UK ministers propose binding debt limits for water companies
9 reported3 unconfirmed
Ministers are developing plans to impose legally binding debt targets on England’s water companies, according to sources cited by The Guardian. The proposals, being drafted by Environment Secretary Emma Reynolds, would for the first time force companies to keep debt below certain levels or face legal punishment. The move comes as allies of incoming Prime Minister Andy Burnham work on separate proposals to take water companies into public control. Reynolds’ plan is part of an upcoming clean water bill and follows the financial struggles of Thames Water, which carries £17.6bn in debt. The Guardian reports that Reynolds has not yet decided the specific debt target level, but companies that miss it would have to explain why to ministers. Water industry figures say companies are likely to accept the measures if the target is set at a reasonable level, though some warn forced debt repayment could reduce spending on infrastructure improvements.
What’s reported
Ministers are drawing up plans for legally binding debt targets for England’s water companies.
Environment Secretary Emma Reynolds is working on the proposals.
The plan would set a binding target for debt as a percentage of a company’s overall value (gearing ratio).
Thames Water has £17.6bn in debt and a gearing ratio of 86%; South East Water’s ratio is 75%.
Ofwat currently recommends net debt no more than 55% of value, but many companies exceed this.
Reynolds recently wrote to Ofwat opposing a proposed £10bn rescue package for Thames Water.
The debt target level has not been decided; companies missing it must write to ministers explaining why.
Further sanctions for continued non-compliance have not yet been determined.
Andy Burnham’s allies are working on proposals to take water companies into public control.
Open questions
What specific debt target level will be set.
What further sanctions will apply for continued non-compliance.
Detailed plans for how Andy Burnham would take water companies into public control.
Key figures
Emma Reynolds, environment secretary
Andy Burnham, incoming prime minister
Ofwat, water regulator
Sources: The Guardian
