UK pay growth accelerates in boost for workers; Thames Water welcomes approval of debt restructuring plan – business live

Campaigners for a better water system are renewing calls for Thames Water to be put into public ownership, after the high court granted the company a £3bn debt lifeline this morning.

Matthew Topham, lead campaigner at campaign group We Own It, said:

“This judgment is nothing but a stay of execution for Thames Water. The privatised company will limp on for a few more months like a profit-thirsty zombie.

“This crisis loan will keep Thames afloat in the short-term, but their underlying business model is rotten and should be condemned.

“It relies on piling up debt and raising customer bills so they can pay huge bonuses and dividends – all whilst pumping raw sewage into our waterways.

“The reason they’re getting bailed out is because they ran out of other people’s money to line their pockets with. It’s only a matter of time before they end up on the edge of bankruptcy again.

“This is the ‘doom loop’ of privatised water and there is only one way to break the cycle – public ownership.

“The Environment Secretary, Steve Reed, has the power to put Thames into a special administration regime (SAR), effectively a form of temporary nationalisation.

“Under the SAR it’s possible to negotiate a significant reduction in the corporate debt, putting the company on a much better financial footing.

“Once the debt has been slashed, the only long-term solution is full public ownership. Handing it back to the private sector would be a betrayal of the customers and our environment. In that scenario we’d end up back here again in a year’s time, just with more sewage in our rivers and more money in the water bosses’ pockets.”

Thames Water debt package approved

Jasper Jolly

Newsflash: Thames Water has won court approval for an emergency debt package worth up to £3bn that should stave off the collapse of Britain’s biggest water company for at least another few months.

The company has just told the stock market that London’s high court has decided that the deal could proceed, after hearing four days of complex arguments earlier this month over whether it should go ahead.

Thames, which has 16 million customers and 8,000 employees, has been on the verge of collapse for months, with debts of about £19bn. The financial difficulties have contributed to underinvestment in the pipes and drains needed to prevent sewage overflows into rivers and seas.

The deal will give Thames £1.5bn in upfront cash, plus up to £1.5bn more to see it through an appeal to try to increase bills by more than the 35% allowed by the industry regulator for England and Wales, Ofwat.

Thames had argued in court that it would run out of money on 24 March if the emergency debt deal did not go through. It will still have to raise billions of pounds more of equity to repair its finances over the longer term.

Sir Adrian Montague, Chairman of Thames Water, has welcomed the decision, saying:

“The Court’s approval of the Company Plan marks a significant milestone for Thames Water, enabling us to proceed with the implementation of the Liquidity Extension Transaction.

Its implementation is a key step in strengthening our long-term financial resilience and will allow us to continue progressing the equity raise process and a holistic recapitalisation transaction as well as complete the CMA appeal process in respect of Ofwat’s PR24 price review. Critically, it enables the management team to continue progressing the turnaround.”

Britain’s water quality at some sites is notoriously revolting, and now the water companies are revolting too!

South East Water and Anglian Water have both announced today they are appealing to be allowed to raise customers’ bills by more than regulator Ofwat approved last year.

Anglian Water says Ofwat’s decision to only allows its bills to rise by 29% in 225-2030 was unacceptable, as it plans an £11bn programme of infrastructure improvement. It is asking the Competition and Markets Authority to consider the issue.

Chief Executive Mark Thurston says:

“In the East of England, with four of the fastest growing cities in the UK, as well as the Cambridge-Oxford Arc, the levels of investment needed are significant. As a long term, purpose-driven business we are planning sustained investment over decades to build resilience against a changing climate, deliver essential investment in water and sewerage infrastructure, and protect and enhance the environment – all of which will create jobs and bolster the local economy, helping our region to thrive.

South East Water, which was allowed to raise bills by 24%, is also appealing.

Its chairman, Chris Train. says:

“Asking for the Final Determination to be referred to the Competition and Markets Authority for redetermination is not a decision we took lightly. We have scrutinised the Final Determination and agree unanimously that in its current format, it presents a risk to water security for our customers in the region.”

Last week, Thames Water announced it will also appeal against Ofwat’s decision:

The increase in UK wage growth in the last quarter is likely to deter the Bank of England from rapid cuts to interest rates this year.

Currently, the City expect two more quarter-point cuts to Bank rate by the end of the year, to 4%, following the reduction from 4.75% to 4.5% earlier this month.

But with total wages rising at 6% in the last quarter – three times as fast as the BoE’s inflation target – policymakers may be cautious.

Currently, the money markets say there’s a 78% chance that the Bank leaves rates on hold next month. A cut isn’t fully priced in until June – earlier this month it was May.

And the third cut of the year might not happen until September or even November’s meeting – rather than coming as early as August, as had been pencilled in recently.

Today’s data illustrates the challenge facing the Bank’s Monetary Policy Committee (MPC), says Matt Swannell, chief economic advisor to the EY ITEM Club, adding:

Having weakened over the course of 2024, there were no clear signs that the prospects for the jobs market are improving. At the same time, pay growth is still too high to get inflation back to the 2% target, and firms will soon face the extra cost burden of higher employer National Insurance Contributions (NICs).

Faced with this trade-off, we think the MPC will continue to lower Bank Rate gradually, with the next cut likely to come in May, and that the Bank of England will use this extra time to gauge just how sticky inflation will be.

But some experts argue that the Bank will cut rates four times this year – not just the three expected by the markets.

Thomas Pugh, economist at leading audit, tax and consulting firm RSM UK, says:

“The further rise in pay growth, combined with signs of a gradual easing in employment rather than a collapse, will keep the Bank of England on its “gradual and careful” rate cutting path. We still expect the MPC to cut rates at every other meeting this year, which would leave interest rates at 3.75% by the end of the year.

The UK labour market looks better than some of the gloom swirling about the economy, argues James Smith, developed markets economist at ING.

He tells clients:

An air of pessimism is befalling the UK jobs market right now, ahead of a sizeable increase in employer’s National Insurance (social security) in April.

The surveys on hiring are turning increasingly sour and there’s growing talk of redundancies as firms grapple with the combined hit of tax hikes and a near-7% increase in the National Living Wage. Bank of England policymaker Catherine Mann, explaining her vote for a bumper rate cut this month, spoke of “non-linear” falls in employment.

Despite that gloomy backdrop, the hard numbers on the jobs market currently don’t look so bad. Unemployment is broadly stable, though remember this data is highly dubious right now. But even the supposedly more reliable payroll-based numbers were more stable in January. The steady 1% fall in those numbers across 2024, once government-heavy sectors are excluded, stalled last month. More importantly, there’s no discernible increase in redundancies. So-called HR1 notifications, which companies are required to submit to the government if they are planning layoffs, are bouncing around their lows. The major question is whether that changes as the tax and Living Wage changes come through in the second quarter.

That’s not to say the jobs market hasn’t cooled materially, though. Vacancies have fallen steadily over the past couple of years, back to pre-Covid levels. On a sector basis, vacancy rates in the likes of retail and hospitality are well below the levels seen in 2019. And that makes it all the more puzzling that wage growth is still up around 6%.

Consultation on major overhaul of Britain’s railways launching today

Gwyn Topham

A new rail watchdog will give passengers a voice and hold the railway to account, the government has promised, as it launched a public consultation ahead of legislation to create Great British Railways.

Ministers intend it to have a beefed-up role in the future nationalised railway, with train operators having an obligation to consult the watchdog – which will replace the current Transport Focus – ahead of major decisions affecting passengers.

The new body will be tasked with setting standards for passengers on journey information and assistance, publishing reports on poor service and potentially referring instances to the railway regulator for enforcement action.

The eight-week consultation will also lay out plans to unite train and track operations and give devolved leaders more of a say on services.

Transport secretary Heidi Alexander said it was a “landmark reform [to] sweep away decades of failure, adding:

“We’re giving passengers a powerful voice with a new watchdog dedicated to addressing their biggest concerns, building railways people can trust, improving our services and boosting the economy in the process.”

Laura Shoaf, chair of shadow GBR, said:

“GBR will fundamentally change our railways, delivering growth, connections and opportunities across the country. The plans set out today will mean a better railway for everyone that uses it, allowing industry to work closer together, putting passengers and customers first and providing better value for money for taxpayers.

Campaigners welcomed the consultation. “Giving the public a say in what rail reform should look like is key to making it a success,” said Paul Tuohy, chief executive of Campaign for Better Transport.

He said they backed the creation of a new watchdog, adding:

“We will need to see what this means in practice, and whether this new watchdog will have any teeth to hold GBR to account when it needs to.”.

The latest drop in job vacancies (see earlier post) shows that businesses lack confidence to hire new staff, the Institute of Directors warns this morning.

Alex Hall-Chen, Principal Policy Advisor for Employment at the IoD, says:

“The cumulative impact of recent employment reforms, coupled with upcoming increases to employer National Insurance Contributions and the National Living Wage, is significantly weakening the business case for hiring. Our latest data indicates that firms’ headcount expectations remain at historically low levels, comparable to those seen during the early stages of the COVID-19 pandemic in 2020.

“Immediate action is needed to address the mounting pressures on businesses and to restore confidence in the labour market. As the Employment Rights Bill approaches its Report stage, we urge the government to introduce targeted changes that will support employers and stimulate job creation. Our data shows that 41% of business leaders believe that such changes would do most to boost business confidence in 2025.”

Today’s jobs report should give an insight into how the UK labour market fared after Rachel Reeves’s budget in October.

Many businesses have been griping about the chancellor’s decision to lift employers’ national insurance contributions – which could raise £22bn in extra tax – arguing it will lead to job cuts.

But today’s data estimates that the number of payrolled employees in January increased by 21,000, meaning there were 49,000 more people on company payrolls than a year ago.

That follows a 14,000 drop in December.

Firms are continuing to cut back on vacancies, today’s jobs report shows, as the surge in job opportunities after Covid-19 lockdowns ended fades.

There were an estimated 819,000 vacancies in the UK in November 2024 to January 2025; a decrease of 9,000, or 1.1%, from August to October 2024.

ONS director of economic statistics Liz McKeown said:

“The number of employees on payroll was broadly unchanged in the last three months of the year, continuing a medium-term trend of slowing growth. The number of vacancies also continued to fall in the latest quarter, albeit more slowly, with the total number remaining a little above its pre-pandemic level.

Good morning, and welcome to our rolling coverage of economics, the financial markets and the world economy.

UK pay growth has accelerated at the end of last year, bringing relief to workers and a headache for the Bank of England

The latest employment data, just released, shows that total pay rose by 6% per year in the October-December quarter – up from 4.4% in July-September, and a little faster than City economists expected.

Regular pay (excluding bonuses) rose by 5.9% in the Oct-Dec quarter, down from 4.9% in the previous three months.

These increases mean earnings continued to rise faster than inflation, meaning real wages rose. Adjusted for the CPI inflation rate, both real regular and total pay rose by 3.4% on the year.

That is likely to cause some concerns at the BoE – the Bank cut interest rates earlier this month, but some policymakers remain worried that inflationary pressures are still bubbling.

ONS director of economic statistics Liz McKeown says:

“Growth in pay, excluding bonuses, rose for a third consecutive time, with increases seen in both the private and public sector. After taking account of inflation, real pay growth also increased slightly.

Today’s jobs report also shows that both employment and unemployment rose in the quarter, while the number of people out of the labour market (economically inactive) dipped.

Here’s the details:

• The UK employment rate for people aged 16 to 64 years was estimated at 74.9% in October to December 2024. This is above estimates of a year ago, and up in the latest quarter.

• The UK unemployment rate for people aged 16 years and over was estimated at 4.4% in October to December 2024. This is above estimates of a year ago, and up in the latest quarter.

• The UK economic inactivity rate for people aged 16 to 64 years was estimated at 21.5% in October to December 2024. This is below estimates of a year ago, and down in the latest quarter.

• The UK Claimant Count for January 2025 increased on the month and is up on the year, at 1.750 million.

The agenda

• 7am GMT: UK labour market force report

• 9.30am GMT: ONS Productivity flash estimate and overview for the UK

• Morning: Court ruling on Thames Water debt deal