If Thames Water goes bust, what happens to us?

Pity the poor Thames Water consumer (for the record, I am one). We found out today that the water company only has enough cash to last until next May – thanks to a debt pile of more than £15bn. It has also confirmed it paid two fresh dividends worth £158.3m in March – and warned it is unlikely to raise fresh funds before December.

It is a fresh blow for the supplier, which has already faced widespread criticism for the levels of sewage leaking into waterways. Events including this year’s Boat Race and Henley Royal Regatta faced warnings over levels of E coli in the water – and pollution incidents increased to 350, up on 331 last year.

The firm has said it is looking for fresh funding to maintain and update its infrastructure after investors pulled the plug on £500m of emergency cash earlier this year; which leaves Keir Starmer with a significant dilemma: whether or not to nationalise (but more on that later...).

Still, there’s no need to panic just yet. The company’s financial travails – writ large in its latest results – are highly unlikely to end in the taps running dry. We aren’t going to witness emergency standpipes in the street and queues outside Tesco for multipacks of Evian.

The real pain for the consumer is coming in the form of much higher bills. Thames Water has managed to declare an “underlying” profit of £140m for the year to 31 March, an improvement of £270m on the previous year, largely down to increasing what it charged customers. Those underlying profits exclude £152m worth of one-off costs incurred during the year.

That is by no means the end of it. The company thinks it has enough cash to keep going for just 11 months. Warnings about its future as a “going concern” are splashed all over the accounts, including from the company’s auditors. The company also records the payment of £195.8m in dividends.

Given the dire situation – and the knock-on effects on its customers – the bonuses handed out to top bosses seem tasteless in the extreme.

CEO Chris Weston, who was appointed on 8 January, received £437,000, including a bonus of £195,000, for fewer than three months work. Finance chief Alistair Cockburn was paid £1.33m for a year’s service, which included a spell as co-CEO. His package was fattened by a £446,000 annual bonus. Thames Water’s pain is being shared widely – just not in the boardroom.

But there is more to leave a sour taste in the mouths of consumers in the weeds of Thames Water’s annual report. I turned to the section marked “customer performance”: only to discover that bad debt levels are twice the industry average and “this has to improve”. That’s right: it’s all our fault.

That this river of bad news is still running is in part down to the fact that the government wants no part of nationalisation, even though polls suggest that it would be highly popular with the public. Rachel Reeves does not want Thames Water’s debt on her books. Business secretary Jonathan Reynolds does not want to be on the hook for the inevitable increases in water bills in the capital. Environment secretary Steve Reed does not want to cop the flak the next time untreated sewage is pumped into an unsuspecting watercourse.

This gives Weston a certain amount of breathing room; but not much. In March, existing investors – including sovereign wealth funds in Abu Dhabi and China, along with pension funds in Canada and the UK – described the company as “uninvestable”, pulling out of plans to serve up £500m of emergency funding and £3.25bn over the next five years. Omers, a Canadian pension fund, has written down the value of its holding to zero.

Weston is going to have to look elsewhere for cash. He’s been talking up the prospects of doing that, claiming he’s held discussions and received expressions of interest. However, he’s having to wait on regulator Ofwat’s verdict on the 59 per cent extra he wants customers to stump up for between 2025 and 2030. The watchdog may also have thoughts on those dividends and bonuses.

Ofwat bosses are going to find approving such a package a challenge, given that they are already facing questions on how Thames Water’s infrastructure has been allowed to degrade to such an extent. This is something for one or more select committees to get their teeth into when their memberships have been selected. There will be blood.

But you don’t really need a full-scale parliamentary inquiry to ascertain how we made it to this particular impasse. Regulators slept while the scales tipped far too far in favour of investors, financial engineers and the City.

How does this end? It’s hard to see Weston securing the funds he needs on terms that will be acceptable to Ofwat. Investing in Thames Water in its current state represents a high risk. If I were sat on an investment firm’s risk committee I’d have my red “no, not under any circumstances” stamp at the ready.

I wouldn’t be at all surprised to see some sort of recovery vehicle being set up, with the backing of the taxpayer, albeit at arm’s length. In the interim, Reynolds might be wise to pick up the phone to Stephen Byers, a predecessor of his (albeit with a different title) who had a nasty post-privatisation migraine of his own to deal with in the form of Railtrack, which eventually became (the state-owned) Network Rail.

None of which changes the fact that billpayers are going to be spitting with rage and disbelief when their bills kick in the door. Glass of water to calm down, anyone?