Thames Water appears to be in trouble. The company, which has billions in debt, is in talks with the Treasury about a possible bailout. We may soon be adding the firm, which serves one in four Brits, to the list of victims of rising interest rates.
‘Victim,’ in this case, is perhaps the wrong word. It’s hard to feel sorry for a company that has been relying on ultra-low rates to keep itself afloat, racking up £14 billion worth of debt and now severely struggling to service it.
Financial mismanagement is just one of a series of accusations levelled against the company. Its problems have been in the spotlight for years, especially for its links to leaks and pollution. Its CEO Sarah Bentley stepped down yesterday, forgoing her bonus. Now the question is whether its new boss will temporarily be the government, if Thames Water’s financial situation proves so dire that a new buyer must be found.
It’s hard to feel sorry for a company that has been relying on ultra-low rates to keep itself afloat
Chancellor Jeremy Hunt has been walking a tricky tightrope this week. Hunt has been insisting that the government must hold back and let the economic situation play out. But he’s also been speaking forcefully about intervention, and the government’s willingness to step in over rising costs and failing businesses.
On inflation, the Treasury’s line is clear: inaction is the best course, if we want to get the rate of inflation under control.
Hunt has been rejecting demands, even from within his own party, to offer mortgage holders some kind of relief, insisting that to borrow money to fund such a plan would fuel inflation.
What’s more, to offer financial support to homeowners would work against the impact of interest rate hikes so far, possibly demanding the Bank of England raise rates even further in the future.
It’s politically difficult territory for the Treasury and No.10, not least because so many of their voters are homeowners. But so far, Hunt remains resolute that the government is not going to try to curb the impact of rising rates; indeed, he continues to offer the Bank his full support in their efforts to get inflation under control.
But this action plan – to stay out of the way – only seems to apply to certain areas. The chancellor has been convening the various regulators this week, including the Competition and Market Authority and the Financial Conduct Authority, to do a deep dive into consumer prices and whether they accurately reflect current inflation rates. Meanwhile, the Treasury might be taking the UK’s biggest water company back into state ownership – temporarily, at least.
In truth, a lot of the talk on consumer prices is just that: talk. The prospect of ‘voluntary’ price caps in supermarkets seem to have been shelved, for now. But it’s going to get increasingly difficult for the government, as it insists it can’t act in one area, yet wades in quickly elsewhere.
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