The UK capital’s new super sewer isn’t finished, but Thames Water has already upped Londoners water bills to give money to the project’s investors.
What it means: Imagine that you want to build a gigantic sewer but you don’t have the £4.2 billion it’ll cost just lying around. What should you do? Facing that very dilema, Thames Water did what lots of companies do: they went and asked a bunch of people to give them the money. And to make people keen to part with their cash, they promised to pay them interest, or give them an extra bit of money every year until the original loan was paid back.
These interest payments added up to £51.6 million last year. Thames Water realised it didn’t have that sort of money lying around either, so to get it the company decided to put up the prices it charges Londoners for their water. Water bills are expected to go up by about £13 a household by 2020 (to about £25 a year).
By and large, economists are pretty chill about businesses taking out loans and paying interest on them. The idea is that interest incentives those people who have money they’re not using to invest it in things that end up creating lots of value for everyone. In this case, Londoners all get a cleaner Thames. But Thames Water is a monopoly, which means their customers don’t have anyone else to buy their water from (and it’s not really an item you can do without). So Londoners have no choice but to accept the higher bill payments even if they think - as many do - that the super-sewer is unnecessary and a waste of money. For many people, having to pay for something they didn’t want and which isn’t even built yet seems pretty unfair.
Read our explainers on interest rates and monopolies.