Thames Water debt: Annual report warns water firm will run out of money by next June while pollutions and sewage discharges increase

In financial results for the year to 31 March, Thames Water revealed that it has £1.8 billion of liquidity, enough to fund its operations until the end of May next year, but that it needs new investment. The water company reported that it has £15.2bn of debt, up £1.3bn on the previous year, the bulk of which could be added to the public purse if the government stepped in to renationalise the troubled company.

Thames said it was “reasonable” to assume it would have sufficient resources to continue operating until at least April 2025, but there were “material uncertainties”. The new prime minister, Keir Starmer, and chancellor, Rachel Reeves, have already been briefed by Whitehall officials that the poor state of Thames presents a “critical risk” to the country.

Thames Water also confirmed that it paid two fresh dividends worth £158.3 million in March to help fund two of its holding companies, Kemble Eurobond and ThamesWater Limited, which are in financial trouble. The dividends come after water industry regulator Ofwat had already said it is “minded” to take action against Thames Water for a smaller £37.5 million dividend payment in October 2023. Under new rules introduced last year, water companies with poor financial and environmental records are not allowed to pay dividends.

The water company’s annual report also revealed a catalogue of missed targets and under-performance. On supply interruptions, which looks at the length of time water is not available per number of properties served, there were 16 minutes 56 seconds in 2023/24, a 15% reduction on the previous year.

However, the firm admits to missing its regulatory target of 5 minutes 23 seconds. During the year, its most significant supply interruption was at Guildford, after Storm Ciaran caused supply issues. The water firm said that 20,346 households experienced supply interruptions of more than three hours, and this accounted for 8 minutes 55 seconds of the total.

Chris Weston, chief executive officer at Thames Water, said: “We didn’t meet our regulatory target for supply interruptions, and I’m fully aware our service fell significantly short of expectations during a major loss of supply in Guildford in November and our customers and performance were severely impacted. It wasn’t acceptable and we’re investing over £90 million to increase the resilience of our water supply in the area.”

Mr Weston admitted that the firm’s “performance in pollutions and sewage discharges is not where it should be or where we want it to be”, adding that “the number of reportable pollutions increased during the year to 350 from 331.”

Thames Water blamed the increase in pollutions on the increased rainfall. Mr Weston said: “In 2023, we saw 40% more rain than the year before, causing a spike in pollutions. The prolonged heavy rainfall also led to an increase in sewage discharges to 16,990 from 8,015”.

The water company added that serious pollutions were down from 17 in 2022 to 14 in 2023. The annual report included the fact that Thames Water is currently ongoing investigations by Ofwat and the Environment Agency (EA) into sewage discharge compliance. The water firm also admitted to missing its target on leakages.

Thames Water said: “In 2023/24, we reduced spot leakage to 570Ml/d, our lowest ever leakage level, however we missed our regulatory target, which is based on a three-year rolling average. While we’ve made improvements during the year, we have a long way to go to deliver the step change required.”

The company’s financial update will be followed on Thursday by a draft verdict from Ofwat on water companies’ five-year spending plans and bill increases to 2030. That will kick off six months of negotiations with Ofwat, ahead of its final decision in December.

If the company ultimately fails to attract fresh funding, Thames Water’s fraying finances could present Sir Keir Starmer’s newly elected Labour Government with a significant industrial crisis. A blueprint codenamed Project Timber was being drawn up in Whitehall in the spring, according to reports, which could see the company effectively nationalised.

Asked how worried the government is about the future of Thames Water, communities minister Jim McMahon said: “We recognise that, over the last 14 years, frankly, the water industry hasn’t been regulated anywhere near as firmly as it should have been, and we haven’t seen the investment to deal with the sewage scandal.” He said there is a need for reform and for regulation to be looked at, adding: “The days of putting shareholder interest above the national interest, frankly, can’t carry on and so we do need to look at that and Thames do need to look at their own house and get it in order.” Mr McMahon said there is “no programme of nationalisation for the water industry” when asked what the plan is if the company collapses.