Thames Water bosses branded a ‘disgrace’ as Michael Gove tells firm ‘not to punish consumers’ for its failings
29 March 2024, 00:17
Thames Water has been told ‘not to hit consumers’ to cover its failings after it emerged the supplier could increase customers’ bills by as much as 40%.
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Britain's largest water company, which is struggling with more than £15bn of debt, faced more bad news on Thursday morning when it emerged Thames Water shareholders refused to deliver a £500 million lifeline.
This means that millions of Brits now face their water bills increasing by as much as 40% as Thames Water struggles to guarantee its future.
Investors refused to put in more money into the supplier unless customer bills rose significantly, and now the firm is looking to increase them from an average of £436 to £609 a year by the end of the decade.
Asked on Thursday if customers' bills could increase to make up for the lack of cash, Thames Water chief executive Chris Weston said: "I don't think we have been at all secretive about that."
But now the firm is at the centre of a row over who will pay for the sharp increase that covers 15 million households.
Communities secretary Michael Gove slammed the Thames Water leadership as “a disgrace” following the reports as he argued consumers should not be hit.
He said: “For years 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.
“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 why they are in this situation, and of course the answer is because of serial mismanagement for which they must carry the can.
However, Mr Weston insisted on Thursday that higher bills were “the price customers have to pay for the investment in our infrastructure that’s needed”.
He told Sky earlier in the day: "The plans that we have put forward - which are very much in accordance with what customers are asking us to do - require an investment of around £20bn in that 2025-2030 period, and that would result in a bill (increase) of around 40%."
The supplier has requested regulator Ofwat to permit the increase to customer bills, arguing it would otherwise leave the utility “uninvestable”.
Sir Jacob Rees-Mogg, the former business secretary, said: “Thames Water ought to be allowed to go bankrupt. It would continue to be run by an administrator, the shareholders would lose their equity but they took too much cash out so deserve no sympathy.”
The Chancellor Jeremy Hunt has said he is "monitoring" the situation.
Thames Water is the country's largest water company with around 15 million customers across London and the south east.
Its funding plan, which was drawn up last July, was subject to conditions including a business plan that is supported by "appropriate regulatory arrangements".
But regulations being imposed by industry watchdog Ofwat "make the PR24 plan "uninvestable", the company said.
"The first £500 million of the new equity that had been anticipated will not be provided by Thames Water's shareholders by 31 March 2024," Thames Water said.
It said it was in ongoing talks with industry regulator Ofwat to secure regulations that are "affordable for customers, deliverable and financeable for Thames Water, as well as investible for equity investors".
Once a new regulatory plan is agreed the supplier is planning to "pursue all options to secure the required equity investment from new or existing shareholders".
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Last July, Thames Water agreed a rescue funding plan with shareholders - including the Universities Superannuation Scheme (USS), China's sovereign wealth fund, a Canadian pension fund and the BT Pension Scheme - that would see them pump in £750 million, with the first £500 million due by the end of this month.
But the firm's nine investors said in a joint statement that Ofwat "has not been prepared to provide the necessary regulatory support" for their funding and turnaround plan.
"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," they said.
"These include both meeting current funding demands and the urgent need for substantial investment to improve performance."
It is understood that Ofwat has refused to bow to the water giant's demands for concessions, said to include a 40% bill hike for customers, an easing of capital spending requirements as well as leniency on regulatory penalties.
Mr Weston 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."
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The company has been fighting to secure its future since last summer, after a funding crisis left it on the brink of emergency nationalisation.
Regulator Ofwat said the company must now seek further funding for its turnaround plan, adding that "safeguards" were in place to protect services to households.
An Ofwat spokesman 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."
He added: "Thames Water is a business with a regulatory capital value of £19 billion, with £2.4 billion of cash/liquidity available, and an annual regulated revenue of £2 billon and new leadership team."
