Why can't the water companies go bankrupt? | The New Statesman podcast

If Thames Water is placed in special administration, the government will take on the company's debts of approximately 16 billion pounds.
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Privatisation and the pursuit of profit lead to the devastation of England’s waterways. Will Dunn, the New Statesman's business editor, wrote last week's cover story on Britain’s pollution crisis.
In a podcast episode exploring Will's cover story, it was stated that if Thames Water is placed in special administration, shareholders will lose around 40% of their capital and the government will take on the company's debts of approximately 16 billion pounds.
In response, a listener wrote in to ask why aren't the shareholders and bondholders totally wiped out? And why would the government take on the company debts?
Read Will's piece here: www.newstatesm...
Listen to the Great Stink episode here: podfollow.com/...
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[@ToCoSo]

This is why public services should never have been orivatised, private firms can load a company with debt and then they have to be saved.

[@buzzukfiftythree]

Absolutely, I totally agree.

[@andybrice2711]

Yeah. If there is to be any private provision of public service, it should be a contract where pay is based on performance. Monopolies do not work.

[@teachingwithipad]

a monopoly is a monopoly

[@AZhangETH]

How come Scottish Water has all the same problems as the private English companies then??

[@therealrobertbirchall]

​@@AZhangETHwe don't 🏴󠁧󠁢󠁳󠁣󠁴󠁿

[@Swindondruid2]

Nationalisation without picking up the debts would be very popular politically.

[@TopazDr]

Not possible, as a lot of the debt lenders are international institutions sometimes owned by foreign governments. This would become a diplomatic issue.

[@Murray-wk3hz]

Swiss Bank was taken care of swiftly with no regard for investors, GM debt bond holders were not even given a nod athe restructuring. ​@@TopazDr

[@englishsteve1465]

@@TopazDr How come we are always told that "private investment deserves a profit because they are taking on the risk" ? There is no guaranteed right to make a profit or not to lose money on bad investments, especially since investors have a say on how a company is ran and even force changes to senior management and policies.

[@VLC8792]

⁠@@TopazDr International investors or not “you win some, you LOSE some" that’s what investing is all about RISK. In this case they lose, simples.

[@Prownilo]

@@TopazDr "Your investments may go up as well as down, ask a financial advisor if investing is good for you!" If we don't start holding these companies accountable they are going to continue to run roughshod over the country. They need to be shown that they are BELOW that of a state, they are BEHOLDEN To the rule of law and to the people at large, I am tired of multinational entities shitting all over the country they operate in just because they are based in another country.

[@edenrosederonsard]

It is an essential public service, so why wasn’t the public asked whether this and other similar services should be privatised? Here is what’s going to happen: taxpayer will bail out these companies but profits will be taken by private investors like they always have been. It’s called socialisation of cost and privatisation of profit. That’s how it works with all large companies these days. We had to bail out banks before. Their profits aren’t being used to feed the public purse, are they?

[@Prownilo]

The argument I always here is that if we nationalise without paying them off then no one is going to invest in public infrastructure in the future. My answer is a resounding "WELL GOOD" Public infrastructure and Private institutions need to be completely divorced from each other. Our government is lazy as hell, can't be bothered to actually do any work so they just palm off everything onto the private sector. I blame them for their laziness and greed just as much as the companies doing it in the first place.

[@TheSlinq]

Surely the point in privatization was that shareholders and bond holders took on the risk? So we're basically admitting that that's not even possible with utility providers because they can't be allowed to fail? If the main concern is that it will push up the cost of borrowing for all utility providers, and that this would cause a cascade failure, then maybe that is something that should be allowed to happen? From the public's perspective, they have already failed. I've no idea why anyone thinks the government should take on their debt - if you've loaned money to a failing company, you should lose your money. This is how capitalism works! If you take away the consequences of bad investment decisions, the whole system falls apart.

[@swarming1092]

Well they've partly failed, but they've fully failed if we no longer have fresh water coming through our taps or electricity to power our homes. Then they've *really* failed.

[@buzzukfiftythree]

Shareholders of Thames Water have been amply rewarded over the period of their investment. We’re always told in the small print that if you invest in businesses you have risks as well as rewards. I shall shed few tears. As for the major investors, surely they have investment managers who are charged with making good investments. They must bear some of the responsibility for making what have proved to be bad investments. I accept that, as an investor, you can’t always tell how well a business is performing, but when a business starts borrowing huge sums simply to pay dividends, the alarm bells should have been ringing. In the case of Thames Water and United Utilities et al, Ofwat have been grossly negligent.

[@englishsteve1465]

Because OFWAT have gradually been stripped of their powers to enforce anything by government.

[@richardh8082]

Can the company be forced to pay for infrastructure neglected by them and fined for operating outside of what is legally required until shares are effectively worthless, then have a government buyout on the cheap?

[@andybrice2711]

Usually my libertarian side would be horrified at the idea of the state using regulations to perform a hostile takeover of a private enterprise. But this is vital public infrastructure we’re talking about. They never should’ve been given a monopoly over it. And I think they’ve proven themselves to be exploiting it in malign ways.

[@indian-tech-support]

Companies do it all the time , it's no different.​@@andybrice2711

[@frmcf]

How did you find two different-aged copies of the same journalist?

[@methanedirigible]

The one on the left is the publicly owned version, the one on the right is the privately owned version.

[@ianworley8169]

I live in Portugal where utilities are still publicly owned. We were notified in December that our electricity cost is due to increase by 5% for the year ahead. Our three bed detached house has average bi-monthly bills of 110€, ie 55€ pcm. Our metered water, provided by the Council, is @ 20€ pcm. The reality of public versus privatised ownership.

[@ab-ym3bf]

the reality is also, that because it is a government monopoly, you might have to wait 7 years before you get a connection and not be able to do anything about that...

[@therealrobertbirchall]

​@@ab-ym3bf If the private sector are soooo efficient why are my bills in Scotland 5 times those of the op. Scotland where we provide 30% of England's renewable electricity and 100% of the oil the English steal.

[@danielbliss1988]

Public ownership is not foolproof though. The key is sufficient regulation. The gap here in America is often to be found in making providers plan for contingencies. In most states (Texas excepted) the combination of state and federal regulation here has worked pretty well with electricity -- after all we pay only about eight cents a kilowatt in Chicago -- but even so, you have episodes where regulators have been too soft. For example in the mid 1990s when a nuclear power station operator made a mistake that did over $400 million in damage to things like steam turbines and other infrastructure at the Zion plant in Illinois, federal regulators let them simply close the plant down instead of repairing it even though it had many years of life left in it; the company wanted it closed because electricity was so cheap at that point they didn't think they'd get their $400 million back, but they should have been made to repair it. Meanwhile our water rates soared in the late 2000s and early 2010s because our city council-owned water utility wasn't required to sufficiently plan for infrastructure upgrades for many years, so that when the cost of replacing lead lines and doing meaningful flood control finally was factored in rates went up very steeply and quickly.

[@therealrobertbirchall]

@@danielbliss1988 and the water in Flint Michigan?

[@danielbliss1988]

@@therealrobertbirchall a perfect example of my point on regulation and management. State of Michigan directly pressured the city of Flint by forcing it into receivership during a financial crisis, and making it ditch a water contract with Detroit (which has pretty good water), and there was no regulation in place to prevent use of the Flint River which the city of Flint had foolishly studied as a contingency plan for many years. They would likely not have been able to do this if Flint had been supplied with water by a private company contracting with Detroit's municipal water....although the private company would certainly have been free, at the end of the contract term, to cut corners and use the river given the weakness of Michigan's regulations. Michigan's Republican governor Rick Snyder, by the way, was convicted of willful neglect over this case.

[@joshbarkley4403]

I refuse to belive letting the invesors loose their money would effect the lending of money for other business. As long as it's explicit that it's a one off and they brought it on themselves by taking all the damn profit as dividends for decades.

[@ianworley8169]

Who cares if they lose money? Investment is speculation. Lots of companies go into liquidation. It's capitalism. Let them go bankrupt then take them into public ownership. The alternative is massive government subsidy ad infinitum and massive increases passed on to the public. Either way, that's just passing on the greed, inefficiencies and negligent lack of investment. Rewarding their profligacy.

[@andybrice2711]

I think you'd have to make a law with very clear conditions under which infrastructure can be expropriated. We wouldn't want a world where the government can just expropriate infrastructure companies on a whim and give the investors nothing. Because that would wreck pension funds, enable terrible corruption, and kill investment in infrastructure. But also, we don't want a world where companies can line their own pockets at public expense whilst infrastructure crumbles.

[@andybrice2711]

​@@ianworley8169 Perhaps, but we also don't want a world where they government can just say _"Your company belongs to us now, and you get nothing."_ Though I do think there should be some clearly-defined contingency for that in the case of vital public infrastructure.

[@joshbarkley4403]

@@andybrice2711 Exactly, there would definatly be a way of doing it without scaring off investment, as worse they wont invest in that specific industry. But thats a pro, as we do want them to do that any more, as they can't be trusted to do it properly.

[@andybrice2711]

​@@joshbarkley4403 Oh I think we definitely need to encourage investment in infrastructure though. Otherwise the government will have to foot the bill for all of it. Whereas currently it's often paid for by pensions funds. But within a strong regulatory framework which rewards success and punishes failure. Rather than vice versa.

[@emmajones7742]

The conservatives never really said anything about wanting to privatise all public services, but they just went ahead and did it. All they said was we want small government. They've left such a mess.

[@englishsteve1465]

If ANY company is "too big / important to national wellbeing" to fail then we cannot afford for it to be in private / profit making hands, where risk is a built in part of the system. The essentials have to be ran by the state for the benefit of us all.

[@lucidnightmare7820]

We could of let the banks go to the wall, instead we choose to protect the interests of rich with public bail outs but will ask ordinary people to pay the price of their incompetence. The infrastructure we depend on to live (water, energy, etc.) should be nationalised, not get rich schemes for faceless corporations.

[@indian-tech-support]

We couldn't let banks go , people would be broke , people will lose their savings and pensions.

[@grahamjones5400]

Because people are being hold hostage by extortion ,"GIMME your money or no water!!" It's not hard to figure out.

[@TouringTony]

We don't need to nationalise at this point. We need to get the regulator to do their job and make directors legally responsible. Only if that fails should nationalisation occur

[@Batters56]

I have a counter argument here: Basically all other privatisations in the UK (especially railways and energy) didn’t stop the government still being the source of billions of pounds for infrastructure investment. But with water, government really did (and does) say “No you’re privatised. You’ll see no money from us.” If we compare water to the railways and energy sector it should have been privatised like this: The government pays for the hard stuff, the sewage treatment works. (Very similar to how Railtrack had to be renationalised after lack of investment caused fatal crashes). Water supply should be covered by regional networks of companies that look after the pipes and any large investment is done by government, this is how National Grid works for electricity. The public should buy their water supply from a selection of bullshit companies buying and selling units of water who just exist to make money. (This is how the electricity companies work). So I ask, is it right to blame the water companies, when they might be asking, every other privatised sector gets to keep their profits and gets government investment. Why don’t we?

[@Murray-wk3hz]

Fine them if they don't meet there obligations, if they go into bankruptcy, All debt is turned into equity. No dividends until the all the water and sewage standards are meet.

[@pault1289]

No mention of Liz Truss (as Environment Sec) relaxed the monitoring requirements allowing water companies to mark their item homework.

[@robc7162]

It is mentioned at 11:00.

[@alanhill4334]

The water companies should be run by cooperatives made up of the subscribers in each region. All subscribers with an equal share regardless of consumption. The 'shares' not transferable . The whole governed by a cast iron charter .

[@davideyres955]

I disagree. Why not have legislation that the water company cannot be broken up and only operates under government license. Then if they go bust then the government runs it without the debts. When you loan there has to be a risk for the reward. If there is no risk then why should they make the exorbitant returns of that debt? The problem with water is there is no competition, you have no choice. Take Thames is been run to benefit the investors and they have borrowed to pay dividends. Is criminal.

[@alejandro_mery]

"keeping debt off the books" is a fallacy. Just a con to privatise profits but debts are still on society, increased by what those privates decided to pull and by the monopolistic bills. it's just a con to give more to the superrich who don't even pay the same tax rates as everyone else

[@williampatrickfagan7590]

Can the directors be charged with recklessness in running the company into the ground. Can directors bonuses be clawed back can the dividend be stopped?

[@geraldbutler5484]

Can we consign the originators of the stupid scheme of privatisation of our water to overseas investors to the dustbin of history.

[@drasticplasticaustin]

What I'd like to see is the pipes that are pumping raw sewage into our rivers, pump it into storage tanks, that are then driven to the water firms HQ where it can be pumped in through their windows.

[@robc7162]

Judging by some of these comments I don't think people watched the whole video or don't understand the technical operations around borrowing and government debt as accurately described in this video. My personal view is that the Government should lend the water companies the investment they need in return for preferential shares that would give them a stake in the business itself. That way the government could steadily increase its stake in the water companies until they become majority shareholders and then launch a bid to take them over completely. Would take a few years but would be the most cost effective way and keep the government balance sheet healthier for other borrowing.

[@WhateverMan35]

3:37 what a load of bollocks. You can sue the directors in this case under Unlawful Dividend Payments and Personal Guarantees.

[@ab-ym3bf]

what was unlawful about the dividend payments?

[@moonman62]

@@ab-ym3bf They riddled the company with debt to make dividend payments knowing they would be bailed out.

[@WhateverMan35]

@@ab-ym3bf because they became insolvent in April when they handed out the dividends in April.

[@ab-ym3bf]

@@moonman62 the second part you will not be able to prove, the first part is an emotional, not a legal argument. As long as the minimum capital requirements and legal reserve requirements as stated in the law are observed the company is allowed to pay dividends. Your moral argument I understand and agree with, but afaik there was no law broken when paying the dividend?

[@ab-ym3bf]

@@WhateverMan35 yes, that could constitute a legal case against those payments.

[@WhichDoctor1]

While it may have been possible to create a privatised water system that functioned. Tgat wasn't the point of this privatisation. Water in this country was privatised so that the funding wouldn't appear on government books, and shareholders would make lots of money. Those were the primary aims of t scheme.

[@SmileyEmoji42]

Thank you WIll Dunn, for explaining it all clearly and in an unbiased way. Unfortunately, judging by the comments here, you were probably wasting your time.

[@jamesrashbrook9485]

It reminds me of bhs where he sold company and debts for £1 to a fraudster but took all the sweeties leaving himself monstrously rich but every one else ........

[@olaflieser3812]

The government should technically be able to take ownership of these utility companies once they default on their debt - as in: You lenders get a great portion of your money back despite the default and I get control of the entity from now on (which is technically worth next ro nothing). Of course the Tories would not do that but a Labour govt might. Since water is an essential commodity the water utilities, while unprofitable, will always effectively be on the govt's balance sheet. Whether the state legally ownes them or not. It will always be the lender of last resort to them and will have to pay for the "non profitable investments" that might be necessary - such as now.

[@katrinabryce]

The Tories nationalised 4 of the rail operators in similar circumstances. People on the right generally think they shouldn't be bailed out because they made bad life choices. People on the left think they shouldn't be bailed out because they are wealthy people. While the reasons for wanting to take their approach are a bit different, the approach they want to take is basically the same.

[@rufioh]

Directly for profit infrastructure just seems stupid. Technically all infrastructure is indirectly for profit, because the profit they generate is increased GDP leading to higher taxes.

[@schmules101]

Privatised gains and socialised losses. Thatchers project shows its true colours.

[@kayedal-haddad]

Time for nationalisation to a mutual model!

[@SydneySewerat]

Us Aussies have caused the Thames water debacle via Macquarie Bank. We could have told you this years ago. Canadian Pension Fund should have known this. A lot of this commentator said can only be false, providing govt legislates the enterprise cannot be broken up.

[@samgrainger1554]

Surely removing moral hazard now is cheeper than allowing moral hazard to infest the whole contries intrstructure???

[@JamesHardaker]

If they didnt have enough money to reinvest how did they have enough to pay dividends. How did they justify paying dividends while also borrowing. Makes no sense, clearly corrupt. To make a successful water company, you need to invest in high-quality systems that are cheaper to run and last longer. This act alone will increase share price then down the line you can pay dividends on the back of the long term demonstrable savings

[@alynch9846]

I don't get this at all. If they make a profit they make huge money and if they run the business into the ground they make 40 percent of the huge amount? What?

[@AZhangETH]

I’m sure if it was made public it would get ample funding just like the NHS and education system…

[@irwinsaltzman979]

Why would people think the water companies will spend government money on infrastructure? If the public doesnot take action then stop complaining.

[@clivejohnson6468]

BS, unfair. We're done with fair. It's either right or wrong. Throw the directors and ofwat in prison.

[@Aendavenau]

Nationalize all public infrastructure like rail, water and electrical...

[@MkVenner1975]

No chance the government should take on depts, no way.

[@jamesglenn7027]

It’s outrageous that we learned nothing from the financial crisis and we are all OK with the idea of too big to fail. Capitalism is broken. It is not capitalism anymore. It is something else entirely.

[@rogerterry5013]

Is there a national balance sheet?

[@michaels8638]

lets be real before you let it fall into administration the share price should be allowed to collapse to a point were some company or government take it on for its debt at an agreed price for its debt, at no point does the government need to step in this early in the process

[@Schiltron]

It's probably preferable to have some dim, clueless civil servants in charge of our water supply rather than some venal, grasping. opportunistic chancers.

[@michaels8638]

It was never going to work because the assessment at the time it went private of the amount of infrastructure that was needed was massively underestimated, let’s be honest the half the system relies on Victorian infrastructure add in user growth it’s a system bound to fail.

[@ab-ym3bf]

Underestimated... one could wonder if this was by design or incompetence. Like you say, victorian times..

[@kevoreilly6557]

I thought the whole problem is it is a drop in the ocean … a really shitty drop in the ocean

[@albertbrammer9263]

This is BS. With bills up to £1000 a year for households, each million households is £1bn income. They have zero costs from input, as water is free from the sky. So, he is saying billions of income (over £30bn) is not enough to keep water clean to rivers and taps? BS. Show us your analysis to prove bills are "artifically low".

[@michaelwilliams3232]

If bills were kept artificially low, deterring investment, how do you explain 70bn in dividends?

[@alejandro_mery]

What if the government buys the debt from the banks first so liquidation goes entirely to it and then take over and refinance?

[@1pauljs]

Moggs company is shorting UK water companies

[@aparametric]

What a surprise...

[@kennethvenezia4400]

2024, and the so-called best & brightest, even with all the technology can't even run a water company. Even in the Victorian era they managed to do it, and the water quality was about the same as it is now. Let Larry the cat do it. He can get better results than Thames water.

[@EmsThaBreaks441]

There seems to be a problem with the civil servants in this country. You have these absolute rotters in the Home Office (causing problems like Windrush), in Business (who fitted up the Postmasters) and here in Environment. And then you have the so called saints of the Civil service resigning everyday from the Foreign Office over things like the Afghanistan pull out and the present Gazan war.

[@lyudmilakutsenko7045]

Because Keir isn't PM?

[@timmk94]

So did i hear that right? 9:01 - Water boards where forbidden to invest in the water infrastructure in order to sell the idea that privatisation is needed so that investment can happen??

[@EmsThaBreaks441]

Slightly incorrect phrasing by the panelists, at least for a time after privatisation otherwise there would be no investment.

[@Prownilo]

I've noticed that it seems that ever since Thatcher, the government actually doesn't want to do any of the work of governing, they will at every oppurtunity sell off public works to a private entity so that they don't have to do anything, and will actively harm projects so that they can be then sold off. Our lazy government is not interested in governing, only power.

[@DavidMax-i8s]

Why do you call it the great water con when saying it is the result of artificially low water bills over decades. Any response welcome.

[@Jon-hh3gz]

Eugh what a mess. Will be nationalised still no doubt a failed sector in its own right and should be considered in isolation.

[@julianshepherd2038]

Just find some Scotland based industry and tax it to pay for Englands ridiculous privatisation experiment.

[@therealrobertbirchall]

Wales and England are NOT the same country, Mr Shirt.

[@Danster82]

But he's framing it that the company has to fail but only the debt has to fail then the government can take over pay a fair price for the actual infrastructure resume the wage's of the employee's but there is no debt and the shares are unrelated to this new entity and will have a zero value.

[@jamesrashbrook9485]

Wessex water did this with Enron and we didn't pick up there debt

[@debsmith5520]

9:35 The guy is either disingenuous or lazy and hasn't bothered to do even basic homework - The Water Industry, with other privatised utilities sweated assets it was gifted to the point of dilapidation, extracting healthy profits up until the last minute.

[@bobdeverell]

Will let the side down with that unpleasant and unprofessional comment.

[@dixieflatline1189]

We are not paying enough for water. If you compare bills in Germany or France they are much higher for comparable availability and quality vs size of population. The real kicker is we spend the lowest on Opex by some measure (no we are not more efficient...) So low bills, lack of investment & lean operational spend = sweating the asset = maintenance problems building + increasing population = death spiral.

[@seanmcgarrigan3942]

Tory’s pension fund

[@ubiktd4064]

Neoliberalism

[@katrinabryce]

The staff, as in the actual workers who do real work, not the directors, should get paid their wages and pensions. The companies that supply them with pipes, road diggers, water treatment chemicals and stuff like that should get paid. Bond holders should not get paid. Shareholders should not get paid.

[@teachingwithipad]

who privatized water? Blair or Cameron?

[@EmsThaBreaks441]

Officially Major.

[@madcockney]

I believe it was Maggie Thatcher:s idea, but when she was ousted John Major continued with it.

[@michaelwilliams3232]

John Major, who also had the genius idea to privatise our railways.