Could The Water Sector Drastically Change In The Near Future?


Whilst most utilities are necessary for a certain quality of life, water is necessary for life itself. Because of this, the way in which water is provided, its quality and the costs for businesses and individuals alike are causes for significant debate far outside of the industry.

Not a day has gone by in 2024 where rates, quality, the conduct of the main water companies or indeed their prospects for survival have not been topics of discussion, and this has in turn led to discussions on the future of water in England that have moved beyond the philosophical.

After all, a crisis is often a catalyst for revolution, and with a status quo of underinvestment, sewage leaks, pollution events, increased costs and companies lurching from controversy to near-collapse, discussions and questions have changed from “if” the water sector will change to how.

Here are some of the major flashpoint issues and what could potentially happen in the near future to solve them.

The Domino Of Thames Water

It is impossible for the water industry to escape the looming domino that is the multipartite crisis of Thames Water, one of the world’s biggest private water companies and at serious risk of running out of money before the end of 2025 due to nearly £15bn of debt, roughly 80 per cent the value of Thames Water itself.

Many of the issues with the water industry in England as a whole are reflected and magnified through the lens of Thames Water’s disastrous 2024 so far.

Its biggest shareholder issued a complete writedown of its stake in Thames Water, believing them to be worthless, a £400m interest payment was defaulted on in early April, it is expected to be fined £40m by Ofwat for unauthorised dividend payments and a formal request to raise prices by 59 per cent is awaiting a decision that will come after the 4th July General Election.

Thames Water is the ultimate symbol of an impasse for Ofwat and the water sector as a whole as it currently exists; Thames Water and other companies ostensibly need more revenue and lower fines to fix the problems they have created or neglected to remedy sooner.

Accepting rate increases, even if they are lower than what the water companies have formally requested, could be seen as rewarding failure, and would move from an industry issue to a political issue exceptionally quickly.

At the same time, rejecting them outright could risk enabling or accelerating the collapse of Thames Water, and the unprecedented consequences that could follow the collapse of a natural monopoly.

Water companies themselves and the trade association group Water UK have strongly warned that a particularly strong response could dent confidence in the sector outside of the UK and potentially ruin the chances of Thames Water and other companies getting access to outside investment.

Is Change Inevitable?

The issues with Thames Water and the industry as a whole are not new, and plans have been drawn up for a potential special administration regime for the water sector were quietly drawn up by Ofwat at the start of 2024 and have been discussed as early as 2022.

Often described as nationalisation, a claim Ofwat and the former UK government vehemently denies, an SAR is a dedicated insolvency process for companies that provide legally required or critical public services.

Rather ironically, a company like Thames Water cannot simply liquidate, as that would leave millions of people without water and trigger not merely a financial crisis but an infrastructural, political and humanitarian one.

The next moves could be drastic and move beyond the financial and into the ideological and political. If water companies are to retain private ownership, Ofwat would need to find a way to support this move, and many of the proposals could be perceived as rewarding failure at the expense of the customer.

Bringing the water industry into the public sector, as is seen in 90 per cent of the countries of the world and three-quarters of the United Kingdom, is politically very popular and could potentially save consumers, residential and business alike, billions.

This is deeply unpopular within the industry for obvious existential reasons and one that the former government was vehemently opposed to.

However, were Thames Water, South West Water, Yorkshire Water or another company to collapse entirely following their requests to increase water rates, retaining the private water sector could become no longer affordable, either financially or in terms of political capital.

A week is a long time in politics, however, and there is a chance of a significant turnaround, a regime change or a compromise that allows water companies to make the infrastructure investments that are badly needed without fundamentally altering the structure of the water industry. Time will ultimately tell.

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