Nationalising Thames Water could cost nothing, according to a leading economist, contradicting claims that the bill for bringing the water industry under public control could reach £100bn or more.
Britain's biggest water company is nearly £20bn in debt and battling to stay afloat, having become the focus of public anger over sewage in waterways and high executive pay.
Debt and rescue plans
Thames Water's biggest creditors, who face losing significant sums if the company goes under, are seeking approval from industry regulator Ofwat for what has been dubbed a rescue plan. The alternative is that Thames enters a “special administration regime” (SAR), a form of temporary nationalisation.
Reports in the past week claimed Prime Minister Andy Burnham had shelved plans to put the firm into administration, though insiders have privately dismissed the idea. Another report suggested creditors wanted guarantees before they would put another £2bn into Thames to keep it going.
Professor debunks £100bn figure
Dieter Helm, Professor of Economic Policy at the University of Oxford and Fellow in Economics at New College, Oxford, used a blog to challenge arguments put forward by Thames Water's advisors. “Long gone are the days when governments had the competence to run major companies,” he says.
However, he also debunks the £100bn figure – and suggestions it could be £144bn – as they ignore the full costs that could be recovered when water firms enter SAR and are then sold to new buyers. “To be clear, the economic number is not £100bn or £144bn, but £0,” he writes.
Alternative models
Mr Burnham has advocated a “new economic model” that puts life's essentials back under public control. Greater public control of Thames Water and other firms does not have to mean the taxpayer becoming long-term owners, but could remove the profit-at-all-costs motive from an essential service.
A hybrid public-private partnership model could see governments retain ownership of physical infrastructure assets while a private company finances, maintains, and operates the system. In the case of water, the taxpayer would own the pipes and sewage plants, while private firms run the network with a reasonable regulated return built in.
Public control could also include having a say over how water companies are run, potentially with a seat on the board and a veto over decisions. In the case of Thames Water, Mr Burnham could simply decide to run down the clock until it finally runs out of money and goes bust, with services to customers protected. Change is long overdue.
