Rachel Reeves could be forced to nationalise Thames Water just two days before the Spring Statement in a move threatening to throw her spending plans into disarray.
The Treasury is reportedly drafting fresh contingency proposals for the country’s largest water supplier, which has fallen into around £19billion of debt. It comes ahead of a looming court hearing that threatens to plunge the firm into special administration.
The High Court approved an emergency £3billion loan from its lenders last month, which was supposed to give Thames Water time to secure additional equity investment and prevent it from going bust.
However, the company is still seriously at risk of special administration after a Court of Appeal challenge from a group of rival investors and Liberal Democrat MP Charlie Maynard blocked it from receiving any of the loan.
Mr Maynard said allowing Thames Water to take on £3billion more debt “is not in the interests of their millions of customers”.
A hearing is scheduled for next week. Thames Water will allegedly run out of cash if there is no resolution to the case by March 24. Treasury officials met on Wednesday to game-plan this potential outcome and draw up plans for a temporary solution, Politico reports.
According to The Telegraph, sources close to discussions have warned there is is a 50-50 chance that Thames Water, which has around 16 million customers, will collapse this month.
The firm has said in the past it needs £2billion a year to operate, which would no doubt spark more headache for the Chancellor if she was to bail out the firm.
It comes after the Treasury warned major cuts are coming in the spring as the cash-strapped Chancellor scrambles to balance the books.
Reeves is set to slash billions of pounds from the Government’s budget and impose cuts on other departments at the Spring Statement after market turmoil and weak economic growth threatened to break one of her central accounting rules.
On entering No 11 Downing Street, Ms Reeves vowed to eliminate the deficit by the next election.
The last Budget left her with just over £9billion of so-called fiscal “headroom”, a buffer that would allow for economic fluctuations while still keeping her on course to meet her economic rules.
However, the Government informed the Office for Budget Responsibility (OBR) of its “major measures” set to appear in the Spring Statement will include swingeing cuts in order to get Ms Reeves’s plans back on track.
Potentially handing Thames Water £2billion to keep it afloat would throw her plans into doubt and may be seen as controversial given the firm has been at the centre of a growing scandal in the wider water industry.
Bills will climb steeply over the coming years, while privately-run water firms are still pumping raw sewage into rivers and waterways.
That is despite a succession of penalties from regulators Ofwat and the Environment Agency.
A Government spokesperson said: “The company remains stable and the government is closely monitoring the situation. It would be inappropriate to comment further on ongoing legal proceedings or private company financial matters.”
