It is strange now to recall that Thames Water had a prominent slot on what was known as “Sue’s shit list” – the internal Labour dossier, compiled by Keir Starmer’s first chief of staff, Sue Gray, of potential crises that could erupt at short notice and force the incoming administration to make some big decisions quickly. Here we are – more than two years later – and the Thames script has barely advanced. We’re still waiting to see if the financial crisis at the over-indebted, under-performing water company will be resolved by a creditor-led recapitalisation, special administration or something else.
Now Thames is seeking another £2.4bn slug of funding from creditors to stay afloat for another year and survive yet more back and forth between ministers, regulators and those same lenders. The new mystery element in the talks is what the prime minister, Andy Burnham, actually means by “greater public control”. Still, Thames was an outlier – albeit a biggie – one might say.
At least the government in 2024 cracked on with the job of deciding how to overhaul the wider water sector in England and Wales. Indeed it did: Sir Jon Cunliffe, a former deputy governor of the Bank of England, was commissioned to review what was needed and his detailed report landed in summer last year. The centrepiece was the abolition of Ofwat, the regulator.
Steve Reed, the environment secretary at the time, embraced Cunliffe’s proposals and declared the “the biggest overhaul of water regulation in a generation” via a new water bill. The bill, which should have arrived this autumn, was delayed by the change of PM. Burnham has promised a “strengthened” version, which presumably will include the “public control” elements.
In the meantime, Ofwat is still in place, and nobody knows which bits of the Environment Agency will be absorbed into the new super-regulator, or what the new body’s formal status will be. Will it, for example, be as formally independent as Ofwat, or will it be under a tighter ministerial leash? Credit rating agencies have noticed the uncertainty.
In dry language, Moody’s on Thursday issued a report noting that regulatory changes “appears to have stalled”, that “political scrutiny is heightened and may cause further delay” and the “potential increase in business risk will require stronger financial ratios to maintain credit quality”. Moody’s, note, did not downgrade its assessment of the “stability and predictability” of UK water regulation, as it did in late-2024. But it did tiptoe up to the line: one of its slides at Thursday’s conference warned: “Our score could fall further.” Why does Moody’s opinion matter?
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