Five charts that explain why water bills are about to go up
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This is a crucial week for the water industry. Regulator Ofwat will on Thursday give its "final determination" on how much bills will rise over the next five years. Before then, Britain's largest company Thames Water hopes to win court approval for a £3bn bridging loan to stop it running out of cash in the spring.
Together they amount to the greatest test of the water system, the only fully-privatised network in the world. To understand how we got here, and what might happen next, it pays to go back to the beginning. In 1989, 10 state-owned regional water and sewage companies in England and Wales were sold off by Margaret Thatcher's government, raising £7bn for the Treasury. The companies were sold debt-free but never intended to stay that way.
The rationale was that the private sector could raise the billions required to upgrade the Victorian sewage network, and fund it from customer bills, so the state didn't have to. So borrowing was always part of the plan and, as of this year, the companies have accrued £70bn of net debt, at a ratio to equity (gearing) of around 85%.
In water the problem with debt is not the total, but whether the companies can afford to service it, and what they did with the money. The answer to the first question varies by operator, but water companies have poured billions into infrastructure and other investments. Adjusted for inflation, investment has run at between £4bn and a record £9bn last year, a total of £210bn in today's prices, spending that has reduced leakage and improved water quality on some measures.
