Every UK water firm risks financial ruin like Thames, warns Barclays

In private report for investors, analysts at bank criticise water regulator for overseeing ‘unhelpful’ system of rules

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Every water company in Britain faces financial ruin similar to that crippling Thames Water, Barclays bank has warned.
In a private report for investors, analysts at the bank criticised Ofwat, the water regulator, for overseeing an “unhelpful” system of rules.
The document, seen by The Telegraph, also included investor research suggesting that British water is seen as Europe’s “riskiest” utility sector.
The downbeat comments come amid wrangling between the water industry and Ofwat over how high bills will be allowed to rise to pay for investment in improving the network, in part to address sewage leaks.
Ofwat has suggested bills should rise by an average of £19 a year between 2025 and 2030 – an increase of 21 per cent.
Water companies want that to go further, arguing that those price increases will only allow for about £88 billion of infrastructure investment over the next five years rather than the £105 billion they have proposed.
Thames Water, the UK’s largest water company, is more than £15 billion in debt and battling to stay afloat as it urgently seeks new investment.
The Government has ruled out full nationalisation of the firm but has left open the possibility of putting it into special administration, which would see it, in effect, in temporary control.
The Barclays report, entitled Rating agencies and investor survey: all about contagion, was issued last Thursday and provided analysis of the water sector. It shared views given confidentially in a survey of investors, as well as providing other wider comments on the sector and regulator.
One part read: “As shown by our investor survey results, a vast and still growing majority of investors see the regulatory framework as unhelpful, hampering their investment appetite for the UK water sector.”
Another section discussed the restructuring of Thames Water, raising concerns about whether there was enough protection for bondholders. It read: “In this context, investors expect contagion risk to keep on growing, spreading to the entire UK water sector.”
A third part read: “UK water came in – very clearly – as the riskiest European regulated utility… Contagion risk on investment in the UK has risen. In April, 64 per cent of investors believed a poor performance of UK water would impact their view on UK investment. This has now risen to 75 per cent of investors, although the UK power sector was deemed most preferred.”
In the next two months, Ofwat is expected to decide whether to stick with its original proposals for the increase to bills, or to go further. The final decision could yet be appealed against, potentially creating uncertainty that could drag on for months.
Some politicians have, however, sounded the alarm over letting customers bear the burden of mismanagement by water companies over years by letting bills rise substantially after a cost of living crisis.
A spokesman for Barclays declined to comment on the leaked report.
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