Thames Water

(Urgent Question): To ask the Secretary of State for Environment, Food and Rural Affairs if he will make a statement on Thames Water’s financial situation.

I thank the right hon. Lady for securing this urgent question. I want to begin by making clear that Thames Water remains stable, and the Government are carefully monitoring the situation. Customers can be assured that there will be no disruption to water supply.

Thames Water is a commercial entity currently engaged in an equity raise, and KKR pulled out of that process earlier today. As Thames Water has said, the company will continue to work with its creditors as part of the equity raise to improve its financial position. There remains a market-led solution on the table, and we expect the company and its directors to continue the process that is under way and fix the financial resilience of the company in the interests of its customers. I want to be clear that the Government are prepared for all eventualities across our regulated industries and stand ready to intervene through the use of a special administration regime, should this be required to ensure the continued provision of vital public services.

The situation facing Thames is taking place within a wider context. Only last year, we saw record levels of pollution in our rivers, lakes and seas. It is clear that our water system is broken. We have already passed legislation so that the regulator can ban the undeserved multimillion-pound bonuses that so outraged the public, and we have further strengthened accountability through the introduction of up to two years in prison for polluting water bosses who break the law. We have increased the regulator’s resources and launched a record 81 criminal investigations into water companies, and we have followed the “polluter pays” principle, meaning that companies that are successfully prosecuted will pay for the cost of that prosecution so that further prosecutions can follow. We have worked with the water companies to secure £104 billion of private sector investment to rebuild our broken water infrastructure. That means new sewage pipes, fewer leaking pipes, and new reservoirs across the country, as we work to end the sewage scandal that we inherited from the previous Government.

Thank you, Mr Speaker, for granting this urgent question. May I begin by correcting the Secretary of State? When he refers to private sector investment, he is in fact referring to the bill increases that each and every one of us will pay—£31 a year—so when he talks about private sector investment, he means bill payers’ investment.

Some 16 million residents and bill payers will have been concerned by this morning’s news that the private equity firm KKR has pulled out of its rescue deal with Thames Water. According to a source close to KKR, one of the reasons it pulled out was its concern about negative rhetoric directed at Thames Water and the rest of the industry in recent weeks by the Secretary of State and other Ministers. In other words, the Secretary of State and his Ministers have talked themselves out of this rescue deal. I am bound to say, if only they could do the same thing with the Chagos islands deal.

On which date did the Secretary of State discover that KKR was thinking of pulling out of this deal, and what involvement did he have in the phone calls over the weekend between KKR and No. 10 spads to try to rescue it? I ask because in recent weeks there have been briefings to the press that he is considering temporary renationalisation. The Treasury has apparently instructed him that he will need to find up to £4 billion from the budget of the Department for Environment, Food and Rural Affairs to cover the cost of this manoeuvre. Let me put that in context: the entire farming budget for this year is roughly £2.5 billion.

Can the Secretary of State therefore explain the options to which he has just referred, and do they include a plan for temporary renationalisation? From which budget would a temporary renationalisation come: DEFRA or central funds? That question is particularly relevant in view of the upcoming spending review, on which there has been detailed briefing, including the suggestion that the DEFRA budget is to be slashed.

I am grateful to the shadow Secretary of State for making it clear to the House that she does not understand the principles of private sector investment, and neither is it particularly clever to stand at the Opposition Dispatch Box and make up figures to attack.

This Government stand ready for all eventualities, but I will make no apology for tackling the poor behaviour of water companies and water company executives that took place under the previous Government and that we are correcting. We even heard stories, which have been confirmed to me by water companies, of previous Conservative Secretaries of State shouting and screaming at water company bosses but not actually changing the law to do anything about the bonuses that they were able to pay themselves. This Government are taking action, working with customers, water companies and investors to ensure that we have a successful water sector that works for the environment, customers and investors in a way that it completely failed to do under the previous Conservative Government.

Let me begin by drawing Members’ attention to my entry in the Register of Members’ Financial Interests.

Let us be clear that the collapse of KKR’s rescue deal is not a blip; it is a reckoning—a moment that exposes the complete bankruptcy of the privatised water model. This morning’s interim Cunliffe review of the water sector confirms the scale of the crisis. It describes our water system—a regulated statutory monopoly—as being too risky for investors now. It did not seem to be too risky when shareholders were siphoning off billions in dividends while letting the pipes rot, the rivers choke and the debt pile up. The only people truly at risk now are bill payers, who face a 35% real-terms price hike in the next five years—and not just to fund clean water or climate resilience, because half of it is to boost investor return. So I ask my right hon. Friend again: when will the Government stop fiddling, put Thames Water into special administration, strip out the debt, and begin the job of returning our water system—not just Thames Water—to public ownership?

Order. Mr Lewis, I was very generous in bringing you in so early, but I did not expect you to make a statement yourself.

I thank my hon. Friend for his question. I reassure him that the Government stand ready for any eventuality and will take action as required. We are not looking at nationalisation because it would cost over £100 billion of public money, which would have to be taken away from other public services, such as the national health service, to be given to the owners of the water companies. It would take years to unpick the current model of ownership, during which time pollution would get worse. We know that nationalisation is not the answer, because we need only look at the situation in Scotland to see that.

I call the Liberal Democrat spokesperson.

Under the Conservatives, Thames Water was allowed to pile up nearly £20 billion of debt while pumping sewage into rivers and lakes for 300,000 hours just last year, but rewarding its shareholders with £130 million of dividends. Today, Thames Water’s customers have been left in the lurch, and the Conservatives seem to think it is because we have all been a bit too mean about Thames Water.

The price must not be paid by the customers. Will the Secretary of State ensure that those who were responsible for making dreadful decisions rightly bear the cost instead? Is it not right for the company now to go into special administration, and to emerge from administration as a public interest company? Is it not also right that all water companies, including the likes of United Utilities in the north-west, move to a public interest model, so that caring for the environment matters more than profit?

My hon. Friend the Member for Witney (Charlie Maynard) has done more to hold Thames Water to account than Ofwat, this Government or their predecessor. Does that not prove that regulation has failed, and that Ofwat should be abolished, with a new, powerful clean water authority given the power to clean up our lakes and rivers, and our industry?

I thank the hon. Member for his question. There is a procedure to be followed for special administration, and we stand ready should that be required, in this case or any other case involving the regulated industries. He may have had a chance today to look at the interim report, on which Sir Jon Cunliffe is inviting comments ahead of the final report in about a month. That report will form the basis of future legislation to fix the regulatory mess we inherited from the Conservative party.

Only the Conservatives could come here and defend Thames Water. The rest of the country has seen what an appalling performance this company has given during the 35 years since privatisation. I think it is time we put this company out of its misery, but we must do so in a way that does not bring the debts it has run up on to the taxpayer or the bill payers. Can my right hon. Friend say whether one of his options is preparing for that eventuality?

I thank my hon. Friend for his question. We are prepared for every eventuality, as I have outlined, and we will take whatever action is necessary to ensure the continuing supply of water to customers in the Thames Water region and elsewhere.

I call the Chair of the Environment, Food and Rural Affairs Committee.

Under the £3 billion loan that Thames Water has negotiated, the first drawdown of £1.5 billion will be on 30 June, which is less than four weeks away. That is contingent on Thames Water having a lock-up agreement in respect of a recapitalisation transaction, but it now has no partner to provide that. It of course chose to proceed with just one option, which has now walked away. Who does the Secretary of State think that Thames Water will now turn to—it is not exactly going to be negotiating from a position of strength—and what are the Government going to do if it cannot meet that 30 June deadline?

There remains a market-led solution on the table, and we expect Thames Water to follow through with the process to ensure it is able to fix the problems it is currently facing.

My constituents and other Thames Water users are fed up to the back teeth with having to pay more to help this company, which has failed them so badly. Obviously, the Secretary of State has to have special administration on the table, but we know that would be hugely costly to the taxpayer. I know it is hard to talk about hypotheticals, but if he does go down that route, will he have the cost to individual customers front and centre, so they do not actually have to pay more for that process?

Yes, I absolutely agree with my hon. Friend. I share her anger at the fact that bill rises were so high this year, but that is because the Conservative party did not take the necessary action to ensure that the water system was properly maintained. As anyone who has ever owned or lived in a house will know, if people see a crack in a wall and leave it for 10 years without fixing it, the problem gets much worse and the cost of repairing it is much more. In a very real sense, the public have been left to pay the price of Tory failure.