As I write this, it is pouring down in London. Although you might think this would be good news for Thames Water – free produce falling from the sky – it is far more likely that the company will use it as an excuse to pump more raw sewage into the rivers and the sea.
It may one day get around to fixing that mess but not this week. This week Thames Water is fighting for survival. It has run up £14 billion in debts and higher interest rates mean it is struggling.
How did it come to this? Water utilities were privatised with not a single penny of debt. They run a very boring and predictable monopoly, own vast areas of land and have a totally guaranteed income with no chance of a customer ever leaving. They can and should be borrowing money at very low fixed rates over decades, but it seems they aren’t. How can such a business go bust?
Well, it is quite simple and it has been a long time coming. To illustrate, let me tell you about a friend of mine, a dyed-in-the-wool Brexiteer who believes in capitalism red in tooth and claw. He made a living for several years by playing the stock market, and he just loved to buy and sell utility company shares. Which I always thought a bit weird since these are state-regulated, and should be as dull as ditch water – heavily indebted but with a regular if unexciting income. It is not as if any of them are going to be the next Apple, Amazon or Tesla.
But as my friend pointed out they were very badly regulated. As a result, they were not only making huge profits, and paying out huge dividends but their share price always rose. So, he made not only a very good income but capital gains as well.
It had to end and it did once foreign investors realised they could buy the water companies and take those dividends and more by loading the companies with debt. Not debt used to invest in infrastructure but debt they could pay to themselves as profits. The new owners then used the debt interest to reduce the tax paid by the utility companies and so made even more money.
Meanwhile, not a single new reservoir has been built, water leakage is the same scandal it has ever been and the second it rains the companies use it as an excuse to dump untreated sewage into the nation’s waterways.
Ofwat, the water regulator is useless. The government has known for years it is useless but has done nothing. Instead, it has let what should be a safe as houses, essential service be stripped of money and laden with debt. Presumably, because that is how capitalism works – as long as you are a shallow, short-sighted Tory minister who has forgotten that the buck stops with them.
It seems crazy to have to write this, but water is essential. Not a single home, hotel, bar, restaurant, office, factory or hospital could function for a day without it. The government can no more let the water stop than it could turn off the national grid or close all the roads. This is why well-functioning utilities are essential to any well-run economy.
Thames will, of course, keep pumping water, maybe as a weakened private company, maybe underwritten by taxpayers, maybe as a nationalised entity again.
But every penny of debt it is now saddled with is a penny less for it to spend on water quality or sewage works or stopping leaks.
Every penny syphoned out of Thames Water over the years is now gone, forever. Ripped out of a utility company by those who could see it was a licence to print money, for them. And our government just stood there and watched them do it.