Hedge funds want to take control of Thames Water. What could it mean for bills?

A £10 billion takeover proposal for Thames Water could leave customers paying more in water bills, campaigners have warned.

The warning comes as a cross-party committee of MPs has called on the government to reject the deal and take the struggling water company into special administration instead.

Sophie Conquest, a campaigner at We Own It, said the strength of the committee’s report marked a “significant moment” after years of campaigning for Thames Water to be taken into public ownership.

“I think this moment does feel different,” she said. “There is a lot of momentum and there are a lot of MPs, for the first time that I’m aware of, saying we need public ownership of our water.”

Thames Water, the UK’s largest water company, is carrying around £20 billion in debt and has been on the brink of collapse for years. The company’s water bills for consumers rose sharply last year – by around 40%.

More than 100 creditors, including hedge funds and distressed-debt investors, have formed a consortium called London & Valley Water (L&VW) and are trying to take control of the company.

Their proposal would involve writing off billions of pounds of debt and putting £10 billion of new capital into Thames Water to fund investment in its infrastructure. The consortium says the plan would be the fastest way to turn the company around.

A Thames Water spokesperson said that the costs of restructuring the company would be borne by investors.

“Thames Water needs to be recapitalised and put on a firm financial footing,” they added.

But a new report from the Environment, Food and Rural Affairs (Efra) Committee has called on ministers to walk away from the negotiations.

It said the creditors were “reaping millions in debt interest and fees” while negotiations dragged on, and recommended that the government explore all alternatives, including special administration.

“We believe Thames Water can be turned around, but not by giving the keys back to the people who have been joyriding in the family car,” said Alistair Carmichael, chair of the committee.

“The government should reject offers from the company’s creditors in return for relief from fines for pollution and poor service,” he said.

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Thames Water could face more than £900m in penalties over the next five years for poor performance, including sewage pollution, leakage and sewer flooding.

Campaigners say the proposed takeover risks leaving customers paying for the company’s debts while investors continue to profit from it.

Conquest said the committee’s report had put renewed pressure on Andy Burnham’s government to decide what happens next.

“People want to see Andy Burnham pick a fight, like he did with the private companies in Manchester,” she said. “People don’t want someone who’s going to continue privatisation with a slightly different aesthetic. We want someone who’s going to stand on our side against these hedge funds and shareholders.”

Burnham has previously called for Thames Water to be nationalised, although that was before he became prime minister.

Conquest said accepting the creditors’ deal would be a “real political risk” for Burnham’s government.

“To accept this deal at that time, I think, would be frankly insulting,” she said. “It would be a real political risk to Burnham’s new government.”

Why does Thames Water debt make my bills higher?

Thames Water’s financial problems have built up over years. The company currently has around £19.1bn of debt and the Efra committee estimates that about 27% of money it receives from water bills go towards servicing that debt.

The company’s creditors are now effectively its economic owners, after its previous shareholders walked away.

So what does another group including hedge funds aiming to take control actually mean for customers?

Conquest said there was little reason to expect the new ownership structure to make bills cheaper.

“If you look at the statistics, around a third of our bills are going to servicing debt and dividend payouts across the industry,” she said. “There’s no way that inviting US hedge funds into our water system is going to make bills go down.

“They want Thames Water so that they can make a profit out of it, and the people that they’re making profit out of is always going to be bill payers through bills.”

Research from the University of Greenwich has estimated that public ownership of the English and Welsh water companies could save £3bn to £5bn a year in financing costs. It said this could either be used to increase investment or reduce average annual water bills by £100 to £160.

“Bill payers under a privatised system, under a public system, bill payers will always be the ones who pay for infrastructure upgrades,” Conquest said. “That’s how the sector works.

“The case then being that we’re not also shelling out all of this money for shareholders and creditors.”

If the government does take Thames Water into special administration, that would not necessarily mean permanent public ownership.

For Conquest, that is what should come next.

“Special administration followed by reprivatisation would be completely unacceptable,” she said.

“What Thames Water bill payers deserve, and what bill payers across the country deserve, because Thames Water will set the precedent for what happens next to the industry, is special administration followed by permanent public ownership.”

Big Issue approached Thames Water for comment.

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