Thames Water: Uncertain Picture for Now, Could Add to UK Government's Fiscal Pressures

Thames Water's balance sheet is under stress because of its substantial debt burden. At this moment, the prospects for nationalization are unclear. If Thames Water were to be re-nationalised, it is unlikely to have a significant impact on the UK's fiscal position. However, it would add to existing spending pressures at a time when the new UK government aims to boost economic growth through private and public investment.

-- The ongoing financial difficulties of Thames Water raise concerns that the UK government may need to intervene using a Special Administration Regime (SAR).
-- The Labour government looks likely to have a bigger role in the economy, something that could also increase contingent liabilities.
-- Given the degree of uncertainty over the realization of revenue measures and upward spending pressures, risks to the fiscal outlook will remain significant.

"Given the degree of uncertainty over the realization of revenue measures and upward spending pressures, risks to the UK fiscal outlook will remain significant. In our view, increased spending on troubled utility companies could limit the government's capacity to fund public investment that could help bolster economic growth. A clearer picture of the government`s economic and fiscal plans will emerge after the announcement of the UK Budget on October 30th," said Spyridoula Tzima, Vice President of the Sovereign Group at Morningstar DBRS.