Good morning.
For the last few years, the water industry has faced growing criticism over everything from increasingly common hosepipe bans to dumping sewage in England’s waterways. Thames Water is the biggest water company in the UK and it is facing a particularly acute crisis after its chief executive, Sarah Bentley, suddenly resigned with no explanation and reports began appearing that the government and regulators had started to draft contingency plans for the potential collapse of the water provider after concerns grew about its ballooning £14bn debt pile.
The company is now in emergency talks to secure extra funding. In the event that Thames Water collapses, the government will have to step in to ensure that 15 million customers in England are still provided with water, but the precarious position of Thames Water has reignited conversations about the nationalisation of the water industry, 32 years after it was privatised.
For today’s newsletter, I spoke to Guardian business correspondent Alex Lawson about how things got so bad for Thames Water. That’s right after the headlines.
Five big stories
France | Violence has erupted for a third night over the fatal police shooting of a 17-year-old boy of north African descent during a traffic stop. An officer was charged with voluntary homicide on Thursday as an estimated 6,000 people marched in Nanterre, near Paris, in memory of the boy, identified as Nahel M. More than 400 people have been arrested across France.
Immigration | A bitter legal battle over the government’s plans is set to reach new heights after Downing Street insisted it would challenge a ruling that sending refugees to Rwanda was unlawful. Rishi Sunak said that the government would seek permission to appeal and insisted that Rwanda was a safe country.
NHS | Thousands more doctors and nurses will be trained in England every year to plug the huge workforce gaps that plagues almost all NHS services. Amanda Pritchard, the chief executive of NHS England, hailed the long-awaited plan as “a once in a generation opportunity to put staffing on a sustainable footing for years to come”.
Society | A critical report has found that undercover police operations to infiltrate leftwing groups in the 1970s and early 1980s were not justified and should have been rapidly closed down. Sir John Mitting also concluded that the undercover officers gathered a “remarkable” quantity of information on activists who posed no threat to public order.
Transport | New data has revealed that rail travel is far more carbon efficient than previously thought. The Rail Delivery Group commissioned the development of a new tool designed to calculate emissions so that it could measure its carbon footprint properly.
In depth: ‘This government does not like to step in, if it can avoid it’
To many onlookers, the privatisation of water provision has, for all intents and purposes, failed. The reasons for privatisation – innovation and competition – do not exist in this sector. The water companies run a monopoly on the service in the areas they supply and have not innovated or even invested properly in water infrastructure.
It must be said, this is not a UK-wide problem. Scotland and Wales both have national water companies that perform well and reliably. Customers in England however are dealing with sewage in waterways and rocketing prices. “Ideally, the water industry should be something that we don’t notice apart from when we pay our bill. But this isn’t the case – instead it is at the top of our political agenda,” Alex Lawson says.
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A convergence of crises
Alex describes the situation with Thames Water as a “slow-moving car crash”, which seems to have finally reached the end of the road. The dual crises of mounting debt that has been exposed by higher interest rates and the sewage scandal that has saddled the company with a terrible reputation, has left the company in an unenviable position.
The industry, regulators and the government have been aware of the company’s financial position for months. Despite securing £500m last year from shareholders and hiring the investment bank Rothschild to raise another £1bn, Thames Water will still likely need some form of new financing arrangement.
To combat stubbornly high inflation rates, the Bank of England has hiked interest rates very quickly, “and thereby exposed companies with large amounts of floating debt that’s not at a fixed rate,” Alex explains. “And if you’re a company with a lot of debt like Thames Water, which has £14bn on the balance sheet, the cost of servicing that debt increases significantly.”
If that wasn’t enough, “the government’s concern is that we don’t really know what the scale of the issue is here”, Alex adds. They are not sure how much money can prevent the collapse of Thames Water – the Guardian revealed that the estimates presented to ministers and regulators suggest that the company could be facing a hole of £10bn in its finances.
Thames Water’s exposed balance sheets is one of a plethora of problems facing the company. Decades of underinvestment has meant that the service it is providing is often suboptimal. The leakage rate from Thames Water pipes is the highest it’s been for five years and the company is still struggling to deal with sewage outflows.
The cost for this isn’t just reputational – it’s been felt in the bottom line too. In 2021 Thames Water faced two fines: a £4m penalty for allowing untreated sewage to escape into a river and park, and then a further £11m bill for overcharging thousands of customers.
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How is it run?
Thames Water is set up in a highly confusing way. Alex describes it as a “Byzantine structure”. In short, it has been owned by a consortium of infrastructure and pension funds as well as sovereign wealth funds from across the globe – particularly Canada, UK, China, Abu Dhabi – since 2017.
“But most of the blame for what’s happened here is being laid at the door of an Australian investment bank called Macquarie who’ve been accused of asset-stripping Thames,” Alex says. “They do not have a good reputation in the UK. Their nickname is ‘the vampire kangaroo’ because they buy companies, load them with debt and suck out as much money as possible.” It left Thames in 2017 after more than a decade in charge with an extra £2.2bn in loans. While it was the owner of Thames Water, its debts rose from £3.4bn to £10.8bn, all the while shareholders took £2.7bn in dividends.
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What happens if it collapses?
There are a number of routes Thames Water could take. Option one: it could get more money from its shareholders, which is what it has been trying to do for the last year, or alternatively receive permission to increase bills to boost revenues.
Option two would include an enforcement order from the government and regulators, which would effectively put all the financial decisions of the company in the hands of the government.
Option three would be a “special administration regime”, which is a policy enshrined in legislation. “It’s basically a form of government-handled administration, which would effectively nationalise Thames for a certain, as of yet unknown, amount of time. In that time it would try to find either additional shareholders to put more money in, or find a whole new set of shareholders and owners,” Alex says, pointing to the energy company Bulb as a recent example. Ultimately, nationalisation would likely be short term. “This government does not like to step in, if it can avoid it – any nationalisation I think will be more likely to be a stopgap than a long-term move,” Alex adds.
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What about customers?
All of this chaos should not affect customers. “The last thing any government wants is people being cut off from their water supply or the quality of water falling,” Alex says. “The way that legislation is set up is to make sure the shareholders take the risk over the bill payers, and that’s not to say that the bill payers wouldn’t foot some of the costs, but the way that it’s structured is supposed to make sure that the shareholders are in the firing line first.”
What else we’ve been reading
Ciaran Thapar’s interview with drill star Digga D is an eye-opening look at how to make music – and live your life – when the police have the power to censor all of your output. Hannah J Davies, deputy editor, newsletters
The long list of ingredients with multisyllabic names on the back of ultra processed foods often goes unnoticed. For non-experts (like me) it may as well be gibberish. Amy Fleming spoke to experts about what these emulsifiers are doing to our gut lining and whether we should be cutting them out of our diets. Nimo
“Queer gamers are no longer content with scraps”: Gayming magazine editor Aimee Hart writes for the Guardian about the rise in LGBTQ+ representation in gaming, and why it ought to be just the beginning. Hannah
Arun Kundnani highlights the limitations of liberal antiracism that focuses its attention on diversity training, representation and quotas. “The radical tradition, with its anticapitalist impetus, might once have seemed impractical,” writes Kundnani. “Now it is the only viable antiracist politics.” Nimo
Do you know your kikis from your boubas?! The New York Times (£) revisits the near century-old psychological study that asked people to associate objects with one of two words, with plenty of fascinating examples for you to try at home. Hannah
Sport
Cricket | It was another white-knuckle ride on the second day of the crunch second Ashes Test amid a fightback that saw Ben Duckett make 98 as England reached 278-4 after keeping Australia to 416.
Football | Aston Villa have agreed a deal with Villarreal to sign defender Pau Torres for around £35m in a move that reunites him with Unai Emery. Torres had been tracked by Bayern Munich after his impressive performances in La Liga last season
Cycling | Mark Cavendish says there will “be no room for sentimentality” when he seeks to take a record-breaking 35th stage win in his 14th and final Tour de France, which starts on Saturday in Bilbao.
The front pages
The Guardian looks at the government’s immigration plans in the wake of the ruling that its Rwanda plans are unlawful with “Tories risk bitter legal feud after Rwanda policy is ruled unlawful”. The Mail carries Rishi Sunak’s response to that ruling, with “We should decide who comes here, not criminal gangs”. Metro calls it “Grounded hog day for Rishi” after the latest legal finding.
The Telegraph covers Sunak’s 15-year NHS plan, with the headline: “Biggest NHS reform in its history to save £10bn”. The Times has its own take on that topic, with “Blueprint to boost NHS workforce by 200,000”. The Express calls it “Rishi’s plan to fix NHS ‘once and for all’”.
The Mirror features the open letter on free school meals from Poppy, aged seven.
The FT looks at the finances, “Record withdrawals from banks as British households dip into savings”. The i has “Mortgage deals hiked again – as big six banks raise their prices”.
Something for the weekend
Our critics’ roundup of the best things to watch, read and listen to right now
TV
The Trouble with KanYe (BBC iPlayer)
How does it happen, that one day you are a revered musical artist, innovator and fashion empire-builder, and the next you are a Trump-hugging, Holocaust-denying darling of the US far right. The Trouble With KanYe, the latest documentary by award-winning journalist Mobeen Azhar, sets out to answer not just this question, but also the even more important one of where it might lead. Lucy Mangan
Books
This Is Not America by Tomiwa Owolade
Increasingly, insights on race from across the Atlantic are being embraced in the UK. Indeed, says Tomiwa Owolade of the idea underpinning his book’s title: “Even when two nations speak the same language, [race] can be lost in translation.” He shows that in this country’s polarising culture wars, attitudes towards race are being shaped both by the enlightened and the bigots. Colin Grant
Film
Indiana Jones and the Dial of Destiny
Indiana Jones still has a certain old-school class, as the legendary archaeologist and whip-cracking adventurer returns for another go-around. Harrison Ford, now 80 years young, carries it off with humour and style and still nailing that reluctant crooked smile, while Phoebe Waller-Bridge has a tremendous co-star turn as Indy’s roguish goddaughter Helena Shaw. Peter Bradshaw
Podcasts
Marco Pantani: Death of a Pirate
BBC Sounds, all episodes out now
Hugh Dennis is your host for the true-crime-meets-cycling podcast investigating Italy’s greatest cyclist, Marco Pantani, who was found dead in a hotel room in 2004 after a suspected cocaine overdose. But three inquiries later, Dennis finds a world of doping, race-fixing and possible mafia involvement. Hannah Verdier
Today in Focus
The Republican race for 2024: can anyone stop Trump?
Despite being embroiled in several legal wrangles that could ultimately land him in jail, Donald Trump has a comfortable lead in the race for the Republican presidential nomination. Joan E Greve reports
Cartoon of the day | Ben Jennings
The Upside
A bit of good news to remind you that the world’s not all bad
Three years after receiving a life-changing diagnosis of Parkinson’s disease, Samuel Smith was worried about whether his passion for playing music would end abruptly or gradually. (“I was suddenly hovering between a life lived and a new life to be faced,” Smith explained.) Struggling to do everyday tasks, he opted to take the medication required to ease the symptoms. Adapting to his new normal, he picked up his guitar again and tapped back into his creative side to process what had become his reality, alongside his cousin, Charlie. Smith has gone on to complete In the Springtime, a studio album of seven songs, with the help of Nashville legends including Ron Block and folk singer Cara Dillon – with all proceeds from the record going to Parkinson’s UK. “For me, In the Springtime represents renewal, rebirth and hope,” said Smith. “I don’t know what the future holds – and it is a sobering reality that I already can’t play half the songs on the album. However, my resolve is strong.”
Sign up here for a weekly roundup of The Upside, sent to you every Sunday
Bored at work?
And finally, the Guardian’s puzzles are here to keep you entertained throughout the day – with plenty more on the Guardian’s Puzzles app for iOS and Android. Until tomorrow.
