Live revision! Join us for our free exam revision livestreams Watch now

In the News

Will Thames Water have to be nationalised?

Graham Watson

29th June 2023

Privatisation (and possible nationalisation) in the spotlight again, in that the UK's largest water company, Thames Water appears to be on the point of collapsing under the weight of its own debt. Thames will point to the £500m invested last year, with the pledge of £1bn more to follow, and a debt pile of £14bn

Well, perhaps they might have thought about all of this when paying out large sums in dividends to their shareholders post-privatisation. And the biggest irony of all - it might have to be bailed out by the taxpayer.

Please read: Thames Water in urgent funding talks amid fears of collapse (BBC news)

Here is another article looking at the state of Thames Water and the extent to which the company has burdened itself with debt, and the implications of this for the company's performance. But once again, it also shines a light on the fundamental unfairness of executive pay: in what sense are any of the executives responsible for this bearing any of the risk involved in running a water company?

Faisal Islam makes the point here that as a natural monopoly providing a necessity, how can Thames Water get it so badly wrong? The UK is relatively unusual - indeed, even in Scotland water is still under public control.

Certainly Thames Water is unusual in that its debt level is 80% of its value, in comparison with other water companies, and most of it is linked to inflation. However, as the article notes "water companies excelled at gaming the regulations" and then goes on to highlight the ways that lighter regulation post-2010 has allowed them to offer shareholders generous dividends, at the expense of investment and water standards. It seems to be a classic case of regulatory capture.

Graham Watson

Graham Watson has taught Economics for over twenty years. He contributes to tutor2u, reads voraciously and is interested in all aspects of Teaching and Learning.

© 2002-2024 Tutor2u Limited. Company Reg no: 04489574. VAT reg no 816865400.