Thames Water hits the gutter

Sonja Hutson
Good morning from the Financial Times. Today is Wednesday, April 3rd and this is your FT News Briefing.

Nato is trying to Trump-proof funding for the war in Ukraine, and despite wealthy countries’ best efforts, birth rates are still falling. Plus, Thames Water is in major financial trouble.

Gill Plimmer
It’s hard to understate what a big issue the crisis has become in Britain, mostly because of sewage pollution.

Sonja Hutson
I’m Sonja Hutson and here’s the news you need to start your day.

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Nato is drawing up plans for a $100bn aid package to help Ukraine. The proposal is an effort to defend against the, quote, winds of political change. That’s politician speak for a second Trump presidency. Former US president Donald Trump has been pretty clear that he’s not interested in continuing to fund Ukraine’s war effort, and neither are a lot of Republican lawmakers. A $60bn military support package has been stalled in Congress for months. Nato secretary-general Jens Stoltenberg is sponsoring the plan, and it will be discussed today during a meeting of foreign ministers.

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Thames Water is in crisis. The British utility is in a lot of debt and it’s struggling to control sewage and water leaks. Its parent company, Kemble, could enter insolvency in just a few weeks and it’s started negotiations to restructure. But maybe the bigger problem for the UK is that Thames Water isn’t the only utility in trouble. The FT’s Gill Plimmer joins me now to talk about it. Hey, Gill.

Gill Plimmer
Hi.

Sonja Hutson
So what’s the latest when it comes to Thames Water?

Gill Plimmer
So Thames Water is the largest water company in Britain. It serves about a quarter of the population. And the story has been unfolding over the past year. The CEO left last July because she couldn’t get agreement with shareholders over how much money should be put in. Then there were various pledges from shareholders that they would put money in. Finally, last week, they’ve decided they definitely won’t put any more money in. And now Thames Water’s board and its investors have started urgent restructuring talks about what should happen next.

Sonja Hutson
And just back up for me really quickly here. I mean, this seems like a big crisis if they’re at the point where they’re talking about these big restructurings. How did Thames Water get into this mess?

Gill Plimmer
So Thames Water, unlike the other water companies, was privatised with no debt in 1989 under Margaret Thatcher, who was prime minister at the time. And since then, Thames has built up £18bn of debt. And then in the past year, of course, interest rates have risen, so they’ve had to pay a much higher proportion of their income towards servicing that debt. Other companies are in, you know, relatively similar situations, but they’re just not quite as big. And they don’t have quite that debt burden that Thames has.

Sonja Hutson
Yeah. So it sounds like Thames Water is not alone in some of these problems, but how does it compare to other water utilities in the UK?

Gill Plimmer
There’s also a lot of other companies in trouble. Southern Water is another big water company that was rescued by the Australian infrastructure manager, Macquarie. And there’s others: South East Water, SES Water, Portsmouth, Yorkshire. Lots of them have had troubles at different times, but one of the water investors has called Thames Water a canary in a coal mine.

Sonja Hutson
Wow. And so what do all these problems at major water companies across the country mean for customers?

Gill Plimmer
It’s hard to understate what a big issue the crisis has become in Britain, mostly because of the sewage pollution. There were figures out from the Environment Agency last week that showed that almost every sewage outflow was pumping more effluent into rivers and tributaries and coastal waters a lot of the time. And people are really upset about this. It’s really captured the country.

Sonja Hutson
What’s the solution here? I mean, you mentioned that a lot of these public utilities became privatised during the Thatcher era. Is renationalisation the answer?

Gill Plimmer
Well, it’s certainly popular according to the YouGov polls, which showed roughly sort of more than 60 per cent support renationalisation. I think at the moment the trouble is there’s no money. Somehow these water companies need cash to make up for the legacy of not having invested enough for 34 years, and that’s a really big issue for the government. It’s absolutely determined not to renationalise. Another point is that England and Wales are the only places in the world to have fully privatised water services on this scale. So even Scotland and Northern Ireland haven’t privatised their water services. England and Wales are really outliers in this type of privatisation. It’s very unclear what the future is. And ultimately consumers who pay all the costs haven’t been delivered value-for-money services.

Sonja Hutson
Gill Plimmer is the FT’s infrastructure correspondent. Thanks, Gill.

Gill Plimmer
Thanks so much for talking to me.

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Sonja Hutson
Southern Europe is having an economic growth spurt. The four biggest southern economies — that’s Italy, Spain, Portugal and Greece — have collectively outgrown Germany by about 5 per cent since 2017, partly because they’ve seen a big boost in tourism since the end of the pandemic. Germany’s economy, on the other hand, has barely grown in the last few years, thanks to things like a slowdown in manufacturing and higher energy prices due to the war in Ukraine. Now, that might not be the best news for Germany, but the growth in the south is making the European Central Bank’s job a little easier in determining how and when to cut interest rates. It’s also helped narrow the gap between what it costs southern Europe to borrow compared with Germany.

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In the last few decades, a lot of developed countries have boosted spending on family-friendly policies. It’s all in an effort to reverse a pretty alarming trend. Young people just aren’t having kids anymore. But the problem is those programs haven’t really worked. John Burn-Murdoch is the FT’s chief data reporter, and he’s been looking at the reasons why. Hi, John.

John Burn-Murdoch
Hello. Thanks for having me.

Sonja Hutson
So, John, give me the scope of the problem here. Just how low have birth rates fallen in developed countries, and how much have governments invested in trying to reverse it?

John Burn-Murdoch
Yeah. So the number that we really care about here is 2.1 births per woman. That’s what we call the replacement rate. And that basically means that if every woman had 2.1 children — and of course that’s not strictly possible, you can only have a whole number. But, you know, you get the idea. If that happened, then populations would stay stable. But if we look at what’s happened over the last 40 years, for example, the richest, most prosperous nations have pretty much tripled the amount of money they spend per person on child benefits, on subsidised childcare, tax breaks, parental leave, all of these what we might call family-friendly policies. And yet, over that same 40-year period, the average birth rate across these countries has fallen from 1.85 to 1.53. So even though there’s been a big increase in spending on all of these family-friendly policies, the birth rate has continued to trend downwards.

Sonja Hutson
OK, so definitely not having the intended impact. Why is that?

John Burn-Murdoch
It’s not that these policies don’t do anything, but it’s just that they’re competing with a lot of these much broader socio-economic trends that have been playing out over several decades now. And one of the reasons here is this trend in what people call intensive parenting or helicopter parenting. Parents are spending more time raising kids today than in the past. Another factor is the general trend of liberalisation and the great expansion of the opportunities available for women in particular, to achieve a sense of fulfilment, whether from their career or from other leisure, entertainment activities over the last few decades. And then you have the rise in anxiety and other mental health conditions among young people. And we know that people who are more anxious, more worried, are less likely to have children or more likely to have fewer children. So all of these trends are pushing birth rates downwards. Government policies are certainly doing something, but it’s a bit like they’re running up the down escalator.

Sonja Hutson
And what are some of the consequences of people not having more children?

John Burn-Murdoch
So I think that all sorts of things that we think to be good about the world are associated with populations that are growing. Countries with growing populations and younger populations are much, much more innovative. There are, of course, the fiscal issues that arise from a country that has far more older people than younger people, that requires a much greater burden on the working population to support that older generation. So, you know, some people would say that with the conditions physically that the world is in, the environment, that perhaps shrinking populations might be a good thing. But I think on balance, certainly there seems to be more negatives than positives for countries going through that.

Sonja Hutson
So it kind of seems like we’re reaching this pretty significant tipping point. What, if anything, could turn it around?

John Burn-Murdoch
I think some of this will simply be gradual change over time. You know, it could simply be that as we settle around a new normal of family sizes, that the reduction that we’ve been seeing at least stabilises. And then you’ve got other factors. So regardless of what happens to birth rates themselves, things like immigration can reduce the threat of population decline or indeed produce stabilising or rising populations in certain parts of the world that are most affected by this. And so I think in a world where birth rates continue to prove relatively stubborn in terms of the influence policy can have on them, we’re probably heading to a world where immigration will become more and more important.

Sonja Hutson
John Burn-Murdoch is the FT’s chief data reporter. Thanks, John.

John Burn-Murdoch
Thank you.

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Sonja Hutson
You can read more on all these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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