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A Thames Water maintenance van in London, UK, on Thursday, June 29, 2023. Britain’s biggest water supplier Thames Water might need to write down £3.6 billion ($4.6 billion) of debt if the government takes over control, according to a Bloomberg Intelligence report. Photographer: Jose Sarmento Matos/Bloomberg via Getty Images

Trouble at Thames Water

Trouble at Thames Water


Problems at the UK’s biggest water company have raised questions for the whole industry. What brought Thames Water to the brink of collapse?

The UK’s biggest water company is at risk of collapse under £14 billion of debt. 

Thames Water provides water and sewage services to 15 million customers in London and south east England. But signs of trouble emerged on Tuesday last week when the company’s chief executive, Sarah Bentley, quit without warning. Rising interest rates and inflation have raised concerns that Thames Water might not be able to service its debt. The company has asked its shareholders for a £1 billion cash injection to keep the business afloat, but so far its funders have not managed to agree on the sum. Ministers have begun drawing up plans for a temporary government takeover if Thames Water fails to come up with the necessary funding. 

The company has an incredibly complex ownership structure. Its owners loaded up the business with debt in order to pay out bigger returns to their shareholders. The water company now has a debt to equity ratio of 80 per cent – and 56 per cent of its debt is inflation-linked. Other privately-owned water companies in England have taken on similarly high levels of borrowing over the past few decades, causing problems across the sector now that interest rates are high.

Thames Water’s troubles have exposed an industry that’s riddled with debt and that has failed to invest. 

David Black, the head of water regulator Ofwat, told a House of Lords committee earlier this week that things need to change. 

He said: “We’re very much of the view that companies need to bring down their level of gearing and as I said we’ve faced huge resistance from investors to doing so and from companies. This is us taking action to change the way the sector is financed.” 

On top of their financial troubles, England’s water companies are facing other costly problems thanks to decades of underinvestment in critical infrastructure. The Environment Agency is investigating water suppliers over sewage spills in England’s rivers and coastal areas, an investigation that may lead to criminal charges. Earlier this year, water companies pledged to spend £10 billion on infrastructure upgrades by 2030 to prevent future spills. Customers may be called on to cover the costs of the improvements: water companies warned that bills may need to rise by 40 per cent to meet the costs of upgrades.

Today’s episode was written and mixed by Ella Hill.