The recent discovery of unsafe levels of E coli in the Thames has served as a stark reminder of the ongoing challenges faced by Thames Water. The overflow of untreated sewage, combined with the accumulation of rainwater, presents a consistent and troubling issue that affects much of the infrastructure throughout the UK.
The root of the problem can be traced back over a century, with a significant lack of investment in water and drainage systems. The attempted solution of privatisation, driven by the hopes of resolving underinvestment with the help of private management, has proven to be a miscalculated move. The recent financial impasse of Thames Water, struggling under the weight of legacy debts, is a testament to the failure of this approach.
With 16 million people dependent on Thames Water, nationalisation is not a feasible long-term solution. However, the current system has brought about a dire state of affairs, with shareholders unwilling to provide the necessary financial support for the company to move forward. This has led to a standoff between the regulator, Ofwat, and the shareholders of Thames Water. This is a critical juncture that urgently demands a sustainable solution.
Fortunately, there is a model that holds promise, as demonstrated by the construction of the “super sewer” by Thames Water’s subsidiary company, Tideway. This project, operated as a stand-alone public benefit company, serves as a testament to the potential of public and private sectors working together to create public value as their sole purpose. The success of Tideway can serve as an example for the entire sector, paving the way for a transformative shift in the approach to managing water and drainage systems.
The potential solution lies in requiring every water company to take the form of a public benefit company, with a clear, singular focus on the provision of clean water and infrastructure. The UK Infrastructure Bank can play a pivotal role in providing contingent guarantees on debts necessary to fund the required investment. Additionally, the involvement of Ofwat and independent directors, alongside the representation of employees and customers at the board level, can ensure transparency and accountability.
While the transition to this model may face resistance, especially from shareholders who have been accustomed to expecting substantial returns, it presents an opportunity to create a new asset class of purpose-led, publicly quoted, public benefit utilities. The impact of this transformation would extend beyond Thames Water, offering a viable and sustainable path forward for the entire sector.
In light of the urgency of the situation, the time has come for decisive action. The potential benefits of this model far outweigh the challenges. By seizing this opportunity, the UK can set a new standard for the management of water and drainage systems, ensuring a sustainable and secure water supply for generations to come. The future of Thames Water, along with the broader water utilities sector, hinges on embracing this paradigm shift.