Water Companies: Financial Resilience

Lord Sikka Excerpts

Tuesday 23rd July 2024 Lords Chamber

Asked by

[Lord Sikka]

To ask His Majesty’s Government what assessment they have made of the financial resilience of England’s water companies.

[The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)]

My Lords, Ofwat monitors the financial position of water companies, taking action when companies need to strengthen financial resilience. Ofwat has strengthened its powers to improve financial resilience, including requiring water companies to stop paying dividends where that is compromised and preventing customers funding executive bonuses where companies do not meet performance expectations. Our water Bill will put water companies under tough special measures by strengthening regulation, as a first legislative step towards improving the sector.

[Lord Sikka (Lab)]

My Lords, I welcome the Minister to her post but let me illustrate the problems by referring to Thames Water. Its shares are worthless and its bonds are close to junk status, while 38% of its revenues service £18 billion of its debt. Based on the debt to asset ratio, Thames Water has a gearing of 80.6%; Ofwat’s target is 55%. The debt to equity ratio used by credit rating agencies gives it a gearing ratio of 1,000%. No amount of regulatory tinkering can change the fundamentals here. The Government need to create some certainty by nationalising it, so can the Minister tell us when that will happen, please?

[Baroness Hayman of Ullock (Lab)]

I thank my noble friend for his very warm welcome. However, the Government have no plans to nationalise Thames Water. It would cost billions of pounds and take years to unpick the current ownership model, during which time underinvestment in infrastructure and sewage pollution would only get worse. We want to improve the situation in the water industry that we find ourselves in as quickly as possible.