Thames Water trouble no surprise, says Bayes academic

There have been calls for the nationalisation of Thames Water, following news that the embattled company is £14 billion in debt and embarking on an ambitious eight-year turnaround plan.

The company has received a lot of criticism in recent years over the discharge of raw sewage into rivers, and it has also missed important sewer flooding and pollution targets. This led to its Chief Executive, Sarah Bentley, standing down in late June.

Commenting on the Thames Water situation, Hugh Willmott, Professor of Management at Bayes Business School (formerly Cass), said:

“It should come as no surprise that Thames Water and other water utilities have racked up huge debts and are now in trouble. In capitalist enterprises, shareholders and executives have every incentive to increase dividends and bonuses paid from debt that lines their pockets instead of renewing and upgrading failing infrastructure. The outcome is the environmental vandalism of polluted rivers and dirty beaches as well as empty taps.

“In a mixed economy, nationalised industries were starved of investment. Priority was given to low taxes, subsidising the private sector, and meeting other calls on the public purse. That is when privatisation looks like an attractive proposition, sold on the basis of gaining access to capital markets, squeezing inefficiencies, and giving small investors a chance to make a fast buck.

“To be even minimally effective, privatisation requires more than private sector resourcefulness that can become self-serving. It demands competent and vigilant oversight of sources and terms of borrowing and delivery of infrastructure investment. Where, then, were OFWAT and UK Regulators Network when the debts piled up, dividends were inflated and promises of service improvement repeatedly broken?

“If the privatisation model is to be retained, then a much more stringent system of regulation must replace OFWAT.”