Mark Carney has issued an extraordinary public warning to Andy Burnham over the future of Thames Water, cautioning that any move to take the failing utility into state control without compensating its investors would inflict lasting damage on Britain's ability to attract foreign capital.
The intervention by the Canadian prime minister, first reported on Sunday, reflects mounting anxiety in Ottawa that the Burnham government's repeated talk of exerting greater public control over the water industry could impose heavy losses on Canadian pension funds and banks, which have poured billions of pounds into British airports, ports and energy networks over two decades.
Why Canada has skin in the game
Canada's so-called Maple Eight pension funds are among the largest infrastructure investors in the world, and their exposure to Britain is deep and long standing. More pointedly, the Royal Bank of Canada is a senior creditor to Thames Water, sitting within a consortium of more than 100 financial institutions that has proposed a 16 billion pound rescue of the company.
Under that plan, around a third of the supplier's borrowings would be written off in return for ownership of the business. Both Ofwat and ministers have so far refused to give the proposal their blessing, leaving the country's largest water firm, serving some 16 million customers, in a state of suspended animation.
The Thames Water Standoff at a Glance
- Mark Carney has warned Andy Burnham that nationalising Thames Water without compensation would damage foreign investment in Britain.
- Royal Bank of Canada is a senior creditor to Thames Water, and Canada's Maple Eight pension funds hold billions in UK infrastructure.
- A consortium of more than 100 institutions has proposed a 16 billion pound rescue, writing off about a third of the company's debts in return for ownership.
- Creditors have already lent the firm 3 billion pounds over 18 months and have been asked for a further 2.4 billion pounds of liquidity.
- Mr Burnham has promised to end what he calls neo-liberalism and has repeatedly raised the prospect of greater public control over water.
The uncertainty is now threatening to derail talks over yet another round of emergency funding. Creditors have already pumped 3 billion pounds into the company to keep it afloat over the past 18 months and are being asked to provide a further 2.4 billion pounds of liquidity, a request that looks increasingly forlorn while the threat of expropriation hangs over the table.
A philosophical divide
At the heart of the dispute is a fundamental disagreement about the role of the state. Mr Burnham has promised to end neo-liberalism and to undo the legacy of the Thatcher-era privatisations, and his allies point to Thames Water's record on leaks, sewage spills and dividends as evidence that the private model has failed. Canadian officials, by contrast, see a test case: if Britain is prepared to wipe out senior creditors in a regulated utility, they ask, what does that say about the security of every other overseas investment in the country?
In remarks reported by the Sunday Times, Mr Carney went further, warning that a government flirting with nationalisation, a bank tax or a capital tax on wealth or housing sends a signal that it wants to harvest its economy rather than grow it. The comments will be read in Westminster as a shot across the bows ahead of the Budget on 28 October, in which the Chancellor, John Healey, is already weighing revenue-raising measures against a backdrop of the highest long-term borrowing costs since 1998.
What happens next
Ministers insist that no decision on Thames Water's future has been taken, and that customers and the environment will come first in any settlement. But with the creditor rescue stalled, the company's cash runway shortening and a G7 leader now publicly demanding compensation, the Prime Minister's room for manoeuvre is narrowing by the week.
For a government elected on a promise to rebuild trust in public ownership, the choice is stark: compensate investors and anger its own supporters, or seize the company and risk a freeze on the foreign capital that funds much of Britain's infrastructure pipeline.