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For decades since they were privatised, the UK’s public service providers have favoured inflation-linked bonds as a cheap and easily-accessible means of financing. That’s now coming back to bite as borrowing costs surge to a 16-year high, potentially putting the government back on the hook to clean up the mess.
UK companies are the biggest issuers of inflation-linked debt in the developed world, with more than £40 billion ($51 billion) worth of the securities currently outstanding. Much of that total is linked to firms that manage Britain’s water, energy supplies, railways and affordable housing.
While many of the companies are in private hands, if they come up against financing problems, the burden quickly falls on the government, which has a responsibility to ensure vital services are being fulfilled. That’s the last thing Prime Minister Rishi Sunak needs as he struggles to tame a cost of living crisis, industrial action and the government’s own spiraling borrowing costs, which have pushed national debt above 100 pe cent of GDP for the first time since 1961.
Investors are already in talks to raise more than £1 billion for Thames Water, the UK’s biggest water company, which announced it was having trouble servicing its debts. The government believes the utility can raise the funds on its own without a bailout, according to a Bloomberg report.
