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Thames Water seeks 45pc bill rise as it piles pressure on Ofwat

Thames
Thames

Thames Water is plotting to increase household bills by up to 45pc, as the troubled supplier pushes regulator Ofwat to sign off on plans to help it stave off collapse.

The company, which provides water and sewage services to 16m households, has submitted a revised business proposal indicating customers could pay up to £627 a year by 2030.

This is compared to the current average of £433 a year, as bosses seek to spend billions of pounds on improving its creaking infrastructure.

The issue of leaky pipes and sewage spills has been thrust into the spotlight in recent years amid heightened scrutiny of the water sector, prompting calls for greater levels of investment at Britain’s biggest supplier.

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However, the need for more spending has come at a perilous time for Thames Water, which has been saddled with £18bn of debts at a time of high interest rates.

It emerged on Monday that feared US hedge fund Elliott, owner of Waterstones, has been buying up debt in Thames Water in a bid to profit from its recent turmoil, the Financial Times reported.

Concerns over its finances have fuelled concerns of a possible taxpayer-backed bailout, with the Government having drawn up contingency plans under the codename Project Timber.

The bailout proposal could lead to Thames Water being placed into special administration, as was the case with Bulb Energy in 2021 before it was taken over by rival Octopus.

Sources close to the company have suggested it could cost taxpayers £5bn “just to keep the lights on” at Thames, which in recent years has been heavily criticised for paying out huge dividends to shareholders.

In a bid to stave off nationalisation, bosses at Thames Water published plans on Monday to invest £21.7bn in tackling environmental issues, up from a previous pledge of £18.7bn in October.

However, this proposal will face scrutiny as much of the cash will come from customer bills.

The need for increased revenues at Thames Water has been made increasingly acute after shareholders, such as China’s sovereign wealth fund, cut off funding last month.

Chancellor Jeremy Hunt has already criticised the prospect of higher bills, claiming earlier this month that it would be “utterly outrageous” for regulator Ofwat to allow Thames Water to charge households more.

He said investors in the embattled company had “an obligation to sort out the mess” when asked whether they had a duty to inject more cash into the business.

It is now down to Ofwat to determine Thames Water’s fate, as it will decide in June whether the company can increase bills to pay for investment.

The decision will inevitably draw political scrutiny after the regulator previously vowed to protect customers from unnecessary bill increases.

In its latest submission to Ofwat, Thames Water said annual bills could also hit £608 under a reduced investment package worth £19.8bn.

However, this is still much higher than a typical bill this year, which is around £433.

Thames Water has claimed it has enough cash to see it through until July next year, although the prospect of its collapse has led to questions for both the Conservatives and Labour ahead of the general election.

There is currently no political appetite among ministers to intervene in the situation at Thames Water, while Sir Keir Starmer has ruled out nationalising the water sector.

Details of Thames Water’s bailout plan, which is being overseen by the Department for Environment, Food and Rural Affairs, signal that the bulk of its debts will be added to the public purse if the company fails.

If nationalised, the Government would manage Thames Water indirectly through an arms-length body.

Ministers would subsequently seek to return it to private ownership over time, although plans include the prospect of the supplier being split into two separate companies.

Details of a possible break-up, first revealed by The Telegraph earlier this month, indicate that one entity could oversee London while the other will serve Thames Valley and the Home Counties.

It is understood that breaking up the business would make it easier for Thames’ operations to be sold on to a rival once stabilised.

However, this is just one of a raft of scenarios being explored, as bosses also consider raising more debt.

Following the latest business plan, an Ofwat spokesman said: “Since October we have been in discussions with all companies, checking on their proposed plans and seeking further information. There has also been further information published in the last few months clarifying companies’ statutory commitments.

“Both these factors have required companies to review their proposed plans and revise their expenditure forecasts to reflect what would be required to fully comply with all statutory requirements.

“We note that Thames Water has now published an update to its business plan. We will publish our draft view on companies’ plans on 12 June.”

A spokesman for the Department for Environment, Food and Rural Affairs added: “Customers cannot be expected to pay the price for Thames Water’s poor performance, which is why Ofwat should use their full powers to protect customers and ensure value for money in their bills.

“As with all water company plans, this is not yet final and Ofwat will now independently scrutinise this latest version to ensure it delivers for customers and meets the company’s legal requirements and government targets.”