After an endless, extraordinarily public saga, business water bills are expected to increase and the expected rate of increase for each regional company has finally been finalised.
According to Water UK – reported on by the BBC – the average annual bill will increase by 26 per cent starting on April Fools Day 2025.
This would be an annual increase of £123 on the national average water bill, although for business customers the price increase will likely be much higher than this, and it of course varies by region.
Whilst these increases were initially announced in December and received the type of welcome one might expect, these bill increases have not satisfied anyone and come in the wake of the potentially imminent collapse of the biggest water company in the UK.
Thames Water, who will be able to increase bills by 31 per cent this year, said at the end of 2024 that they needed an increase of 53 per cent to survive their current self-inflicted financial collapse, and other water companies had also wanted higher bill increases.
The increases have been front-loaded ostensibly to allow for construction work on new and desperately needed infrastructure upgrades to be started early, but have nevertheless been seen in some circles as rewarding failure using money from customers who are struggling as it is to pay their debts.
However, even with these bills set to increase on 1st April, there is a chance that England’s largest water company may not survive that long.
Ticking Towards Midnight
Part of what makes these bill increases hard to swallow for many customers is that for decades much of their water bill has not gone to repairs, upgrades and forward planning to improve standards, but has been paid in bonuses, dividends and expensive debt interest payments.
Data compiled in late 2023 for The Guardian suggested that 28 per cent of a customer’s bill payments to an English water company goes towards servicing debt, a cost that is almost certainly bigger proportionately in the case of Thames Water.
The company is looking for approval to take out a £3bn emergency short-term high-interest loan that would help the company make it to the new financial year and launch an appeal to the Competition and Markets Authority (CMA) to appeal against Ofwat.
According to the Financial Times, Thames Water will run out of cash and effectively collapse on 24th March, the shortest deadline to date, not helped by the hundreds of millions of pounds that have been spent on legal and advisory fees during their planned restructuring.
The problem is that Thames Water’s planned loan is being disputed on at least two main fronts, one of which comes from the beleaguered company’s own creditors.
Because the emergency loan would increase their interest bill to as high as £900m, to say nothing of the principal sum, a group of lenders and bondholders described the loan as being made on “ransom terms”.
These class B creditors would effectively lose their entire stake in Thames Water under a restructuring plan in favour of the class A bondholders, have made the case for an alternative loan deal which would have far less onerous terms and come at a lower cost to customers and investors alike.
They have made the claim that the deal is so bad for them that they would fare better under the government’s Special Administration Regime (SAR) and that the loan would not actually fix any of the long-term issues Thames Water are facing.
Moreover, they argue that it would make the “debt doom loop” as they describe it even worse, both of which are points argued by a group of environmental protestors and no fewer than 30 Members of Parliament.
An open letter to the chief executive of Ofwat, David Black, argued that any further loans would be borne by customers and made the argument that stronger regulation of the sector is necessary because Thames Water cannot reform without intervention.
A Special Administration Regime, which has been likened to nationalisation but is in many respects fundamentally different, would, according to the open letter, be a means to comprehensively reform Thames Water in a way that prioritises customers and the environment.
Unless the loan or an alternative deal is approved before Thames Water run out of money, the SAR is an inevitability to ensure continuity of a vital utility, but the consequences of doing so would not only include the expensive administration, but also a potential domino effect in the water sector.
