A pragmatic plan for Thames Water
Public ownership of utilities is a long-held aspiration for Labour’s soft-left, but economic reality dictates it cannot be achieved without derailing the rest of Burnham’s prime ministerial agenda, says Mark Field
Andy Burnham’s first priority as Prime Minister must be to stamp his authority over the role – something that’s proved impossible for his five predecessors in office.
Thames Water, the capital’s embattled water supplier, is being offered up as easy prey. Latest reports suggest that Burnham’s team has primed the civil service to take the company under public control, which is labouring under £18.5bn of debt.
It’s certainly the popular move. We purportedly live in an era of “five-party politics”, and yet the neglect of Britain’s water infrastructure is one of the few issues that cuts across political allegiances: 82 per cent of Britons want public control of the water industry, according to Yougov.
I sat across the floor from Burnham in Parliament for over 15 years as a Conservative central London MP. I recall countless letters and emails from concerned constituents over Thames Water’s appalling performance: the sewage discharges, the excessive pay of senior directors, and operational failures, all of which have eroded public trust in private ownership.
Yet I hope for Burnham’s sake – and the country’s – that he resists his supporters’ siren calls. The electorate endorses public control as an end, but hasn’t grasped the substantial funds needed to get there.
Thames Water requires at least £20bn in investment in critical infrastructure upgrades over the next five years, on top of the multi-billion-pound cost of compensating the company’s creditors.
Compromise
A Special Administration Regime, or SAR, has been floated by the current government as a potential pragmatic compromise. In reality, it’s just as damaging. Imposing a SAR would see the state put Thames Water’s operations in the trust of a court-appointed administrator, leaving the taxpayer on the hook for day-to-day running costs.
In the meantime, Thames Water’s turnaround plan would be set back even further. Vital infrastructure upgrades would be paused and, just as damagingly, skilled company personnel would leave amid the threat of job losses. Meanwhile, essential suppliers would abandon the company amid uncertainty over its future, making the eventual cost of the company’s restoration even higher.
On a sticky wicket, Burnham’s best bet is a deal from London & Valley Water (L&VW), a consortium of investors. The consortium has offered a £9.4bn debt write-down (a severe haircut indeed), to inject £3.35bn of new equity and issue £6.55bn of new debt to stabilise Thames Water.
L&VW has presented a clear plan to stabilise debt and fund essential upgrades to existing infrastructure. Music to the ears of Labour MPs, L&VW also proposes to ban dividends until 2035 and will pay any Ofwat or Environment Agency fines in full, protecting customers from any associated costs.
In short, the deal offers immediate security and promises better future performance based on stronger regulation than any form of nationalisation – temporary or otherwise – can.
Since Brexit, the British state has faced a series of rolling crises. For Andy Burnham, Britain is broken and needs radical reform. From modernising the armed forces and public services to renewing investor confidence and growth, the new PM will have his work cut out. His in-tray, in short, is full to bursting.
Taking on the management of the Thames Water monopoly is a headache that will undermine his government’s agenda from the very start. Public ownership of utilities is a long-held aspiration for Labour’s soft-left, but economic reality dictates it cannot be achieved without derailing the rest of Burnham’s prime ministerial agenda.
Ideology aside, the government’s immediate priorities for Thames Water must be speedy financial stabilisation and operational renewal under a watchful regulatory eye. This new approach – let’s call it guided private ownership – will not be a panacea. But it’s the pragmatic solution as Britain tumbles deeper into the economic red.
Rt Hon Mark Field is former MP for Cities of London and Westminster