Labour should consider the sorry state of Thames Water before allowing debt-fuelled Royal Mail deal, says ALEX BRUMMER

The ‘critical risk’ to Britain resulting from the desperate finances of Thames Water may appear to have little to do with Royal Mail.

The Labour administration, which is selling itself as a bastion of stability, needs to fulfil its manifesto promise to ‘robustly scrutinise’ the £3.6billion offer for Royal Mail owner, International Distribution Services (IDS), without delay.

Failure to do so would see Royal Mail pass into the hands of Daniel Kretinsky, his Slovak-based backers at J&T and a consortium of foreign banks. City advisers have more than a passing interest in getting the sale done with £146million of fees at stake. 

One should never underestimate the determination of Barclays, Goldman Sachs and other investment bankers advising the IDS, or the bidding banks led by JP Morgan, to get the deal done and burnish revenues and bonuses.

Whatever the commitments made in the course of a takeover, they become much harder to enforce once a company has vanished from the public markets. 

In the same way Ofwat has never fully managed to lay a glove on Thames Water owners, so Ofcom will face a mammoth task of ensuring the preservation of the Universal Service Obligation once ownership has passed offshore. 

Similarly, the fate of the 112,000-strong workforce will be hard to police.

What should concern Business Secretary Jonathan Reynolds and Chancellor Rachel Reeves is the IDS balance sheet. 

Thames Water’s debt pile of £15.2billion, up £1.3billion from 2023, shows how debt-fuelled deals lead to investment being curtailed and desperate financial crises. 

By the time the day of reckoning comes, the investment bankers who put the deals together have retreated to their yachts.

Royal Mail already has a £2billion debt pile. If the deal goes ahead, this would swell by £2.95billion, around £1billion of which is described as interim finance. 

Servicing the debt pile will see interest payments flowing to a consortium of overseas banks headed by BNP Paribas. That’s before Kretinsky and his backers reap their rewards.

Labour must stop this deal, displace a pathetically weak board headed by Keith Williams and require the company to sort out its own shortcomings. The keys should not be handed to an overseas marauder.

Vision thing

Tony Blair represents a different generation of Labour but his think-tank is on the money. As helpful as Rachel Reeves’ planning reforms may be in encouraging growth, they represent old thinking.

The Tony Blair Institute (TBI) recognises that artificial intelligence is the real future if the UK is to unlock public services and growth. 

Shadow Chancellor Jeremy Hunt recognised this when he allocated £3.4billion over three years for digital transformation in the NHS. It will be fascinating to see if Reeves sticks with this.

There could well be a role for the new National Wealth Fund which is being allocated an extra £7.3billion through projects identified by the UK Infrastructure Bank.

The TBI estimates that early adoption of AI in the public sector could produce £10billion of savings in time and money over the next five years and £35billion over a decade. 

As importantly, it would also mean empowering the UK’s AI innovators, the most advanced in Europe.

It would curtail the danger of being swallowed by US tech behemoths.

Rachel inspired

At last, a nice piece about the UK from the perennial doomsayers at the New York Times. 

They embrace Rachel Reeves as Britain’s first female finance minister and a disciple of American Treasury Secretary Janet Yellen. High praise indeed.