{"id":323628,"date":"2026-03-01T15:55:37","date_gmt":"2026-03-01T15:55:37","guid":{"rendered":"https:\/\/www.newsbeep.com\/ie\/323628\/"},"modified":"2026-03-01T15:55:37","modified_gmt":"2026-03-01T15:55:37","slug":"revealed-thames-waters-environmental-and-financial-disaster","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ie\/323628\/","title":{"rendered":"Revealed: Thames Water’s environmental and financial disaster"},"content":{"rendered":"

The river Pang is a chalk stream that winds through the Berkshire countryside. It is known for its water voles \u2013 also known as water rats \u2013\u00a0 which is why Kenneth Grahame, who lived at the river\u2019s end, in Pangbourne, made Ratty a protagonist of The Wind in the Willows. The Pang was likely the river that Grahame\u2019s Mole saw for the first time as a \u201csleek, sinuous, full-bodied animal, chasing and chuckling\u201d, and which \u201cchattered on to him, a babbling procession of the best stories in the world, sent from the heart of the earth to be told at last to the insatiable sea\u201d. That was more than a century ago. The Pang today is part of the Wild World, a river sickened by greed.<\/p>\n

The pollution of Britain\u2019s waterways is well known, but the full extent of the carelessness and vandalism of Britain\u2019s biggest water company, Thames Water, has not been revealed until now. New research shared exclusively with the New Statesman reveals the previously unreported extent of Thames Water\u2019s environmental problems, and shows that five years of new regulations and responsibilities have done nothing to address its pollution of bathing waters and delicate ecosystems. The research, based on the biggest study ever conducted of Thames Water\u2019s own data<\/a>, gathered from more than 200 sewage treatment works, finds the company\u2019s illegal pollution of waterways with raw sewage has not declined at all since Boris Johnson\u2019s government promised to \u201crestore precious water bodies to their natural state by cracking down on harmful pollution from sewers\u201d with the 2021 Environment Act. Instead the environment has been degraded on an industrial scale: 39,404 spills of untreated sewage, at least 8,499 of which were illegal, between 2021 and 2025.<\/p>\n

The Pang suffered most of all, having been illegally polluted with raw sewage 383 times during the analysis period. In all, the analysis \u2013 available in full here<\/a> \u2013 found untreated human waste was dumped into 163 different watercourses across 66 Westminster constituencies<\/a>. Almost all (at least 89.7 per cent) of the 224 sewage treatment works were found to have spilled sewage illegally.<\/p>\n

Professor Peter Hammond, who conducted the analysis, found not only evidence\u00a0 that illegal spills have not reduced, but that some sewage treatment works seem also to be treating sewage at a higher rate than their maximum capacity, pushing effluent through the works too fast for it to be properly treated. This could mean that an even higher level of illegal pollution is going undetected.<\/p>\n

<\/a><\/p>\n

Subscribe to the New Statesman today for only \u00a31 a week.<\/p>\n

Thames Water told us that \u201cthe health of our rivers\u00a0remains\u00a0a key focus\u201d and that it is \u201cdelivering the most significant upgrade to our wastewater network in 150 years\u201d, and that these investments are showing \u201cearly signs of progress\u201d. River health, it said, could also be impacted by other factors, including: \u201cFarming, industry, road runoff\u201d and, perhaps surprisingly, \u201cwildlife\u201d.\u00a0<\/p>\n

As the company\u2019s chair admitted to MPs last year, however, huge sums allocated for improvement works are being spent instead on keeping the company afloat. The timid steps recommended by the Independent Water Commission will not turn Thames Water around. Its environmental record and its finances form a clear picture of a
company that is beyond fixing.<\/p>\n

Last month, Keir Starmer said his government was \u201cputting through legislation that says there won\u2019t be bonuses for shareholders\u201d in water companies. This language suggests the Prime Minister does not understand what has happened to Thames Water. The shareholders in the company have lost billions. Its biggest shareholder, a pension fund for Canadian teachers, wrote its investment in Thames Water to zero almost two years ago, wiping around \u00a3990 million from its balance sheet. Money is not really extracted by paying \u201cbonuses\u201d to shareholders (who are in any case paid dividends, not bonuses). The bonuses paid to its executives are trivial in terms of its wider finances. The real issue is who is lending the company money.<\/p>\n

This is the most important fact to understand about Thames Water\u2019s finances today, and the reason your bills, if you are a Thames Water customer, are rising so quickly. It is not the company\u2019s executives, or its shareholders, who are wringing the company dry: it is the people who own its debt. To distressed-debt investors, Thames Water looks less like a company and more like a troubled country. These debtholders make their returns by lending Thames Water money at ever higher rates of interest.<\/p>\n

The best example of this is the \u00a33bn loan extended to the company in February to prevent it from becoming insolvent. BBC News described the money as a \u201clifeline\u201d, but that is the wrong word: it would be more accurately described as a noose. The interest rate on the debt was 9.75 per cent. A company that has an unassailable business model, the monopoly provider of essential services to 16 million people \u2013 and which made profits after tax last year of \u00a3328 million \u2013 is being charged more than twice the average high-street mortgage rate to borrow money.\u00a0<\/p>\n

It\u2019s worse than that: the debt came with added fees that took the bill for borrowing \u00a33bn up to more than \u00a3800m, and the lenders \u2013 led by a group of American hedge funds \u2013 were able to sell the debt on at higher prices, further raising their returns; one investor immediately booked a profit of 17 per cent from this \u201crescue\u201d.<\/p>\n

Ewan McGaughey, professor of law at King\u2019s College London, says it is indefensible that the UK\u2019s biggest water company should be charged \u201cpayday loan rates\u201d on its debt. \u201cThe only way that this can continue,\u201d McGaughey told me, \u201cis if the interest rate [on Thames Water\u2019s debt] keeps on going up and up, and bills keep on going up and up.\u201d<\/p>\n

The notion of Thames Water as a functioning company is dispelled by the reality of where the money from sharply rising bills is going \u2013 not into the more than 100 maintenance projects that had been planned to reduce sewage spills, but into keeping the company running as it struggles under its debt servicing costs. \u201cEssentially, what we\u2019re doing is bailing out banks,\u201d McGaughey explained. \u201cThe economic equation is: money goes from billpayers to Wall Street banks.\u201d<\/p>\n

Thames Water has been run, for a long time, in the gap between two principles. The first principle, inherent to any functioning market economy, is that it must be possible for a private company to fail. The other principle is that you can\u2019t shut off the water supply to 16 million people. And yet both must be observed. \u201cThere has to be a failure regime,\u201d said Dieter Helm, professor of economic policy at Oxford University. \u201cYou cannot live in a world where there are no failures.\u201d<\/p>\n

Intone the words \u201cspecial administration\u201d within a mile of the Palace of Westminster and a lobbyist for the water industry will appear at your elbow to warn about the very high cost of running a water company, not to mention its vast debts. But these sums are not what they seem. A special administration regime, or SAR, is not the same as nationalisation. It is a way for the government to allow the ownership of a company to fail, while the services the company provides keep going.<\/p>\n

If Thames Water was placed into an SAR, the government would have to underwrite the cost of running the company, which one water industry analyst put at \u00a325m a week. In government spending terms, that\u2019s not nothing, but it\u2019s also not disastrous; it is an increase of about 3p on every \u00a310 of current spending. Helm said even this is not a risk. \u201cThe company is completely viable,\u201d he told me. \u201cIt has a lot more [money] coming in than its day-to-day operating costs going out.\u201d He also pointed out that the state would get any money it did spend on the SAR back, when the company was sold. \u201cThe government has first claim on the money that\u2019s raised from a sale,\u201d Helm explained. \u201cAll its costs, the cost of insurance, everything.\u201d The final bill for a special administration would be zero.<\/p>\n

In fact, the one previous example of a special administration regime being used on a utility provider \u2013 the 2021 collapse of Bulb energy \u2013 ended with the government making a profit estimated at around \u00a31.5bn. The same would not be true of Thames Water, but Treasury officials should not assume that the process would be anything other than fiscally neutral.<\/p>\n

The government has so far sought to avoid an SAR, but it has contracted a large US-headquartered consultancy firm, FTI Consulting, to advise on how the process would work. FTI is the world\u2019s biggest consultancy on restructuring, and among its former clients is Water UK, the lobbying group for Britain\u2019s private water companies. There is no suggestion of impropriety on FTI\u2019s part, but it is worth noting that it has sometimes worked both sides of this issue: in 2021-22, for example, both Water UK and Ofwat, which regulates Water UK\u2019s members, were FTI clients, at the same time.\u00a0<\/p>\n

For Dieter Helm, an SAR is not something to be feared; the bigger risk is the moral hazard that is introduced if it is never used. \u201cIf you don\u2019t have a failure regime, and you don\u2019t have a way to deal with the likes of Thames\u2026 then all the industry will know that they\u2019re never going to be put into administration. And then, however many supervisors you invent \u2026 you\u2019re always going to have to cave in to the companies.\u201d<\/p>\n

\"\"Photo by Dan Kitwood\/Getty Images<\/p>\n

For a sense of who the government would be up against in the fight over Thames Water, we should make a brief visit to the port of Tema, on the Atlantic coast of Ghana, in October 2012. The 100-metre-long Libertad, one of the world\u2019s largest tall ships and a frigate of the Argentinian navy, arrived in the harbour only to be detained by the Ghanaian government. NML Capital, a financial company based in the Cayman Islands, was involved in a dispute with the Argentinian government over the value of its government bonds; the company had secured a court order to arrest the Libertad and hold it until it was paid. A tense, armed standoff ensued that lasted more than two months and was only resolved after the intervention of the United Nations.<\/p>\n

The reason this anecdote is relevant is that NML Capital was an offshore unit of Elliott Investment Management \u2013 which is, with other funds, part of the consortium of bondholders that are currently proposing to \u201crescue\u201d Thames Water by lending it billions more. The consortium says this plan will \u201crecapitalise and stabilise\u201d the company with the aim of \u201cfixing Thames Water for good\u201d. Distressed-debt buyers such as Elliott and Silver Point Capital \u2013 another US hedge fund in the 15-member consortium \u2013 do not act illegally or immorally, but they are not used to making boring investments, either. They are specialist funds with an appetite for high risk and high returns. \u201cThey go into extremely risky ventures, they hammer governments with legal threats,\u201d said McGaughey. \u201cAnd when you\u2019ve got a gullible government that is too weak to stand up, they walk away with lots of money.\u201d<\/p>\n

These bondholders appear already to have made good returns by buying Thames Water\u2019s debt. However, McGaughey says the government would not need to repay the face value of that debt in an SAR. It is a question, in legal terms, of \u201cappropriate value\u201d: if you stop paying your mortgage, your bank can compel the sale of your house and use the price it sells for (its market value) to pay off the debt, but lending money to a public utility is not like this. If you own the debt of a public utility you cannot, by law, demand market value. Even the British government isn\u2019t careless enough to create a situation where any creditor can buy up debt and start taking possession of railway lines, reservoirs, or electricity cables.<\/p>\n

The question, then, is what constitutes the \u201cappropriate value\u201d Thames Water\u2019s creditors can ask for. \u201cThe repair costs at Thames Water are so big that they exceed the debt that is owed\u201d, in McGaughey\u2019s view, and the bondholders have \u201calready received more than the fair value of their claims in interest payments\u201d. This makes it easy to calculate the appropriate value to which the debtholders are entitled: they are entitled to nothing.<\/p>\n

Clearly, Thames Water\u2019s creditors would disagree. But McGaughey says it would be \u201cnext to impossible\u201d for them to win a court case arguing against the government\u2019s decision. \u201cThey\u2019re going to lose\u201d, he said \u2013 just as shareholders in other nationalised companies, Northern Rock and Railtrack, lost similar compensation cases against the state.<\/p>\n

Special administration would therefore be a chance to reset the company\u2019s finances in relation to its responsibilities: a new buyer would look at the difference between the company\u2019s regulated asset base, or RAB (all the pipes, sewers and other infrastructure that the give company its monopoly) and the real cost of maintaining services in a way that doesn\u2019t break the law. \u201cThe difference is how much you think it\u2019s going to cost to put right what the company has currently failed to do,\u201d Helm explains. The debtholders might complain, but Helm\u2019s answer to them would be: \u201cTough. You didn\u2019t carry out the functions of the company. You failed, and you should not be rewarded for failure.\u201d<\/p>\n

Let\u2019s entertain for a moment the idea that all of the above is wrong, the water industry lobbyists are right, that taking Thames Water into administration would be a disaster that ended with all of the company\u2019s debts (about \u00a317bn) being added to the government\u2019s balance sheet. The threat dangled by lobbyists is that given the UK\u2019s already enormous debts the bond market would not accept another \u00a317bn, and this government would, like Liz Truss, be deposed by rising gilt yields. However, I asked bankers and hedge fund managers who invest in gilts how their trading of British government debt would change in the extreme scenario that Thames Water\u2019s debts were nationalised and transferred to the public balance sheet in full. The consensus, summed up by one investor, was that even an extra \u00a317bn would be \u201ctrivial\u201d in comparison to the UK\u2019s wider debts. \u201cI doubt we would see any significant rise in gilt yields,\u201d the person told me.<\/p>\n

At the moment, Thames Water\u2019s bondholders enjoy the privilege of running the company without being held responsible for doing so. The chair of Thames Water, Sir Adrian Montague, admitted this when he told MPs in July last year: \u201cwe are kept alive by the creditors drip-feeding liquidity into the company. They have a great deal of contractual control over what happens at the company\u2026 The board takes the decisions, but they do have a great deal of control.\u201d<\/p>\n

The proposals of the recent Independent Water Commission review\u00a0 would not resolve this situation. Helm called the plans \u201ca gift for the industry\u2026 They are an administrative nightmare, and they are a major expansion of regulation.\u201d Helm said the only sensible option for Thames Water is not only to take the company into special administration and sell it\u00a0 to a more responsible owner, but to break it up into four new companies. To have a single private company controlling the water supply to one in four people in Britain is \u201ctoo big a risk to society\u2026 It\u2019s too big to run.\u201d<\/p>\n

[Further reading: The Great Stink: Britain\u2019s pollution crisis<\/a>]<\/p>\n

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