Thames Water Crisis: Fear of Renationalisation and Soaring Borrowing Costs
Thames Water, the UK's largest water company, is at risk of financial collapse, causing concerns among senior Whitehall officials.
They believe that Thames Water's collapse could lead to an increase in government borrowing costs similar to the Liz Truss mini-budget crisis.
To prevent this, officials are advocating for the renationalization of Thames Water before the general election.
The Treasury and Debt Management Office fear that prolonged uncertainty about Thames Water's future could damage confidence in the UK economy during elections in the UK and the US.
The Guardian reported on government plans, named Project Timber, to take over Thames Water through special administration.
This could result in the transfer of Thames Water's £15bn debt to the government's balance sheet.
Thames Water's investors have withheld funds due to a dispute with water regulator Ofwat.
Some lenders could lose up to 40% of their investment.
The government aims to address public anger over the water company's failures while maintaining investor confidence in the UK.
The text discusses the potential risk of financial instability spreading from Thames Water's financial troubles to the wider UK government borrowing costs.
This risk is referred to as "contagion." In September 2022, this risk became a reality when the UK government's borrowing costs increased significantly following the mini-budget presented by Kwasi Kwarteng, which caused government debt markets to collapse.