Why is Thames Water in so much trouble?

Here is a story making headlines in the economy: Why is Thames Water in so much trouble? 2 hours ago Share Save Add as preferred on GoogleAlex DanielBusiness reporterGetty ImagesMinisters have objected to Thames Water's proposed rescue deal, moving the UK's largest water company closer to public ownership. Environment Secretary Emma Reynolds has written to regulator Ofwat raising concerns about a £10bn deal put forward by the company's lenders.

Thames Water has been trying to stave off financial collapse for the last three years as it struggles under billions of pounds of debts. The company, which serves about 16 million people across London and southern England, is also struggling to fix leaks, stop sewage spills and modernise outdated infrastructure. Could Thames fall under government control?

Economic Details

Thames Water's main group of lenders - known as London & Valley Water - has put forward a rescue plan that would involve injecting billions in fresh investment. Without it, Thames Water is set to run out of cash within a matter of months and could face financial collapse. The deal would also involve writing down about half of the company's £20bn debt pile, but in return the lenders want leniency from future pollution fines.

But on Tuesday, Reynolds said she was concerned that the offer "does not do enough to protect consumers or the environment". It raises the chances of Thames Water falling into a form of temporary nationalisation known as a special administration regime (SAR), where it would be kept running by government-appointed managers. If the firm does go bust, households will still have drinking water and sewerage services.

Why do some people want it to happen? Proponents of public ownership say it would give Thames Water a fresh start, allowing it to write off some of its debts and get a new long-term owner. In April, an investor that wants to buy Thames Water said it would prefer temporary nationalisation because it would make it easier to buy.

Analyst Views

Thames Water has pushed back strongly against that prospect, instead favouring a "market-led solution". The lenders have previously said a SAR would not solve its problems and will only "restart the process of fixing Thames Water". If the company did collapse, they would be likely to lose out on much of the value of what they are owed.

The government has previously favoured a commercial deal, but on Tuesday Reynolds said it "stands ready for all eventualities". What does all this mean for customers? No matter who eventually owns or runs Thames Water, customers will see no impact on their services.

Taps will still run and toilets will still flush. However, Thames has said it needs to increase its bills to fix its ageing infrastructure, with the average annual bill set to rise sharply until 2030. London & Valley Water has said the proposed rescue deal would hold bills at that level rather than pushing them higher still.

Economists are analysing what the news means for the markets.