Calls for Stricter Regulation as "Thames Water" Crisis Unfolds

news 01-Jul-2023 Business

England's Largest Water Supplier Faces Bankruptcy

The largest water supplier in England is facing the possibility of bankruptcy due to a debt of around £14 billion. The state might have to step in and temporarily take over "Thames Water" to prevent a collapse.

"Thames Water" provides water to 15 million consumers in London and other regions in the southeast of England, and it is now on the verge of bankruptcy. The company's debt of around £14 billion is the primary reason for this situation. The water supplier is owned by an investor group consisting of private equity firms and pension funds. The largest shareholder, holding nearly 32 percent, is a Canadian pension fund from Ontario.

On Tuesday evening, the CEO of "Thames Water" resigned with immediate effect, which was unexpected and sent shockwaves through the industry. This development has once again sparked debates about the consequences of water privatization.

In 1989, under then-Prime Minister Margaret Thatcher, the water industry was privatized. However, the newly formed companies started without debt. Today, "Thames Water" is burdened with a massive debt load and is struggling with rising interest rates and high inflation.

Privatization Led to Higher Prices

"This is an absolute scandal. High dividends were paid out, substantial debts were accumulated. Customers' bills have skyrocketed, and untreated sewage is being discharged into rivers," says Labour politician Ed Miliband, a member of opposition leader Keir Starmer's shadow cabinet. He insists that the government must explain how they intend to rectify the situation.

The discharge of untreated sewage into lakes, rivers, and the sea has been a subject of protests on the island for years. Regarding consumer bills, a 2015 study by the National Audit Office concluded that since the privatization of the water industry in 1989, Britons have been paying significantly more for water and wastewater. The increase amounted to 40 percent when adjusted for inflation by 2015.

Calls for Stricter Regulation

Miliband's anger is shared by others. Critics argue that "Thames Water" prioritized paying dividends over investing in the water system. Owners and managers have extracted as much as possible from the company while accumulating debts.

Darren Jones, the chairman of the Business, Energy and Industrial Strategy Select Committee in the House of Commons, fears that the burden of the crisis will fall on the public: "Once again, we find ourselves in a situation where customers, taxpayers are asked to foot the bill for corporate mismanagement - and probably also for poor regulation."

The state may have to step in and temporarily take over the water supplier to address the crisis. Jones strongly advocates for stricter regulation to prevent similar developments like the "Thames Water" case from happening in the future.

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