Can Britain untangle the mess in its water industry?
Bowing to the Byzantine financial complexity of privatised water in Britain, the government made an unusual choice for its 'once-in-a-generation' review into the troubled sector: putting a central banker in charge. Sir Jon Cunliffe, until recently of the Bank of England, released his interim findings on June 3rd. That same morning the industry laggard, Thames Water, announced that rescue plans had collapsed. After ten weeks of due diligence KKR, a private-equity giant, decided not to inject fresh cash into the struggling and over-indebted utility.
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Reuters
8 hours ago
- Reuters
UK's Thames Water set for over $13.5 billion rescue deal by Silver Point and Elliott, Bloomberg News reports
June 6 (Reuters) - U.S. investment firms Silver Point Capital and Elliott Management are formulating a 10-billion-pound-plus ($13.53 billion) rescue package for Britain's Thames Water, Bloomberg News reported on Friday, citing people familiar with the matter. The deal will comprise a major debt overhaul, including a multi-billion-pound haircut for senior creditors, in addition to reductions already expected for junior Class B bonds, loans and around 3 billion pounds in holding company debt, the report said. The rescue package will provide an equity boost of between 3 billion pounds and 4 billion pounds to stabilize the utility's finances, according to the report. "The Creditors have submitted a detailed long-term turnaround plan that will fix the root causes of Thames Water's problems, restore its balance sheet, rebuild customer trust and fix the fundamentals of the business once and for all," a spokesperson for the creditors, which include Silver Point Capital and Elliott, said in an emailed statement to Reuters. Thames Water did not immediately respond to a request for comment. Thames Water suffered a major setback on Tuesday in its fight to avoid nationalisation, as it said U.S. private equity firm KKR (KKR.N), opens new tab had pulled out of a multi-billion-pound rescue plan. Britain's biggest water supplier is at the centre of a public backlash against the privatised water sector, which has been blamed for polluting Britain's rivers and seas while hiking bills and prioritising dividend payouts over infrastructure investment. ($1 = 0.7393 pounds)
The Independent
12 hours ago
- The Independent
Will the ban on water industry bonuses get flushed away?
'The era of profiting from pollution ends today,' declared environment secretary Steve Reed, taking aim at our deeply dysfunctional water industry. Big talk – and it was backed up with a ban on bonuses for 10 top bosses as a result of the scandalous level of sewage pollution consumers have had to put up with. Over the last 10 years, execs at the nine biggest water companies have had their wallets fattened by a combined £112m for running regional monopolies – badly. In just the last year, they've pocketed nearly £8m. No wonder people are cross. If you want an example of why monopolies are a thoroughly bad thing, you've got it here. If you want a case study of why bosses' bonuses make people blow a gasket, you've also got it here. The nearly 2,500 'sewage events' recorded over the 12 months can in part be traced to profoundly misaligned incentives. And also, it should be said, to Ofwat's continued failure to properly regulate the sector. If these companies received effective oversight, the current mess would not have been allowed to happen. But back to the government's order, which will hit executives at the stricken Thames Water, Yorkshire Water, Anglian Water, Wessex Water, United Utilities, and Southern Water where it hurts: in the pocket. 'While it is for water companies to set their own remuneration, new standards published by Ofwat that come into force today mean bonuses will not be permitted to be handed out in specific cases when a water company fails to meet core environmental standards,' the government said. Future bans will be imposed if a water boss 'presides over serious pollution offences, fails to meet basic financial resilience standards (e.g. meet minimum credit rating requirements), fails to meet core consumer standards (e.g. failure to operate and maintain sewage networks, is convicted of a criminal offence'. This will be a popular move from a government that needs to find a few winners. However – and you can call me a cynic if you want – there is a potential problem here. Remember the EU's bankers bonus cap, limiting payments to 100 per cent of salary, or twice that with shareholder approval? The net result of that rule, since jettisoned by the UK, was that affected institutions sharply increased the base salaries of their leading rainmakers. Some of them actually found they were really quite keen on having (much) larger pots of guaranteed money coming to them. Executive pay is a multi-headed hydra. Cut off one of those heads – the bonus, in this case – and the others (basic pay, benefits, pensions) typically get bigger. I wouldn't be at all surprised to see some of the water companies attempting to push through big increases in basic pay for their execs, or more likely still, quietly increasing benefits and especially pension contributions. This will merit close attention. Water bosses being handed fat pay rises will, of course, go down like a cup of cold sewage and generate an overflowing storm drain of controversy. But, given the tin ear the water industry has turned to its critics in the past, would anyone be all that surprised if one or two of these companies tried this? I wouldn't. You can, nonetheless, file the bonus ban under 'easy win' for Mr Reed, who was out tub thumping on TV on the back of the announcement. He puffed out his chest, made himself look big and tough, and talked about promises being delivered. It might be me, but isn't it just a little bit early for him to be saying that? Yes, he's had a good start on this one. I'm not denying that. But turning the water industry into something that works for both consumers and investors is a much tougher nut to crack. Reed touted a £104bn pot of private investment – 'the largest ever since privatisation' – which, we are told, will be ring-fenced 'to cut sewage discharges by nearly half over the next five years', as opposed to being used for 'shareholder payouts'. Things that make you go hmm. The money is certainly welcome. It is much needed. But what you have to remember is that private investors are not charities. They don't pump money into companies without the prospect of a return. They will require payouts at some point otherwise the money will dry up quicker than the water pouring out of a leaky Thames Water pipe on a hot summer's day. The other thing to remember, with the water industry being in such a godawful mess, is that it's going to take some smart people to fix it. Preferably new people, untainted by previous scandal. These people tend to demand very high salaries. If their incentives are properly aligned with the delivery of the services these companies are supposed to provide, it ought to be possible to deliver something that hasn't happened to date: an industry that works for all its stakeholders. But Mr Reed, and a beefed up Ofwat, still have work to do on that front.
North Wales Chronicle
16 hours ago
- North Wales Chronicle
Water firms would be foolish to increase salaries to get around bonus ban
Six firms have been banned from paying bonuses to senior bosses under new rules that came into force on Friday. Thames Water, Yorkshire Water, Anglian Water, Wessex Water, United Utilities and Southern Water have been told that they cannot issue bonuses for the financial year 2024/25, which concluded in April. Mr Reed said that customers need to have 'confidence' in what water firms are doing, but also said it would not be 'right' for the Government or regulator to be 'capping' salaries in private sector businesses. Asked if he was going to make sure that firms cannot raise base salaries to compensate for any bonus ban, Mr Reed told Times Radio: 'I think they would be extremely foolish to do anything of the sort that you're describing, because (…) these companies need to rebuild their broken relationship with their customers. 'Their customers need to have confidence in what they're doing, their customers are furious at the fact that they're seeing local waterways being polluted, but bosses taking multimillion-pound bonuses.' He later told the BBC that it would not be 'right' for the Government or regulator to be setting salaries. He told Radio 4's Today programme: ''I don't think it's right that government or regulators should be capping the salaries in private sector businesses. Promise made. Promise delivered. — Steve Reed MP (@SteveReedMP) June 6, 2025 'But those businesses need to have an eye on how their customers are feeling about what they are doing, and there are steps that you can take that are appropriate within regulation.' The firms have all been banned under new rules which prevent bonuses from being paid if a water company does not meet environmental or consumer standards, does not meet financial resilience requirements, or is convicted of a criminal offence. The six companies are not under an indefinite ban, and those firms may be able to offer rewards for the 2025/26 year, provided they stick within the Ofwat rules, under the Water (Special Measures) Act which comes into force on Friday. If a company pays a bonus while it is under a ban, the water regulator Ofwat has the power to get the money back. Under the new rules, Yorkshire Water, United Utilities, Thames Water, and Southern Water will all be unable to pay bonuses to the chief executive or chief financial officer, for the 24/25 financial year. Anglian Water will be banned from paying its chief executive a bonus, but the chief financial officer will not be banned. Wessex Water will be banned from paying its chief financial officer any extra, but the chief executive will be exempt. The exemptions are because people were not in post when the incident that broke Ofwat's rules happened.
