Thames Water debt crisis threatens taxpayer with multibillion-pound bill

The mounting crisis is already prompting moves in Whitehall. Water company insolvency laws are currently being amended to make it easier for the Government to step in, including on the grounds that it has fallen short of performance targets.

If Thames Water is put into special administration, it is estimated that as much as £5bn of financial support would be needed from the outset “just to keep the lights on”, according to a Whitehall source. Without immediate Treasury guarantees, critical contractors could down tools, it is feared.

Sources close to the discussions cautioned that they remain at the contingency planning stage and administration could be averted if Ofwat gives the green light to ramp up bills over the next five-year cycle, starting in 2025. 

A decision is expected by June. The special administration regime has been used before when the energy supplier Bulb went bust in 2021. It was eventually sold to Octopus Energy.

Thames Water is struggling under the weight of borrowings of nearly £19bn. Last year its auditor warned it could run out of cash by April. 

Its troubles have spooked the debt markets, prompting a sell-off of its bonds that has left prices at all-time lows. The value of a bond linked to an entity in Thames Water’s sprawling corporate structure has crashed to less than 39p in the pound. Seven months ago the IOUs were changing hands for 87p.

Thames Water previously announced that it had secured an initial £750m of new equity into the company by 2025 subject to conditions. However, in December, finance director Alastair Cochran was forced to admit that the funds were still to be confirmed.

“Investors are looking for some comfort from Ofwat that it will support that business plan,” Cochran said at the time. “They will take a pragmatic view depending on the feedback they get.”

Investors have also asked Ofwat to agree to less punitive fines for missing pollution and other performance targets.