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The water regulator has insisted it was powerless to stop Thames Water racking up mountains of debt due to a ‘hands-off approach’ under New Labour.
David Black, chief executive of Ofwat, told members of the House of Lords industry and regulators committee yesterday that the watchdog should have stepped in back in 2006 to prevent the water firm’s then-owner, Australian investment group Macquarie, from borrowing too much.
But he said it was hamstrung by a lack of powers.
Borrowing spree: Water regulator Ofwat has insisted it was powerless to stop Thames Water racking up mountains of debt due to a ‘hands-off approach’ under Labour
‘Going back to 2006, I think we should have stepped in at that point to stop companies [racking up debt],’ Black told peers. ‘At the time, we really didn’t have the power to stop that happening.
‘I think at that time, if we went back to the early 2000s, regulators across all sectors took a relatively hands-off approach to [borrowing].
‘It happens in the energy sector, it happens in the transport sector, so we are very clear we think that companies need a prudent financing structure and some of these legacy financing structures need to be brought up to date.’
But Black added that he thought that ‘some reports on Thames have been overstated’.
The company ‘does have the ability to weather present issues’. Last week, chief executive Sarah Bentley resigned, amid fears that the company could go into administration due to its debt mountain.
Black was asked by peers if he felt Ofwat had ‘done everything’ to prevent Thames Water from getting into financial trouble.
He said that the regulator has had concerns about Thames’s level of debt since October last year and noted that the firm’s financial resilience ‘wasn’t adequate’.
Asked whether the water industry as a whole was at risk of collapse, Black said Thames had been a victim of rising interest rates and its own very poor performance on environmental issues, but added he ‘didn’t see the same issue’ in other water companies which were successfully raising cash.
He said Ofwat had faced resistance from investors in water companies when trying to bring down the level of borrowing.
Black also said talks were ongoing between Ofwat, Thames Water and its investors about raising the £1billion the company says it needs to turn the business around.
- The headline to this article has been amended to make clear that Ofwat did not specifically blame the Labour government for Thames Water’s difficulties
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