should be allowed to fail, so that it can be taken into public ownership “on the cheap.” Speaking to the Guardian’s environment correspondent, Helena Horton, Jones said:

People are already floating the idea of temporary nationalisation, but we should be discussing long-term public ownership to deliver a long-term investment programme. All politicians of all political parties must question and reject their ideological belief in water privatisation; it has failed.

Once free of that ideological straitjacket, then when the water companies say we will go bankrupt, we say, that’s fine and we buy them on the cheap.

The water companies had the public money to invest and failed. [They] have paid out over £56bn to shareholders since privatisation, which is roughly the same amount of money we need to spend in the next decade to fix the broken sewage system. Either they can do what they were paid to do already, or they can go bankrupt and we can buy them.

Baltimore bridge collapse could be biggest marine insurance loss - Lloyd's chair

The Baltimore bridge collapse could become the largest single marine insurance loss of all time, according to the chair of insurer Lloyd’s of London.

The Francis Scott Key Bridge collapsed after being struck by a cargo ship, Dali, chartered by shipping company Maersk, in the early hours of Tuesday. The bodies of two men trapped in their vehicle were recovered from the waters on Wednesday, with others including workers on the bridge missing and presumed dead.

The bridge collapse will enforce the extended closure of one of the major shipping arteries on the US east coast, prompting a huge redirection of shipments to other ports.

Bruce Carnegie-Brown, chair of the Lloyd’s of London insurance market, told Reuters that it was too soon to put a figure on the total insurance loss, but he said he would be “very surprised” if the event did not result in a multi-billion dollar loss. He said:

The tragedy has the capacity to become the largest single marine insurance loss ever.

Thames Water’s hugely complex debt structure, added to the jargon-heavy regulatory systems, can make it tricky to understand what is going on.

But the main upshot of today is that there is not enough money to pay for the investments in infrastructure – pipes, ponds, treatment works – needed to supply clean water to the south-east of England.

Shareholders do not want to pay more, but that raises the question of who exactly will have to pay the costs of supplying the most essential commodity to the UK’s capital.

Chancellor Jeremy Hunt has said that the government is in monitoring mode.

Reuters reported that Hunt, speaking in London, told reporters:

The Treasury will continue to monitor very carefully what’s happening at Thames Water. Our understanding is that the company is still solvent.

Liberal Democrat treasury spokesperson Sarah Olney said ministers must put the firm into special administration straight away and turn it into a public benefit company.

She said:

Thames Water is a broken firm. It is teetering on the brink of collapse and this it is clear that things cannot go on as they are.

Drastic action is needed to keep the taps running for millions of customers. It must be clear by now that we can’t trust these asset strippers to put out their own blaze.

Execs have pocketed sky-high bonuses, gave billions to overseas investors, whilst watch[ing] their infrastructure crumble. The board should hang their heads in shame.

No longer should this firm be allowed to mistreat customers and destroy our environment with their filthy sewage.

The political reaction to Thames Water’s troubles is coming through. The Labour party describes the situation as: “Thames Water shareholders refuse to inject more cash unless bills rise”.

That may not be quite what the shareholders want to hear.

But in a what could be a UK election year it could prove a powerful attack line. The coalition against human faeces in rivers is – perhaps unsurprisingly – quite broad.

Steve Reed, Labour’s shadow environment secretary, said:

The Conservatives weakened regulation allowing water companies to get massively in debt while the sewage system crumbled and illegal sewage dumping hit record levels.

The Conservatives’ negligence is why the country’s largest water company is now in this worrying position.

The government and regulators must do everything in their power to stabilise the company and ensure new investment comes through to fix the broken sewage system without taxpayers being left to foot the bill.

Labour will strengthen the regulator’s powers and make financial stability a priority to prevent this situation from happening again.

The nine shareholders of Thames Water have issued a statement which in effect blames Ofwat, the water regulator, for their refusal to provide more funds.

The shareholders – a mix of pension funds and sovereign wealth funds from Canada, the UK, China and elsewhere – claimed that their July 2023 promise of £3.25bn in investment – the first £500m of which was due today – would have addressed the “root cause” of Thames Water’s problems.

The regulator clearly did not agree. The shareholders have said they will not

Here is their statement in full:

Shareholders and Thames Water have been working with the regulator Ofwat for over a year on how to address the complex challenges facing the business. These include both meeting current funding demands and the urgent need for substantial investment to improve performance.

These discussions led to the submission of a business plan which included the largest ever investment programme by any UK water company – over £18bn – to improve customer service and environmental standards. To support such unprecedented investment, shareholders committed to supporting a further £3.25bn of investment on top of the £500m provided last year, and pledged to take no cash out of the business until a turnaround was delivered. This was a solution which addresses the root cause of Thames Water’s challenges without the need for any taxpayer funding.

However, after more than a year of negotiations with the regulator, Ofwat has not been prepared to provide the necessary regulatory support for a business plan which ultimately addresses the issues that Thames Water faces. As a result, shareholders are not in a position to provide further funding to Thames Water.

Shareholders will work constructively with Thames Water, Ofwat and Government on how to address the consequences of Ofwat’s decision.

The shareholders (in order of the size of their holdings) are:

  • Canadian pension fund Omers

  • Britain’s Universities Superannuation Scheme

  • Infinity Investments (which is owned by Abu Dhabi’s sovereign wealth fund)

  • British Columbia Investment Management Corporation

  • UK-based investor Hermes GPE

  • sovereign wealth fund China Investment Corporation

  • Queensland Investment Corporation

  • Aquila GP (a subsidiary of investor Fiera Infrastructure)

  • Dutch pension fund Stichting Pensioenfonds Zorg en Welzijn.

UK recession confirmed after weakest non-pandemic year since 2009

Breaking off from Thames Water for a moment, let’s get a bit more on the major UK economics story of the day so far: the confirmation that the UK entered recession at the end of 2023.

UK gross domestic product (GDP) is estimated to have fallen by an unrevised 0.3% in the final quarter of 2023, October to December, after an unrevised fall of 0.1% in the previous quarter, according to the Office for National Statistics (ONS).

The figures confirm a previous reading which indicated the UK economy contracted just as prime minister Rishi Sunak considers when to call an election.

Output from the services, production and construction sectors all declined in the quarter, the ONS said.

Across the whole of 2023, GDP grew by only 0.1%, following growth of 4.3% in 2022 as the UK bounced back from the coronavirus pandemic lockdowns. The ONS said:

Excluding the year 2020, which was affected by the coronavirus (COVID-19) pandemic, this is the weakest annual change in real GDP since the financial crisis in 2009.

This graph shows the recessionary quarters (in cream). Note the massive swings in output during the coronavirus pandemic.

You can read the full story from the Guardian’s economics correspondent, Phillip Inman, here:

If you’re catching up with the Thames Water crisis, here is some further reading.

First of all, on the pollution being spewed into the England’s rivers:

On the financial chicanery at Thames Water, here is a very useful primer:

And here is the historical context of where a lot of the money has gone:

UK government prepared for 'range of scenarios' at Thames Water

The UK government has said it is prepared for “a range of scenarios” for Thames Water.

A government spokesperson said:

Like any company needing to secure new investment there are a wide range of options available to water companies, including the injection of new equity from any prospective investors.

Ofwat, as the financial regulator of the water sector, continues to engage with Thames Water to improve its financial resilience.

We prepare for a range of scenarios across our regulated industries – including water – as any responsible government would.

Thames Water will 'pay our part' to clean up river Thames

Thames Water chief executive Chris Weston says that the company will “pay our part” to clean up London’s Thames river, in response to criticism from the University of Oxford’s rowing coach.

Sean Bowden, who has coached Oxford’s men’s rowing team since 1997, said yesterday that the state of the Thames was a “national disgrace”, highlighting the presence of harmful E coli bacteria in high levels in the river. Oxford takes on rival Cambridge every year in the Boat Race on the Thames.

Weston says:

I don’t want to pollute rivers, and nor does anyone in Thames Water. I would point out that E coli has many different sources. It’s not just from sewage; it’s also from land run-off, it is from highway run-off; it is from animal faeces. All of those things contribute to the problem.

And I am absolutely determined that at Thames, that we will pay our part in cleaning up the problem, and so the Thames is a river that people can use as they would like to every day.

Thames Water chief executive Chris Weston says the company will continue to serve its 15m customers.

Of special administration, Weston says:

There is a possibility, but the key message today is one of reassurance.

Weston says he is not going to comment on past actions (when it was run by different management).

There will be a huge amount of investment in the underlying infrastructure, Weston says.

Thames Water boss: company is 'a long way' from special administration collapse

Thames Water chief executive Chris Weston says that a special administration, under which the UK government would probably have to step in to secure water supplies, is a long way away.

However, he did not rule out the prospect, speaking to BBC Radio’s Today programme.

He said:

If at the end of the day – probably well into the end of next year – we were in a situation where we had no equity, then there would be the prospect […] of special administration, but we are a long way from that point at the moment.

Being unable to raise new funding is “a long way off”, says Thames Water’s Chris Weston.

He says it is a hypothetical question. It is premature to go there at the moment, he says.

Chris Weston says that Thames Water had hoped to confirm the funding package today, but we are not there yet.

He says that the company is in a “solid financial position” and has enough money to last until May 2025.

That will give the company time to talk to existing and new shareholders about new funding.

Chris Weston, Thames Water’s chief executive, is speaking to BBC Radio’s Today programme.

He says he can reassure customers that the business continues to operate as usual.

Fergal Sharkey, the punk singer turned water pollution campaigner, has said that the UK government should not give Thames Water “a penny of the public’s money”.

Thames Water says Ofwat feedback on its investment plans made it “uninvestible” – because the regulator’s disapproval could mean the water company could face even bigger costs to rectify the situation.

The water company must set out a five-year plan that meets the regulator’s expectations. However, the plan for the 2025-2030 period (called PR24) has been sunk by larger required investments under its next asset management plan period 8 (called AMP8).

The company said:

Thames Water aims to secure a PR24 regulatory determination that is affordable for customers, deliverable and financeable for Thames Water, as well as investible for equity investors.

Thames Water to seek new emergency funding after agreement collapses

Good morning, and welcome to our live coverage of business, economics and financial markets.

Thames Water has said that it is looking for new funding after it failed to meet the conditions on the first £500m of a planned £750m injection by shareholders.

The announcement will raise serious questions about Thames Water’s financing, although its chief executive attempted to reassure customers across London and the south east of England that it will be “business as usual”.

Thames Water reached the agreement on the £750m in emergency funding in July 2023. It needed the money to upgrade its infrastructure after leakage rates hit five-year highs in 2022 – a situation that continued in 2023. That has heaped political pressure on the UK water industry, as voters express their outrage about raw sewage flowing into British rivers.

The company today said that regulator Ofwat had objected to its plans, meaning that it had not met conditions outlined in the funding deal. It said:

As a result, the conditions of the support letter from July 2023 have not been satisfied and the first £500m of the new equity that had been anticipated will not be provided by Thames Water’s shareholders by 31 March 2024.

The company said it will seek new investments in the coming months:

Thames Water intends to pursue all options to secure the required equity investment from new or existing shareholders.

Chris Weston, Thames Water’s chief executive, said:

I’d like to reassure our customers that, despite this announcement, it is business as usual for Thames Water. Our 8,000 staff remain committed to working with our partners in the supply chain to provide our services for the benefit of our customers, communities and the environment.

UK confirmed in recession

In other news, the UK economy has been confirmed as in recession during the final quarter of 2024.

Unrevised figures from the Office for National Statistics (ONS) showed that GDP fell by 0.1% in the third quarter, followed by 0.3% in the fourth quarter.

More on both stories to follow.

The agenda

  • 8:55am GMT: Germany unemployment rate (March; previous: 5.9%; consensus: 5.9%)

  • 12:30pm GMT: US GDP growth rate (fourth quarter final estimate; prev.: 4.9%; cons.: 3.2%)

  • 12:30pm GMT: Canada monthly GDP growth rate (January; prev.: 0%; cons.: 0.4%)

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