Thames Water – The Straw that broke the UK’s back?

The Thames Water debacle is shaping up to be a critical “Judder” moment for the UK. Public utility privatisations decades ago have left a legacy of underinvestment and broken services. The bills will be enormous – and crippling - creating a potential investment crisis.

Blain’s Morning Porridge 29th June 2023:  Thames Water – The Straw that broke the UK’s back?

“Socialist governments traditionally do make a financial mess. They always run out of other people’s money.”

The Thames Water debacle is shaping up to be a critical “Judder” moment for the UK. Public utility privatisations decades ago have left a legacy of underinvestment and broken services. The bills will be enormous – and crippling – creating a potential investment crisis.

I don’t like DRAMA early morning.. BUT! the imminent collapse of Thames Water – the UK’s largest water company – is shaping up to become the fundamental crisis point when the UK’s long-saga of economic decline turned critical.

Economic success is all about confidence and common sense. This is not about the collapse of a single company – it’s about how 40 years of miscalculations, mistakes, and the primacy of political will over common sense, have finally come due. Today’s crisis will have massive market, political and economic consequences as the travails of Thames Water ultimately reveal just how disjointed, hollowed-out, ineffective, but most importantly, how bust and broken the last 40 years has left the UK economy. (Sir Keir Starmer is welcome to use this paragraph – but only if he subscribes to The Morning Porridge.)

The implications of Thames Water for future investment into the UK are frankly frightening. It will be a “judder moment” as markets realise what it means. Its more than just the collapse of a poorly run, over-leveraged privatised utility. As a British taxpayer and voter I am a tad peeved. We should have seen this coming – but we didn’t because it all happened in plain sight.

Let’s recap…

On Tuesday the very well-heeled CEO of Thames Water, Sarah Bentley, did a runner. She was paid a £3.1 golden hello to join the firm 3-years ago, received a £2 mm salary and over £727,000 in additional bonus payments last year despite running the worst raw sewage polluter in the UK. Thames Water has paid £1.6 bln in dividends since 2011, but paid zero in corporation taxes in 2021. As she scarpered off with immediate effect yesterday her Chairman wished her “every success for the future”. I shall remember that next time I catch something nasty from the turds that pollute our local river after decades of underinvestment.

I wonder why she ran? (Rhetorical question.)

  • Could her departure be anything to do with the company’s impossible position?
  • Was it the enormous future investment bills simply to stop its system getting worse?
  • Was it the £14 bln plus of outstanding debt about to default?
  • Was it the likely reaction to her proposals to fund the debt with a 40% increase on customer bills?
  • Was it the realisation the whole game was up?
  • Or was it just too difficult to keep all the balls up in the air any longer?

Thames Water was once a modern public utility. Its ancestry includes the modern sewage systems built to solve the Great Stink, cleaned up the Thames, and provided clean sweet water to 27% of England’s population. It can trace its public sector roots back to the 1600s. But it was privatised in 1989, acquired by German energy firm RWE in 2001, who flipped it on to Australia’s more malevolent native version of Goldman Sachs, the Vampire Kangaroo: Macquarie Bank, in 2005.

Now… before everyone blames the banks and investors – that’s what they do. They look to improve shareholder returns. That is their priority – not customers. (That’s the difference between governments and corporates: government’s shareholders and customers are one and the same.)

The Aussie Asset Strippers did rather well out the opportunity. They pushed up the debt by $10bn, paid less than £100k in taxes, while paying themselves £1.2 bln in dividends for doing the square root of didley-squat in terms of real investment into water infrastructure, (while also leaving a hole in the pension fund), before dumping its looted corpse on some pension funds who thought they were buying annuity cashflows for a couple of billion sterling six years ago.

This morning Thames Water bonds are trading sub 50%. I suspect the short-dated TW bonds will be ok – the government will try to delay default till an election next year is out the way. The current equity investors include Canadian Pension funds, Gulf and Chinese sovereign wealth funds, plus some large UK occupational pension schemes including USS and BT. There are calls for the company to be re-nationalised – leaving these shareholders with zero.

That will be a simply “marvellous” signal to send global investors…. (US Readers – Sarcasm Alert) Not only has 40 years of privatisation left the UK’s infrastructure broken, but after zeroing investors, the only alternative is to fund it with government borrowing – which QE and Covid has left at over 100% of GDP – the highest ratio since the 1960s. Hence my concerns for future inwards investment into the UK. There is significant domino risk – Thames Water was the first. Which will be next? What is the ability of the state to absorb the losses? This is going to hurt in UK bond and equity markets.

Let me quickly recap Virtuous Sovereign Trinity theory: if the UK’s bond market comes under further pressure to refinance bust privatised utilities – then it will not only trigger ructions in the stability of sterling, but will further question the political competency of the government. Result? Decreasing global confidence in UK plc…

Global investors looking at the UK today see a nation of decaying infrastructure, a massive bill to rebuild it, a planning process that actively stops anything – and a nation showing little realisation of the crisis. The opportunity to invest has passed – the big returns from privatising the state are gone – Macquarie and others got them.

Hence, I though it apt to start this morning’s comment with a Margaret Thatcher quote on the top line this morning. It’s tempting to suggest we might want to rethink that one: “Conservative governments traditionally do make a mess. They always give away our money to their chums…”

The UK’s infrastructure crisis might be solvable if it was just one water company – but its all of them. And the Railways. And the Roads. And Education. And the NHS. And the power companies. (Let’s not mention the burgeoning costs and planning delays that leave the HS2 Northern Levelling Up Railway and pointless point-to-point from some random place in North-West London to Birmingham.) To cap it all; a few years ago Macquarie was asked by the water regulator, Ofwat, to “rescue” failing Southern Water… I wonder how much they made from that?

I expected better of privatisation – the flagship Tory policy of the Thatcher-Major era. Then we believed in common-sense financial rectitude and sensible budgets. It wasn’t supposed to end like this – the whole idea of privatisations was to take control away from the state which had clearly failed to properly manage state-run industry. The Tories – and lest we forget, voters – took great delight in privatising everything. Royal Mail, Capita, British Aerospace, Cable & Wireless, British Gas, British Telecom, British Steel, BP, Rolls Royce, British Airways, Water Companies, Electricity companies, British Coal, National Power, Powergen, British Rail. There is a degree of commonality in that list. Many, but not all, of these companies are less good today than they were then. Pretty much the same thing happened to every privatisation… new owners came in, levered them up to pay themselves dividends, flogged them on and left them broken. These costs are coming due.

There was a hilarious dark-analysis earlier this week: The Great Railway Disaster – on Channel 5 about the complete clusterf*ck that is UK railways. Comedian Ben Elton summed it up: “We sold off British Rail because the Tories considered it a firm run badly by the UK government. They sold it so it could be run even more badly by rail companies owned by the Italians, German and French.” Yep, nationalised foreign government rail firms – and Yooropeans to boot – own many of the UK failing rail franchises.

Elton’s somewhat left-leaning programme successfully demonstrated British Rail was, in every single respect, a better, more profitable, more reliable firm before privatisation created a quagmire of dodged responsibility and missed opportunities. In real terms today’s privatised UK railways cost more than double the cost of BR in the 1980s in subsidies and support.

The privatisation of utilities in the UK has been an fiscal disaster for the UK.  Now we pay for it.

If I was a lefty – which I acknowledge there is a danger I am morphing back into – I would write something like: “After decades of chronic mismanagement, asset stripping, paying dividends to equity owners by raising debt, and treating customers as marks to be exploited, Privatisation has left the UK with the worst infrastructure in Europe, hopelessly inefficient and overpriced utilities and a sense of national despair.” (Sir Kier can have that one for nothing.)

But… I am a simple, tell it like it is market commentator. No point bleating over what a mistake privatisation proved to be. We have to solve what is solvable. Brexit (which, yes, I voted for – mea culpa) was another massive mistake and equally badly executed – there may be time to rescue something from it.

How do we fix the UK? Cool Heads. Pragmatism. And a clear acknowledgement mistakes were made. Oh, and instead of 18 months of political dither as the current government staggers from mistake to mistake.. maybe time for a change… (Not that I would wish the Gordian Knot of solving the UK’s broken economy and empty wallet on anyone…)

Out of time, no time for 5 things, and back to the day job…

Bill Blain

Strategist – Shard Capital.


  1. It’s not just the public sector that’s been overleveraged, looted and customers ripped off. Same thing with dentists’ surgeries, vet practices and Boots The Chemists, to name a few. Not forgetting the contribution of all this to rampant inflation.

    • THe financialisation of the economy has have many positive effects also, but for many it will feel intensely negative – which is something we neglect in terms of just how angry it has left many.
      Basically… we need an economic reset and rebuild.

  2. I think this is one of the best things you’ve written. How one earth are Labour (or anyone else) going to dig us out of this hole? They seem to be far too busy virtue-signalling to be sending any messages about what, specifically they’d do, particularly as they’ve hedged themselves in with commitments not to raise taxes or break the triple lock. And all the green fantasy economy is surely fundamentally unfinanceable? We simply cannot afford the level of borrowing it would take to eg improve the National Grid to enable the changeover to electric vehicles, for starters. Let alone the rest. Is there a single good reason why anyone under the age of say 35 wouldn’t be better getting out of the UK for at least the next five-ten years?

    • To get elected Labour has to tell the truth and be honest about polices – which will hurt:
      Lets not blame just the Tories – took 3 governments (Thatcher/Major, Blair/Brown, and umpteen Tory idiots) over 44 years to get us here – here being that the country is effectively broke:
      a) At 100% debt/GDP we can’t borrow more without impacting everything else.
      b) Taxes will have to be increased just to stand still – keep our decaying national infrastructure fuctional in a sticky-backed plaster kind of way
      c) We need to reverse the “unpleasantness” with Europe and find a functional accomodation – which is probably the Tories’ only hope of keeping seats by plugging “we got brexit” done credentials. (Remember – few Brits are prepared to admit it was a badly bodged mistake.)

      The bottom line is the nations “Public Goods” are massively underinvested. The bill to stand still will be huge: Water (£75bln), NHS (N+1 bln), Education (75bln), roads, defence, law and order, benefits…. Gilts are vulnerable. If Sterling starts to wobble – as i thought it showed signs of last week when it fell after a rate hike….
      The only way we can get out of this is:
      1) Successful industrialisation – a massive drop in sterling to make the UK competitive again – but, oh, we don’t make anything anymore
      2) Innovation – can only happen if education and subsidies support it – and young people stay..
      3) Austerity to pay for it..
      4) The nation to realise what happened.. and accept its going to hurt
      4) a credible government. I have enormous respect for Rishi Sunak, but its too late. Unless Starmer is immediately honest, and credible, with credible exectutable policies.. we are rubber ducked.

      I am going to vote for change, but I am worried.

      Until the public realise the implications of what happened 40 years ago.. we will remain in denial.
      I have already had emails saying water and transport are better today than in the 80s… No. I was there. Its much worse.


      • And we were offered all of that in 2017 and the general public (guided by the medya) said “non”.

        Sir Keith is offering nothing but Rishinomics so please don’t look there for a solution. The Labour to fix things boat sailed in 2017…

  3. Bill,

    Thank you for scaring me s***less. This morning I converted the Sterling balance in my foreign trading account to US$. The sum was the result of UK trading profits and dividends over the past couple of years, not massive but to me significant.

    Your missive today brought to side the following quote:

    “Sooner or later we all sit down to a banquet of consequences” -Robert Louis Stevenson

  4. Very scary article indeed. But you make the assumption that keeping everything nationalized would have provided a better result. I rather doubt that. I’m an American and have come to the conclusion many years ago that BOTH of our parties are rotten to the core! I’m sure England is no different.

  5. A new economic system is gaining momentum via the BRICs and the anti-war Global South pressing the needs of humanity for economic development.

    • Indeed there are lots of things happening in global geopolitical alliances. Formerly unaligned nations becoming more aligned, and aligned ones aligning with others.. but I think there is also pragmatic growth outlook in play. The underperformance of Russia in Ukraine, and the economic headwinds in China, is waking many governments up to the apparent weakness of the West being overstated. I suspect South Africa, as an example, has done its economy a great diservice by recent actions and alignment with Russia/China.

  6. Maybe it’s a good time to re-write some of the things that are considered common knowledge in economy. Such as, “markets are wonderful and always will find the optimal solution”. They will find the optimal solution to line the pockets of those private investors that are good at finding optimal solutions to line their pockets… in other words, the whole concept is pretty meaningless.

    Instead, it would be much more useful to ask what sort of situations markets are good for, and which they are no good. I submit that networks of any type (that includes railroads, electrical grids and water distribution, among others) will tend to become monopolies and will work worse if they are forced to be partitioned. And that, since a monopoly by definition is not a market, it makes no sense for them to be for-profit, since the profit will only serve to line somebody’s pockets. Whether they should be run by the government or an independent non-profit NGO I think depends of how critical it is for the functioning of the country. So, probably railroads, electrical grids and water distribution should be nationalized, while social media should be an NGO.

    I’m not sure how the British government could take on nationalizing all the companies that ought to be nationalized, but since it will have to happen sooner or later, I guess we’ll find out.

  7. A small bit of background information:

    Corporations are creations of government.

  8. Thatcherite selling off of public resources, utilities, services, infrastructure, environmental safety, and personal financial safety, which were all built and defended by the people (both natural and newly welcomed citizens), has now become apparent in her and their (Tory Party) intent.
    Their Intent was Capital theft and criminal distribution to those that we see and have to put up with.
    Everyone should refer to Thomas Piketty, the famously French economist who promotes Participatory Socialism, and ask the likes of them to advise the coming government to take us forward for our successors sakes.
    I’m too old to suggest a return to The Angry Brigade, even though I sometimes see in the Tory Party that it might be needed. Disband Inequality and Give us our Stuff Back or the AB might restart with some youth.
    Old 69er.

  9. Re-nationalisation of the various monopoly services listed – with no compensation. The actions of the corporate sector have endangered the British state & could be classed a treason (if due to a lack of investment London goes without water for a week – how would you class that?). In terms of investment in national infra, most of the investment has a business case (i.e. an RoI) this includes investments in power networks. Given this, there is no need for the gov to issue debt, it tells the BoW to print – just like it did for Q.E. – but this time it gets a payback. Inflation? why would that be a problem?

  10. “Privatization” doesn’t work unless there is competition. If the private owner/operator of the business has a monopoly, then you’ll get the same problems that existed when the government owned and operated the business. The only reason why the problems are worse now is because time has passed and the infrastructure is old and failing.

    This is what you get when socialists (Brits) try to “privatize” industries even though they don’t truly understand WHY they’re privatizing the industry in the first place.

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