Water security must be the priority

The travails of Thames Water presage the possible renationalisation of the industry some 35 years after it was privatised through the sale of the 10 regional water authorities. The Government is reportedly drawing up contingency plans to deal with the potential bankruptcy of the country’s biggest supplier, which serves more than 15 million people in London and the South East.

Thames Water has billions in debt, which it has struggled to service as interest rates rise. The utility company’s collapse would have serious ramifications for the pension and infrastructure funds that have invested in it.

When they were sold in 1989, the water companies had almost no debt. However, it was apparent that massive sums would need to be raised to improve the ageing supply and sewage infrastructure. Under state ownership, they were starved of money and have subsequently invested close to £200 billion, but even this is not enough.

The companies have taken on borrowings of £60 billion, diverting income from customer bills to pay interest payments. The Government says the sector as a whole is financially resilient but the regulator, Ofwat, said last December that it was concerned about the future of several of the companies. One option being explored is to place Thames Water into temporary public ownership.

The industry’s financial woes have hindered improvements in infrastructure. Despite facing fines from Ofwat for missing targets to reduce leaks, they actually seem to be getting worse in the Thames Water area. This is affecting water security, which is under pressure from a growing population in the South East and from the apparent impact of climate change. Since 2010, prolonged dry spells have twice forced water companies to limit non-essential domestic and commercial water use, or apply for special permits to extract extra water from the environment.

Ideas for underpinning supply include a grid to deliver water from parts of the country with high rainfall, new reservoirs and desalination plants. But these would all be expensive. Households have been warned that water bills could surge by up to 40 per cent by the end of the decade as companies look to pass on the cost of tackling the sewage disposal crisis and of fighting climate change.

The Government claims to be on top of matters. A plan for the future of water was published in April and a “national framework” drawn up to underpin supplies. It may need to be revisited.