Thames Water

Commons Urgent Question

The following Answer to an Urgent Question was given in the House of Commons on Tuesday 3 June.

“I thank the right honourable Lady for securing this Urgent Question. I want to begin by making it clear that Thames Water remains stable, and the Government are carefully monitoring the situation. Customers can be assured that there will be no disruption to water supply.

Thames Water is a commercial entity currently engaged in an equity raise, and KKR pulled out of that process earlier today. As Thames Water has said, the company will continue to work with its creditors as part of the equity raise to improve its financial position. There remains a market-led solution on the table, and we expect the company and its directors to continue the process that is under way and fix the financial resilience of the company in the interests of its customers. I want to be clear that the Government are prepared for all eventualities across our regulated industries and stand ready to intervene through the use of a special administration regime, should this be required to ensure the continued provision of vital public services.

The situation facing Thames is taking place within a wider context. Only last year, we saw record levels of pollution in our rivers, lakes and seas. It is clear that our water system is broken. We have already passed legislation so that the regulator can ban the undeserved multimillion-pound bonuses that so outraged the public, and we have further strengthened accountability through the introduction of up to two years in prison for polluting water bosses who break the law. We have increased the regulator’s resources and launched a record 81 criminal investigations into water companies, and we have followed the ‘polluter pays’ principle, meaning that companies that are successfully prosecuted will pay for the cost of that prosecution so that further prosecutions can follow. We have worked with the water companies to secure £104 billion of private sector investment to rebuild our broken water infrastructure. That means new sewage pipes, fewer leaking pipes, and new reservoirs across the country, as we work to end the sewage scandal that we inherited from the previous Government.

I launched the Independent Water Commission, under Sir Jon Cunliffe, so that it could outline recommendations for a once-in-a generation opportunity to transform our water industry and ensure that it delivers the service that the public deserve and our environment needs, and today Sir Jon published an interim report setting out the commission’s preliminary conclusions. The Government will respond in full to the commission’s final report in due course, and will outline further steps to benefit customers, attract investment and clean up our waterways.

Whether we are talking about Thames Water or about other companies serving other parts of the country, the era of profiting from pollution is over. This Government will clean up our waterways for good”.

16:21:00

My Lords, these Benches attempted to amend the Water (Special Measures) Act to protect consumers from bearing any costs associated with a special administration regime, but this was rejected by this Government. Will the Minister commit today that consumers will not be made to pay any SAR-related costs, and that under no circumstances will the Government take responsibility for repaying the rumoured £20 billion of Thames Water debt? I should also declare an interest that one of my daughters works at a firm named in the press as a bondholder.

My Lords, the Government do not have any intention for consumers to pay towards this. We do not see that consumer bills need to go up to cover these debts. It is not for consumers to pay for the mistakes and poor behaviour of the water companies. In response to the second question, within the regime, we will look at it in detail, but it is, again, not our intention for the water companies to basically get away with it.

My Lords, we are already paying more for our water because Thames Water has put up our bills. I declare an interest as a Thames Water bill-payer. How much higher are our bills going to go before the Government actually accept that they have to put public ownership before private profit?

One of the reasons that bills are going up—not just for Thames Water customers but for other consumers—is the lack of investment for years and years by the water companies in infrastructure, which is why we have so many problems with pollution, for example. While it is not something that the Government want to see continue—we do not want to see consumer bills going up unnecessarily—it is important that, with the PR24 settlement that was made, that money goes directly into investment, which is why we are stopping dividends and unnecessary bonuses being paid.

My Lords, does the Minister agree that the creditors who have heaped billions in debt on to the company should now pay to sort this mess out, possibly through a well-planned administration process and a swift exit, after which the company should be mutually owned by the 16 million customers? Do the Government now have plans ready and in place for Thames Water to be brought into special administration? What plans do the Government have for a new operating model for water companies to work for the public benefit?

Any future operating model will be part of Sir Jon Cunliffe’s review that is currently taking place—I am sure the noble Baroness will be aware that the interim report is out. That will be part of the work being carried out by Sir Jon and others. The big issue is that fundamentally this a private company. It for the company to solve the issues of financial resilience. It is not for us to tell a private company how to manage its finances. That is really important. But, having said that, we have to be prepared for all eventualities across regulated industries and Thames Water has clearly had some pretty serious problems. If it comes to a SAR, creditors cannot ask the debt to be repaid during that special administration regime. If it did come to that, there is a moratorium on legal proceedings during a SAR and that would take away the creditors’ ability to enforce any debt repayments.

My Lords, while the Government are dithering about the future of Thames Water, its debt has increased by £3 billion, it is spending £200 million a year on its business advisers and one-third of a customer’s bill basically covers the interest payments. Is it not time that the Government recognise that privatisation has failed and that the only way of giving the water industry firm footing is through public ownership?

As I have said previously, the Government are not going to be renationalising the water companies. The Government are not dithering. This is a private company that has some serious debt problems. It is not for the Government to tell a private company how to manage its finances. If it comes to it, we are prepared to ensure that customers continue to receive high-quality water through their taps, because that is what is really important, and that the systems stay in place.

My Lords, the interim Cunliffe report was very clear that part of the problem is the short-termism of regulation and the high volatility in returns not being conducive to long-term, low-risk, low-return investors. Will the Government accept whatever the commission proposes in its final report and bring a Bill before this House so we can review the situation in the long term?

Clearly, the report we have in front of us is an interim one, so we are currently looking at it and considering the recommendations. Further work will then be done and as a Government we will then look at those recommendations and work with Sir Jon Cunliffe on how best to move things forward. Clearly, there are some serious structural issues in the way things have been managed and we need to take this very seriously if we are going to sort out the mess that many water companies have found themselves in. That may well result in a further water Bill in the future.

What lessons are the Government learning from the water sector experience for other regulated industries? As the Minister said, there have been decades of underinvestment. The 1990s European law should have been implemented, and successive Governments, including the last Labour Government, failed to apply the law on proper treatment of sewage. What lessons from poor regulation ought to be applied in other so-called regulated industries?

I am sure that the other regulated industries are watching what is happening in the water industry with great interest. It is important that where our industries are regulated, they are regulated properly, appropriately and for the benefit of the country and consumers. It will be interesting to see the outcomes of the Cunliffe report, particularly regarding Ofwat, the Environment Agency and some of the people who have been responsible for the hands-on regulation. We have some important and interesting decisions to make as we go forward.

My Lords, does the Minister agree that—as many people have said already—the root of the problem at Thames is the level of debt? The fact is that, many years ago, Ofwat allowed Thames Water to increase the level of its own debt beyond any reasonableness. The public have been let down as much by the regulator as by the water companies. I very much hope that the Minister will agree that we need to change the type of regulation that the water companies have to live by.

The noble Duke makes an extremely important point. The Cunliffe report is pretty damning on how the regulators have overseen what has happened. Clearly, it has not been good that water companies, particularly Thames, have been allowed to get into so much debt. We will absolutely be considering these matters very seriously.

My Lords, I was a London MP for 22 years, and I can say with some conviction that Thames Water was one of the worst and most contemptible organisations I have ever dealt with—and that is up against some pretty stiff competition. Can we scotch this myth that has been put out by Thames Water for years that it has not been paying dividends? It has been paying what are, in effect, dividends to the parent company. Technically they may not be dividends but, in effect, they are. When Thames Water makes these claims, we should call it out for what it is doing: telling lies to the British public.

It is really important that we have clarity and honesty from our water companies, because there are so many problems. If we are genuinely going to sort this out, we need to have a proper understanding, and there should not be little tricks and ways of paying money—whether through dividends or otherwise—that circumvent what we would consider to be best behaviour.