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Thames Water has insisted it has the right to pay its executives lucrative “retention payments” for agreeing an emergency £3bn loan, setting the beleaguered utility on a collision course with ministers who are determined to block the awards.
A government spokesperson said on Friday that ministers would intervene if Thames Water persisted in attempts to keep the “outrageous” payments after the company claimed it could sidestep new legislation designed to prevent controversial bonuses.
“This is a crude attempt to play the public for fools and cover up corporate greed. This government will not stand idly by if Thames bosses try to plunder the company for personal gain,” the government spokesperson said.
“The era of profiting from failure is over. We will take any action necessary to stop these outrageous payments.”
Ministers have said that they expected water regulator Ofwat to block Thames Water from handing out the awards to senior executives as a reward for securing the controversial £3bn loan, which comes with an expensive 9.75 per cent interest rate and fees.
But Thames Water told the Financial Times that because the payouts were “retention payments” they would not be covered by Ofwat’s new powers. The awards — up to half of annual salary — come on top of executives’ salaries and other bonuses.
“These are not performance-related bonuses, as covered by the (Water) Act, but rather are retention payments,” a spokesperson for the utility said on Friday.
“It is critical that the business retains the people best placed to deliver the improved outcomes our stakeholders rightly expect.”
Thames Water’s defiant stance on Friday prompted anger inside Whitehall, with one official saying it was “ludicrous” for the company to claim that “retention payments” were not a form of performance-related pay.
Thames Water, the UK’s largest water company, has become a lightning rod for public anger as it tries to fend off renationalisation under the government’s special administration regime.
The company, which serves about a quarter of the country’s population, is struggling under the weight of its £20bn debt mountain and is in exclusive discussions with the private equity firm KKR to take over the business.
The utility came perilously close to running out of money before it secured the £3bn loan — challenged in court by rival bondholders — from US hedge funds including Elliott Management and Silver Point.
Thames Water has declined to say who would receive the payments or exactly how much they would be worth.
Chief executive Chris Weston, who came under fire for accepting a £195,000 bonus for three months work last year, is not one of those receiving a retention payment, Thames Water has said.
The company has already threatened to raise its executives’ base salaries if the government pressed ahead with the plans to restrict bonuses. The scale of the retention payments were disclosed by the utility’s chair, Sir Adrian Montague, during a Commons committee hearing on Tuesday.
Ofwat will receive new powers from next month to ban “undeserved bonuses” where standards on environmental and financial management of water companies are not met. Those long-awaited powers are retrospective for the financial year 2024-25.
A consultation on the new bonus rules is still ongoing but ministers hope they will be in place by June.
Previously, Ofwat did not have the explicit power to ban or curb executive bonuses, and could only do so if this would help it meet its duties — such as ensuring that companies are financially resilient.
However, the recently passed Water (Special Measures) Act is meant to give Ofwat the powers to remove bonuses where companies have failed to meet certain standards in relation to “consumer matters”, “the environment” or the “financial resilience” of water companies.
Ofwat did not immediately respond to a request for comment.
