Baker on what went wrong and why it matters
Lord Kenneth Baker, Margaret Thatcher's former environment secretary, says the rot set in with the regulators. Asked where the system failed, he answered, "I think it was the regulation," adding, "I think Ofwat has quite a lot to answer for." He also said he "certainly did not" imagine companies like Thames Water ending up with almost £19 billion of debt or being owned by overseas infrastructure investors.
Baker, now 91 and in the House of Lords, voiced "great sadness" over decades of underinvestment. He argued the logic for selling the utilities was that the department running them "was always the first to have its budget cut," and that private capital would fund upgrades. He also believes taking the assets back into public hands would once again pit water spending against every other call on taxpayer money, saying he hopes any deal to avoid nationalization "will be successful."
Baker announced in 1986 that the 10 regional authorities in England and Wales would be sold to investors. Three months later he became education secretary and was not in charge of the 1989 listings. He later served as Home Secretary.
Thames Water's tight spot and who has owned it
The UK's largest water company has been at the center of rescue talks for months. Senior creditors have been negotiating with Ofwat, but those discussions have stalled. Last week, Thames filed new claims in the High Court seeking to push back loan due dates to buy time to hammer out a deal. The government is considering putting Thames into special administration.
Thames was bought by RWE in 2001 and then sold to Macquarie Group in 2006. Bloomberg reporting shows that funds managed through the Australian bank and asset manager booked about £930 million after selling a 48% stake ahead of 2018. Over that period, the utility paid roughly £1.1 billion in dividends and interest on shareholder loans, almost half of which went to Macquarie.
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Politics and the coming rulebook rewrite
The UK's newly installed premier, Andy Burnham, has described the water system as a "leaking monument" to decades of failed privatization as he sees it. He has signaled he is open to bringing the industry into public ownership, and his government is evaluating special administration for Thames.
Ministers are preparing the most sweeping revamp of water oversight since 1989. The plan is to abolish Ofwat and set up a single watchdog covering economic regulation, drinking water standards and environmental enforcement. The government said details would follow in a "transition plan" later this year, but Burnham's team appears to be rethinking parts of the package.
He told MPs earlier this month that last year's major industry review, commissioned by his predecessor, Keir Starmer, did not go far enough and that all options should now be on the table. Permanent nationalization was specifically ruled out in the review led by Jon Cunliffe. Ministers are also weighing a new regional tier of oversight to give mayors and local leaders more say in how utilities are run.
The investment hole and what to watch next
In the late 1980s, the sector was preparing to invest £24.6 billion, roughly £68 billion in today's money. Renewing aging pipes, reducing sewage spills and leaks, and developing new water sources will require at least £100 billion in spending that is now underway across the sector. Baker maintains there is "no doubt" more has been spent on infrastructure since privatization than would have been under state control, yet he laments how far short it has fallen.
As of today, only three large UK water companies are listed on the stock market: Severn Trent Plc, United Utilities Group Plc and Pennon Group Plc. For everyday investors, the story here is simple: regulation is being rewritten while one of the sector's giants haggles with creditors in court. That combination can shift timelines, risks and returns on anything tied to water utilities, from bonds to equity.
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