UK Government Prepared for Various Scenarios Amid Concerns of Thames Water Collapse

June 28, 2023: Thames Water, the UK’s largest water company responsible for supplying water to 15 million people in London and the South East, is facing potential collapse due to its financial struggles and £14 billion of debt. The government has stated that it is prepared for various scenarios in response to these concerns.

Business Secretary Kemi Badenoch expressed her apprehension about the situation, emphasizing the need to ensure the survival of Thames Water as an entity. The company itself is working on raising funds to improve its financial position.

Thames Water maintains a strong liquidity position, including £4.4 billion in cash and committed funding. The company keeps Ofwat, the water regulator, fully informed about its progress in implementing a turnaround plan and engaging with shareholders.

Regardless of the outcome of Thames Water, the water supplies for the affected population will continue uninterrupted. However, contingency plans are being discussed between Thames Water, government ministers, and Ofwat, including temporarily placing the company under a special administration regime.

This approach has been previously taken with other companies, such as energy supplier Bulb when they faced financial difficulties. The government is working behind the scenes to address the situation and has processes to manage potential outcomes.

Thames Water’s chief executive, Sarah Bentley, recently resigned after being asked to forgo her bonus due to the company’s mishandling of sewage spills. The departure has raised further questions about the company’s financial stability.

Thames Water has been scrutinized for its performance, particularly in dealing with sewage contamination and leaks. It has the highest water leakage rate among all UK water companies, losing the equivalent of up to 250 Olympic-size swimming pools daily.

The water sector has accumulated significant debt since privatization in 1989, with Thames Water’s debt reaching £14 billion. Concerns have been raised by Ofwat about the company’s ability to service its debt and raise the necessary funds for infrastructure modernization amidst inflation and higher interest rates.

Water bills for households in England and Wales have been increasing, with an average annual bill of £448 in April. Former Environment Secretary George Eustice stated that bills are expected to rise again by an average of £42 per household in 2025 over a more extended period. However, he dismissed reports suggesting a potential 40% increase, believing the final figure would be significantly lower.

In summary, Thames Water’s financial instability and substantial debt have raised concerns about its potential collapse. The government is closely monitoring the situation and discussing contingency plans. The company is working to secure additional funding, and its water supplies are expected to continue uninterrupted for the affected population.