Key facts
- Ministers are planning to introduce legally binding debt targets for England's water companies.
- The move is intended to prevent financial failures like that of Thames Water.
- Companies will face legal consequences if they exceed the new debt limits.
- The proposals are part of an upcoming Clean Water bill.
- Thames Water currently has a debt of £17.6bn, resulting in an 86% gearing ratio.
Ministers in England are preparing to implement legally binding debt targets for water companies, aiming to prevent financial collapses such as the one faced by Thames Water. The proposals, spearheaded by Environment Secretary Emma Reynolds, would legally constrain the amount of debt companies can accrue, with potential penalties for non-compliance.
This initiative comes amid broader discussions about the future of the water industry, with allies of Andy Burnham, the Makerfield MP and incoming prime minister, working on plans for public control of water services. Burnham has indicated that taking essential services back into public hands will be a key priority. Reynolds' plan for debt limits is expected to be incorporated into an upcoming Clean Water bill, seeking to ensure companies remain financially resilient and capable of investing in infrastructure and environmental improvements.
Current guidance from the water regulator, Ofwat, suggests a net debt limit of 55% of a company's value, but many firms, including Thames Water with its £17.6bn debt and 86% gearing ratio, significantly exceed this. South East Water also has a high gearing ratio of 75%. Reynolds has recently opposed a proposed £10bn rescue package for Thames Water, arguing it does not sufficiently protect consumers, potentially pushing the company closer to administration.
While water industry figures suggest companies may accept reasonable debt targets, some warn that prioritizing debt repayment could reduce funds available for essential infrastructure upgrades, such as sewers.