Thames Water hardly ever needed to borrow to finance capital expenditure.

  Apart from a relatively small borrowing requirement, no more than £ 90 million,  in the first four years after privatisation, Thames Water Utilities Limited, like all other privatised water utilities, had a handsomely positive cashflow after paying for all operating expenses, taxes and capital expenditure. Unlike most other water utilities, the situation began to change after  2015 when cashflows ceased to be  sufficient to cover all capital expenditure. The situation became significantly worse in the most recent three years ending March 2025.   Nevertheless, the total borrowing requirement to fund capital expenditure has remained under £ 1 billion.   The remaining £ 16 billion debt at March 2025 arose to fund payment of dividends, and then payment of interest on the debt taken out to pay dividends. And so on. Audit Trail 1 below shows a complete audit trail for every number in this chart. These can be checked to copies of published accounts links to which are located at the bottom of the company's financial statement page.

Thames Water Utilities paid dividends and loans more than twice the very generous 8.8% guaranteed index-linked return on investment.

The Government allowed new owners of privatised water utilities and exceptionally generous return on their investment, 8.8% per annum index linked.   It turned out that shareholders were not content with this rate and found ways to increase their returns by:
  • Simply getting TWUL to take out loans and pass the cash to shareholders as dividends unrelated to profits earned.
  • Pursuing an aggressive growth strategy to build non regulated businesses around the core utility
  • Engaging in aggressive leverage buyouts and getting TWUL to take out loans to repay interest and principal on acquirer's debt
  • Above all, finding ways to keep down operating costs to free up cash for dividends.
`The charts opposite show the results for the 26 years ended 2015 when current cost accounts ceased to be published.   The blue line shows the very generous returns promised by the government. The red line shows actual cash extract by TWUL's parent company, comprising all dividends net of capital reinvested post privatisation and intercompany loans taken.   In historical or nominal terms, net cash extracted was £ 7,840 million against a reasonable return of £ 3,121 million Measuring this at March 2025 prices gives excess dividends of £ 11 billion. Audit Trail 2

Thames Water underinvested in wastewater infrastructure renewals for decades.

 
Here is the core of the problem.  When water utilities were sold in 1989 their current replacement cost was around £ 110 bn.  This was too expensive for the market so they were sold off for £ 5bn, a discount of more than 95%. But while the book valuation of fixed assets could be waived away with the stroke of a pen, the cost of maintaining them fit for purpose remained stubbornly anchored to their current replacement cost. So, broadly speaking, if average asset lives were 200 years, then companies should be spending (110 bn/ 200) £ 550 million a year to renew  infrastructure, let alone extending it for a growing population. The National Audit Office commented in their 2025 report "The rate of replacement of water mains has been 0.14% a year over the first four years of the PR19 control period, which – if maintained – would mean the entire network would be replaced once every 700 years." 1 We have extracted figures from Thames Water's Current Cost Accounts which were published from time to time for the two decades ended 2015, which show the years to replace figures for Thames freshwater and wastewater infrastructure. Assuming a 160 year average useful life for freshwater assets and a 200 year life for wastewater assets these figures indicate    See Audit Trail 3 for the information source for this chart   1  National Audit Office, Regulating for investment and outcomes in the water sector, HC 853, 25 April 2025, page 9

Thames Water has one of the highest revenue increases in 2026 -2030,  but one of the lowest increases in capital expenditure.

There have been wild swings in profits taken by shareholders since privatisation.

 
Original shareholders  initiated the practice of deliberate underinvestment in wastewater infrastructure, which, according to Southern Water's recent commissioned research had become widely acknowledged. They also initiated the aggressive drive for growth through mergers and acquisitions, which was to leave burden of losses and related debt, which contributed to the financial crisis of 2025. And they set the tone for misleading, bullish statements about company performance and strategy which was to become a hallmark of subject financial reporting. And, as a result they also made easily the most profit thanks to the very generous terms of the original sale and the subsequent steep increases in prices allowed by Ofwat. RWE were the only owners to receive a return on investment in line with Ofwat guidelines.            

There are many ways of testing to see if dividends extracted from privatised water utilities were reasonable or excessive.
One way is to measure what percentage of profits earned was taken out in cash.
Another is to measure actual cash extracted with what was predicted by Ofwat's 'Regulatory Asset Base' economic model.
Another is to compare with the very generous terms originally offered at privatised.
A fourth way is to compare against an alternative form of long term index linked lending to the UK Government.
In each case net cash extracted post privatisation (dividends taken less capital reinvested) turn out to be significantly in excess of what could be termed reasonable.

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