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How Thames Water came to be flooded with debt – and what it means for taxpayers

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Kate Bayliss, SOAS, University of London

Thames Water is reportedly on the brink of collapse. The UK’s largest water company, well known for its high levels of water leakage, sewage spills, executive pay and dividend payments, now appears to be flooded with debts that it cannot afford to pay.

Those debts have reached more than £14 billion, leading to fears the government – or UK taxpayers to be precise – may have to bail the company out.

The news of Thames Water’s difficulties may have shocked some of its 15 million customers. But as someone who has researched the finances of water companies, I was not entirely surprised. These issues have been a long time in the making, and I raised concerns publicly over five years ago.

When the water and sewage companies of England and Wales were privatised in 1989, the intention was to bring fresh finance and innovation to create efficiency. But in the 2000s, a new kind of financial investor began to dominate the sector.

Our recent research found that by 2021, of 15 English water and sewage companies, nine were owned by “special purpose companies”. These are organisations set up for the purpose of buying water utilities, with owners consisting of a range of private equity funds, pension funds and sovereign wealth funds.

These kinds of investors were then able to use water company revenue to generate significant returns to shareholders. And one way this happens is by hiking up company debts.

Newly privatised water companies had started out with zero debt in 1989. Yet by the end of March 2022, total debt in the sector was at £60.6 billion. In part, the increased debt was used to refinance the companies so that investors could repay themselves part of the original cost of buying the water utility.

Our research shows that Thames Water was the archetype of this model. When it was taken over in 2007 by a consortium led by Macquarie, an Australian investment bank, debts increased over the next ten years from £3.2 billion to £10.7 billion. The proportion of assets funded by borrowing increased to over 80%, while the company paid out dividends of £2.5 billion. The company has previously said that it has a “strict, performance-linked dividend policy monitored by Ofwat”.

Perfect storm

But such high debts are problematic for a water company. First there is the issue of inequality, where customers’ water bills are used to pay down debts that have increased to pay dividends to its owners. And second, as we see with Thames Water, these highly indebted companies are potentially unstable in the event of cost pressures.

What we have now is a perfect storm in which Thames Water’s finances may collapse. A key pressure is inflation, which is pushing up the value of some of the company’s debt at the same time as it pushes up costs. More than half of Thames Water’s debt is linked to inflation, contributing to the uplift in debt value.

Water tap filling piggy bank.
Drip effect.
Andrey_Popov/Shutterstock

Then there is the cost of improving performance. This has become more urgent after Ofwat, the water company regulator, was given new powers (effective from April 2025) to prevent companies paying dividends if these weaken financial resilience or are not linked to performance.

In 2022, the government set out a plan to tackle the rapidly growing issue of sewage discharge in a £56 billion investment plan. All of this adds up to intense pressure on the company’s finances.

If those finances do unravel, it is likely that the company will be underwritten by the government to keep the taps flowing while a rescue package is put together (as happened with the energy company Bulb).

However, this situation also creates the opportunity for a new public model of water supply, one that treats water not as a private commodity but as part of the wider ecosystem, providing social equity as well as environmental sustainability.

Public ownership need not be a step back to the 1970s. In fact, it would bring the UK into step with most of the modern world, including most of Europe. In Paris, where water provision was made public in 2009 after years of outsourcing, the change is widely considered a success story.

The last 34 years have revealed the fundamental problems with the current system. This crisis is a chance to direct England’s water in a new direction.The Conversation

Kate Bayliss, Research Associate, Department of Economics, SOAS, University of London

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Continue ReadingHow Thames Water came to be flooded with debt – and what it means for taxpayers

Rishi Sunak Boasts That Oil Funded Think Tank ‘Helped Us Draft’ Crackdown on Climate Protests

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Original article by Adam Barnett and Sam Bright republished from DeSmog according to their republishing guidelines

The prime minister praised Policy Exchange, which received $30,000 from oil and gas giant ExxonMobil in 2017, for shaping laws that target green activists.

Image of InBedWithBigOil by Not Here To Be Liked + Hex Prints from Just Stop Oil's You May Find Yourself... art auction.
Image of InBedWithBigOil by Not Here To Be Liked + Hex Prints from Just Stop Oil’s You May Find Yourself… art auction.

Rishi Sunak has confirmed that a fossil fuel-funded think tank helped to draft his government’s laws targeting climate protests. 

Speaking at Policy Exchange’s summer party on Wednesday (28 June), the prime minister boasted that the think tank’s work “helped us draft” the government’s crackdown on protests, according to Politico.

OpenDemocracy reported last year that Policy Exchange’s US wing, American Friends of Policy Exchange, which provides funds to the UK branch, received $30,000 (roughly £23,700) from oil and gas giant ExxonMobil in 2017.

Two years later, Policy Exchange published a report entitled “Extremism Rebellion”, in reference to the environmental protest group, calling for the police and the government to clamp down on eco protests. 

An Extinction Rebellion spokesperson told DeSmog that this story “exemplifies the stranglehold that private interests have on our democracy.”

Ministers have been clear that new police powers are designed to stop climate protests. The former Home Secretary Priti Patel cited tactics used by Extinction Rebellion and Insulate Britain when arguing for what became the Police, Crime, Sentencing and Courts Act 2022. 

Sunak’s statement yesterday appears to confirm Extremism Rebellion’s allegation that sections of the 2022 law were ‘directly inspired’ by Policy Exchange’s report.

The “Extremism Rebellion” report said that legislation relating to public protest needed to be “urgently reformed” in order to “strengthen the ability of the police to place restrictions on planned protest and deal more effectively with mass lawbreaking tactics”.

This was implemented in the Police, Crime, Sentencing and Courts Act, which came into effect in April 2022 and awarded the police new powers to decide what constitutes a ‘disruptive’ protest and to more harshly punish those involved.

In the year to April 2023, more than 2,000 people were arrested and 138 spent time in prison for their involvement in campaigns by Just Stop Oil, the climate protest group.

Those encarcerated included two protesters who were each sentenced to more than two and a half years in prison – the longest sentences for peaceful climate protest in British history, according to the group – for causing a ‘public nuisance’ by scaling the Dartford Crossing.

This crackdown on protests has been continued by current Home Secretary Suella Braverman, a vocal critic of the UK’s net zero targets, who singled out Just Stop Oil when advocating further powers in the Public Order Act 2023, which received Royal Assent in May.

The legislation, which has been labelled as “draconian” by its opponents, allows the police to pre-emptively intervene to shut down protests and creates new offences for what it describes as “guerrilla tactics”, all of which have been used in recent climate protests.

The law criminalises protesters for attaching themselves (or coming equipped) to lock on to other protesters or buildings, threatening a maximum penalty of six months’ imprisonment, an unlimited fine or both.

For organising protests that block key infrastructure including “airports, railways, printing presses, and oil and gas infrastructure” protesters are threatened with up to 12 months in prison, while tunnelling is set at three years.

The law follows a November report by Policy Exchange that said it was “imperative” for protesters who repeatedly obstruct the highways to be “swiftly arrested, convicted and punished”. It further urged that “magistrates and judges should be imposing severe sentences on repeat offenders who aim deliberately to harm the public by breaching the criminal law”.

Sunak, who worked at Policy Exchange before his 2015 election to parliament, also used the summer party to make a jibe about the Labour Party’s links to Just Stop Oil, one of whose funders, Dale Vince, has donated £1.4 million to the party since 2014. 

Sunak’s comments echoed the claim made often by senior Conservatives, that Labour’s opposition to new North Sea oil and gas projects is linked to Dale’s donation. Grant Shapps, Secretary of State for Energy Security and Net Zero, has repeatedly attacked Labour over the connection, writing in the Daily Mail that Labour has become “the political wing of Just Stop Oil”. 

In fact, the International Energy Agency has said that new oil and gas projects are not compatible with keeping warming below 1.5C – an international climate goal that has been adopted by the UK government.

Meanwhile, DeSmog revealed in March that the Conservative Party received £3.5 million from fossil fuel interests, high-polluters and climate science deniers last year alone.

Policy Exchange and Climate Change

Policy Exchange was co-founded in 2002 by Michael Gove, who has been a mainstay in the cabinet since 2010. The think tank continues to retain significant influence in Westminster: Policy Exchange alumni make up a greater number of special advisers in Rishi Sunak’s government than any other think tank.

At the 2022 Conservative Party conference, Jacob Rees-Mogg, at the time serving as Business, Energy and Industrial Strategy Secretary, said: “I believe that where Policy Exchange leads, governments have often followed.”

Lord Frost, is currently a senior fellow at the think tank. He was also recently appointed as a director of the Global Warming Policy Foundation (GWPF) – the UK’s principal climate science denial group. This week, Frost – who also attended the Policy Exchange summer party – gave a speech criticising Sunak’s government for offering voters “more net zero”. 

Since 2016, Policy Exchange has hosted events at the Conservative Party conference sponsored by energy companies and trade groups including: wood-burning bioenergy firm Drax, gas and electricity supplier E.on, British Gas parent company Centrica, the gas and electricity industry body Energy Networks Association, gas generation company Cadent Gas, trade association Hydrogen UK, and the Sizewell C nuclear plant. 

According to VICE News, while the think tank does not advertise the cost of sponsored meetings at party conferences, other similar organisations charge over £12,000 to host an event, which lasts about 30 minutes. 

Meanwhile, the chair of the Policy Exchange board is Alexander Downer, who served as Australia’s Foreign Minister from 1996 to 2007. Downer has expressed climate science scepticism in the past, claiming that we are “going through an era” of global warming, and saying that Australian climate leadership would be expensive “virtue signalling”. 

Downer was appointed as the High Commissioner to the UK in 2014 by Tony Abbott, who also recently joined the board of the GWPF. 

Policy Exchange and 10 Downing Street have been approached for comment.

Original article by Adam Barnett and Sam Bright republished from DeSmog according to their republishing guidelines

Continue ReadingRishi Sunak Boasts That Oil Funded Think Tank ‘Helped Us Draft’ Crackdown on Climate Protests

High-Profile Allies of Anti-Net Zero Parliamentary Group Revealed in Telegraph Letter

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Original article by Adam Barnett and Sam Bright republished from DeSmog according to their republishing guidelines.

Conservative MP and former Cabinet minister Jacob Rees-Mogg. Credit: Simon Dawson / 10 Downing Street, CC BY-NC-ND 2.0

New allies of the Net Zero Scrutiny Group (NZSG) of MPs and Lords have today been revealed in a letter published by the Telegraph. 

The NZSG campaigns against the UK’s legally binding net zero commitments. The letter reveals new supporters among influential Conservative MPs and peers not previously known to back the group including former Business and Energy Secretary Jacob Rees-Mogg, Lord Frost, Iain Duncan Smith, Andrea Jenkyns, Jonathan Gullis, and Miriam Cates. 

The chair of the NZSG, Conservative MP Craig Mackinlay, coordinated the letter – which called for the suspension of a UK scheme that imposes costs on energy-intensive industries for their carbon emissions. The letter was signed by 29 Conservative MPs and peers.

The revelation comes as the Climate Change Committee (CCC), the government’s independent advisory body on climate change, today stated that the UK is missing its climate targets on nearly every front. 

The government has been criticised for supporting the continued exploration of North Sea oil and gas sites, in the face of warnings from international climate and energy bodies. Chris Stark, chief executive of the CCC, has said that political leadership was “missing” in the pursuit of net zero. 

“The CCC’s report could hardly have been more damning – tearing the government to shreds over its abysmal progress on tackling the climate emergency, and its utterly misleading arguments that fossil fuel expansion is somehow necessary before reaching net zero,” Green Party MP Caroline Lucas told DeSmog.

“Yet this letter from the Net Zero Scrutiny Group proves that Rishi Sunak has clearly been spending more time listening to a group of climate delayers and deniers in his own party, rather than scientists and independent experts … It’s time for the prime minister to slam the door in the face of fossil fuel interests once and for all.”

All signatories of the letter were asked by DeSmog to confirm whether they were members of NZSG. Only two of the 29 parliamentarians – Conservative MPs Holly Mumby-Croft and Jack Brereton – denied being formally part of the group, while a third, Kelly Tolhurst, said that she was in favour of net zero but that “there is not just one way to meet net zero and it is right to raise concerns over policy that could impact the competitiveness of the UK.”

Founded in 2021, the NZSG has never released a full list of its members, meaning that the parliamentarians linked to the group can only be discerned from the individuals who sign its public letters. 

The New Allies

The list of NZSG allies released today includes individuals associated with the Global Warming Policy Foundation (GWPF), the UK’s principal climate science denial group, which has extensive ties with the parliamentary caucus.

The letter in the Telegraph was signed by Conservative MP Andrea Jenkyns and Lord Frost, both of whom are directors at the GWPF, which regularly questions the scientific basis of human-caused climate change. 

The majority (54 percent) of Conservative MPs who signed the NZSG letter are either current or former members of the European Research Group (ERG) – a faction of the Conservative Party that supported a ‘hard’ Brexit and was reportedly the model for the NZSG.

This includes Rees-Mogg, a former chair of the ERG who served as Business and Energy Secretary from September to October 2022. As revealed by DeSmog, Rees-Mogg spoke of his desire for people to “stop demonising oil and gas” in a private meeting with the head of the United Arab Emirates’s state investment company while serving in the cabinet. 

Rees-Mogg has a long record of opposing climate action. In 2014 he claimed that efforts to limit global warming “would have no effect for hundreds or possibly a thousand years” and in 2013 he blamed high energy prices on “climate alarmism.”

Rees-Mogg currently hosts a show on climate sceptic broadcaster GB News, as do fellow NZSG signatories Esther McVey and Philip Davies. 

New MPs not previously associated with the NZSG include Miriam Cates, Conservative MP for Penistone and Stocksbridge, who at the National Conservatism Conference in May claimed that “epidemic levels of anxiety and confusion” among young people are being caused by teaching, among other things, that “humanity is killing the Earth”.

The NZSG allies also include several parliamentarians embroiled in controversies. For example, Reclaim Party MP Andrew Bridgen, who was expelled from the Conservative Party in April for comparing the use of Covid vaccines to the Holocaust. 

The Reclaim Party itself has a history of opposing climate action. Its website says that “net zero climate policies punish the poorest in society” and the party’s leader Laurence Fox has argued for scrapping “those woke billions” that “we are spending each year to appease the sun monster with offerings of net zero”.

Another signatory of the NZSG letter was Scott Benton, who had the Conservative whip suspended in April after a newspaper sting caught him offering to lobby on behalf of the gambling industry and leak confidential documents.

The full list of signatories was as follows: Craig Mackinlay, Sir Iain Duncan-Smith, Sir Jacob Rees-Mogg, Lord Frost, Esther McVey, Sir John Redwood, Dame Andrea Jenkyns, Sir Robert Syms, Mark Francois, David Jones, Kelly Tolhurst, Sammy Wilson, Andrew Lewer, Jack Brereton, Miriam Cates, Chris Green, Jonathan Gullis, Philip Hollobone, Adam Holloway, Julian Knight, Marco Longhi, Karl McCartney, Holly Mumby-Croft, Philip Davies, Bob Seely, Greg Smith, Andrew Bridgen, Scott Benton, Baroness Foster of Oxton, Baroness Lea of Lymm, Lord Lilley, Lord Moylan, Lord Strathcarron.

Greg Smith told DeSmog that he is “committed to challenging assumptions on the best way to end our reliance on fossil fuels and decarbonisation.”

He added: “There is a lot of groupthink in this space that just doesn’t stack up when challenged and it is better to work out the better solutions now than wait for them to go wrong and mess up people’s lives.”

The Net Zero Scrutiny Group

The Net Zero Scrutiny Group was set up in 2021 and campaigns against climate action and for more fossil fuel extraction. The group has publicly pushed for more North Sea oil and gas exploration, the removal of green levies from energy bills, and lifting the UK’s ban on fracking for shale gas.  

As DeSmog has reported, the group has extensive ties to the GWPF and its campaign arm Net Zero Watch (NZW) – sharing personnel, resources, and campaign goals. 

NZSG chair Craig Mackinlay’s has employed GWPF and NZW head of policy Harry Wilkinson, a former researcher for GWPF founder Nigel Lawson, as a parliamentary aide. At the time of its launch, NZSG’s deputy chair Steve Baker MP was a director of the GWPF, and received £5,000 from GWPF chair Neil Record while in that role. 

Baker, who is not on today’s list, stepped down from GWPF in September to become a government minister, and in October said he was still administrator of the NZSG’s WhatsApp group but was no longer lobbying the government on climate policies. He received another £10,000 from Record in February.

NZSG’s policy demands track those of NZW, and Mackinlay has helped promote NZW reports. In March 2022, Mackinlay gave a supportive quote to a NZW report calling for “rapid” new North Sea exploration and for wind and solar power to be “wound down completely”. 

The GWPF continues to deny climate science. A recent paper called the UK’s record temperatures in 2022, which saw a 40C heatwave, “a warm year, but unalarming”. The UN’s Intergovernmental Panel on Climate Change (IPCC), the world’s foremost body of climate scientists, says that “Climate change has already increased the magnitude and frequency of extreme hot events” and that “future extreme events will also occur with unprecedented frequency”.

The GWPF’s influence also appears to be growing. In May, Allison Pearson, the Daily Telegraph’s chief interviewer and a columnist at the newspaper, joined the GWPF board, where she sits with former Australian Prime Minister Tony Abbott, Lord Frost, and Andrea Jenkyns. 

Craig Mackinlay was approached for comment. 

Original article by Adam Barnett and Sam Bright republished from DeSmog according to their republishing guidelines.

Continue ReadingHigh-Profile Allies of Anti-Net Zero Parliamentary Group Revealed in Telegraph Letter

Tory minister makes baffling defence of water privatisation

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https://leftfootforward.org/2023/06/tory-minister-makes-baffling-defence-of-water-privatisation/

… MPs from different parties lined up to quiz the minister on how the government will tackle the crisis gripping the water sector. Among those to question Pow was Green MP Caroline Lucas.

She said: “Water companies had no debt when they were privatised. Since [then], they have borrowed £53 billion, and much of that has been used to help pay the £72 billion in dividends. Meanwhile, we have this appalling sewage scandal – particularly in the South East of England. We have a failing water company – the Southern Water company – that my constituents have no choice but to rely on and it’s considering raising bills by £279 per year by 2030, largely to pay for the investment that they should have been making in the previous years.

“Doesn’t that just show that the privatisation of water was a serious mistake and it needs to be permanently rectified?”

In an unbelievable response, Pow came back: “What I would say is that privatisation has enabled clean and plentiful water to come out of our taps.”

…

https://leftfootforward.org/2023/06/tory-minister-makes-baffling-defence-of-water-privatisation/

Continue ReadingTory minister makes baffling defence of water privatisation

Water firm ‘profiteering’ slammed over news of ‘outrageous’ plans to raise bills by 40%

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https://leftfootforward.org/2023/06/water-firm-profiteering-slammed-with-news-of-outrageous-over-plans-to-raise-bills-by-40/

Image of a burst water main.
Image of a burst water main.

England’s private water firms are under fire once again today, after reports that they could be set to raise bills by as much as 40%. The touted rise comes as the water industry faces significant pressure to tackle the scandal of sewage being pumped into waterways.

Private companies currently operate thousands of sewer overflows which are used to discharge raw sewage into Britain’s rivers and seas. Last year, private water companies released raw sewage into rivers and seas in England for more than 1.75 million hours, with an average of 825 sewage spills per day.

Critics of the water companies argue that they have prioritised providing returns for shareholders, rather than investment in infrastructure that would have tackled the sewage crisis. Since privatisation in 1989, water companies have paid out more than £70 billion to shareholders.

Anti-privatisation campaign group We Own It has branded reports of major bill rises ‘outrageous’, and has called for water to be taken into public ownership. The group’s director Cat Hobbs told Left Foot Forward: “It’s outrageous. We’ve seen decades of underinvestment in our water system, and now we’re expected to foot the bill for infrastructure improvements.

“What have private companies been doing with their enormous profits for the last 34 years? They’ve paid out £72bn in dividends to shareholders. That’s money that could have been reinvested into our infrastructure to prevent the mess we’re in now. Publicly-owned Scottish water spends £72 more per household per year on tackling infrastructure problems.  

…

https://leftfootforward.org/2023/06/water-firm-profiteering-slammed-with-news-of-outrageous-over-plans-to-raise-bills-by-40/

Continue ReadingWater firm ‘profiteering’ slammed over news of ‘outrageous’ plans to raise bills by 40%