Thames Water refuses to claw back bonuses despite government threats

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Thames Water has refused to claw back bonuses worth £2.5mn, despite UK government threats to block what ministers dubbed “outrageous” payments at the utility that is trying to avoid renationalisation.

The bonuses handed out to 21 senior staff in April were disclosed on Wednesday in a dump of do***ents by the parliamentary environment committee. It has recalled heads of Thames Water to give evidence next week amid “new financial concerns” for the UK’s biggest water company.

The bonuses were the first instalment of a package of planned payouts to reward senior staff for securing a £3bn emergency loan from the company’s senior creditors in the spring.

Thames Water chair Sir Adrian Montague said in correspondence to the committee released on Wednesday that there had been “no discussions” with government or the regulator, Ofwat, “in relation to recovering those payments which have already been made”.

“The board does not intend to recover this money.”

Environment secretary Steve Reed in May vowed to block the payments that the government described as an attempt by Thames bosses “to try to plunder the company”.

Thames Water then said it would “pause and reconsider” the so-called “retention payments” to its senior staff. The senior management team was set to receive £18.5mn before the outcry.

Ministers have since clarified that legislation to block bonuses will only cover chief executives or chief financial officers of a handful of water suppliers this year, including Thames Water. The company’s payout does not include bonuses to Montague, its chief executive or chief financial officer.

In a separate letter to the committee, Ofwat disclosed that it had not known about the bonuses before an evidence session with MPs in May. Ofwat chief executive David Black said the watchdog was “disappointed at the lack of transparency that Thames Water has shown in this regard”.

Black admitted that Ofwat does not have the power to claw back the bonuses because none of its recipients are Thames board members.

Thames Water said: “Retention plans are commonplace in these types of deals for precisely this purpose and ours was based on extensive benchmarking of similar capital market events like M&A deals and restructurings. It was fully disclosed as part of the term sheet in October last year, albeit details were not agreed until Spring 2025.”

Thames Water is struggling under nearly £20bn of debt and is teetering on the brink of temporary renationalisation under the government’s special administration regime. The cost of a SAR is estimated to be between £3.5bn to £5bn, according to experts cited in a letter from the water company released by the committee.

Reed told the committee he expected any government funding for a SAR to be recouped after the administration or via future customer bills.

Thames Water’s top-ranking bondholders group is now the de facto frontrunner to take control of the UK’s largest water company after US private equity firm KKR walked away from its bid to recapitalise the company last month. Ofwat is deliberating on a backup plan by the utility’s senior creditors to provide fresh equity of nearly £4bn to rescue the group. 

In his letter to the environment committee, Montague said other approaches had occurred in recent weeks, although he did not appear to give them much credibility.  

“We have also been approached by an entity which identifies as Titanium SPV, although we have been unable to verify that such entity exists,” he wrote. 

“And in very recent days we have been approached by an individual connected with the water industry with an outline plan to recapitalise Thames Water by tokenisation of debt but with no or low equity injected.”

Thames Water also told the committee that it could face up to £480mn of fresh fines “on a worst case blockysis basis” as a result of the Environment Agency, another watchdog, stepping up its inspection and enforcement regime on the company.

That would be in addition to £900mn of potential fines that it has previously estimated it could receive over the next five years for leaks and sewage spills.

The government has recently rejected demands from the bondholders that Thames Water be exempted from environmental laws.