For all Londoners gripe about the city’s rainy weather, we learnt last week that the alternative is far worse. In a city famously averse to air conditioning, sustained temperatures above 35°C are tough to endure.
And so, speculation that Thames Water is considering a hosepipe ban is particularly unwelcome. Faced with “exceptionally high demand”, the supplier is already cautioning the capital’s residents to use water “wisely”.
The summer’s heatwave raises a thorny question that has been left unaddressed for far too long: what to do with Thames Water, London’s ageing water infrastructure, and the nearly £20 billion debt burden the company finds itself under?
The deceptively easy answer is nationalisation, and it’s one that’s attracted support from figures across the political spectrum. But advocates have not accounted for the astronomical cost nationalisation would impose on the British taxpayer.
For starters, even temporary nationalisation under a Special Administrative Regime, in which the government appoints an administrator to take control, will cost at least £4 billion, a figure likely to balloon significantly higher.
And that’s not to mention the enormous investment the company needs, amounting to at least £20 billion over the next five years just for critical infrastructure upgrades.
Add to this the multibillion-pound cost of compensating Thames Water’s creditors should full nationalisation go ahead, and the government is looking at an 11-figure black hole that will pull funds away from other vital public services, such as healthcare and defence.
These funds also need to be found quickly. Between treatment works, pumping stations and trunk mains, London’s water infrastructure is reliant on single points of failure. Without immediate investment, it is only a matter of time until large parts of the capital are faced with severe disruption to water supplies. In this heat, the government could find itself with a severe public health crisis on its hands.
Anyone questioning whether the government can find the sums needed to invest in Thames Water should look to the seven-year Hammersmith Bridge saga for the answer. Just last week, Hammersmith and Fulham Council confirmed that plans to reopen the bridge to motor traffic have been indefinitely stalled since there is “no financial option available that would allow its full restoration“.
Hammersmith Bridge’s restoration is estimated to cost £300 million – small fry compared to the £20 billion-plus Thames Water needs. The idea the government can source the funds required to fix London’s water system is, quite simply, fantastical.
And then there’s the question of the environment. For a city of London’s stature, it’s an outrage that raw sewage continues to be dumped into our waterways. The Oxford and Cambridge boat race two years ago, nearly derailed due to E. coli exposure which left several crew members vomiting, was a visceral reminder of the appalling state Britain’s waterways have been left in.
But a nationalised Thames Water would fare no better. The same ageing infrastructure, the same overflows; the only difference, the government would now be liable for the hefty environmental fines. It would, of course, be political suicide to levy these funds from the customer or the taxpayer, and so the result would likely be even laxer standards under government control.
The answer is abundantly clear: Thames Water needs investment the government cannot afford. The only feasible solution currently is London & Valley Water’s proposal, tabled by a group of creditors that has spent more than a year in discussions with regulators and the government.
The consortium has offered a substantial restructuring package that would write off approximately £9.4 billion of Thames Water’s debt, inject £3.35 billion in new equity, and provide a further £6.55 billion in financing. It has committed not to pay dividends until 2035, allowing investment to be prioritised over shareholder returns.
L&VW has also pledged to pay all Ofwat and Environmental Agency fines for non-compliance in full, protecting the public from any costs associated with fines or poor performance.
Nationalisation offers the promise of a quick fix which is impossible to deliver. It’s easy, therefore, to see why the issue is so seductive to politicians across the political spectrum.
But London doesn’t need more ideologically driven decision-making, and it most certainly does not want its water bills raised even higher – a likely result of the government shouldering Thames Water’s significant debt obligations and investment requirements.
The government must stop entertaining the nationalisation fantasy and start being honest with Londoners. A private sector solution is the only way to secure the urgent investment London needs to fix our water infrastructure.
