Thames Water edges closer to nationalisation amid minister’s concerns over rescue deal

Thames Water is moving a step closer to nationalisation after the environment secretary raised concerns about a proposed rescue plan.

The UK’s biggest water supplier, which serves 16 million customers, has been skirting financial collapse as it has grappled with nearly £20bn in debt since 2023.

Its creditors had offered a deal including £3.35bn of new equity and up to £6.55bn of new debt as part ​of their latest bid to rescue the company in March. But environment secretary Emma Reynolds has written to the regulator Ofwat to share worries that the deal will see customers lose out, The Times first reported.

If a deal fails to be agreed between lenders and the regulator, Thames Water could enter temporary nationalisation through a process known as a special administration regime (SAR). The scheme would keep the company running through government-appointed operators while it is sold.

In May last year, Ofwat fined Thames Water nearly £123m, the biggest ever issued by the water industry regulator, for breaching rules on sewage spills and shareholder payouts.

Bidding consortium London & Valley Water is understood to be willing to write off £9.4bn of the company’s debt in exchange for leniency from future fines.

But Ms Reynolds is reported to have shared concerns that the plan places an “undue” burden on taxpayers. It is thought she raised worries that the creditors’ proposal was “weak”.

She is expected to lay out her argument in an address to parliament on Tuesday.

The government has repeatedly said it prefers a “market solution” over temporary nationalisation.

Ms Reynolds said: “Thames Water customers have been let down for far too long, with 15 years of underperformance, increasing serious pollution, and customers left to pick up the bill.

“I have written to Ofwat to outline my early views that I am not convinced the current proposal is good enough for consumers or the environment. We stand by for any outcome.”

A Thames Water spokesperson said: “We remain of the view that a market-led solution is the best way to secure the long-term stability needed to continue improving performance and advancing our turnaround plan, for the benefit of customers, the environment and our stakeholders.

“We are delivering our biggest infrastructure upgrade in 150 years, and our priorities remain on providing safe, resilient services for customers, supporting our colleagues and working closely with suppliers, government and regulators.”

An Ofwat spokesperson said: “We are reviewing the letter from the secretary of state and considering her views on the current proposal. Ofwat’s board has not made a decision on the proposal.

“We continue to engage with London & Valley Water and are reviewing their plans carefully to assess whether they deliver a turnaround in the company’s operational performance and strengthen its financial resilience to the benefit of customers and the environment.”

The letter from Ms Reynolds comes in a difficult week for prime minister Sir Keir Starmer, with Andy Burnham – the mayor of Greater Manchester – hoping to win the Makerfield by-election on Thursday, which would pave the way for him to launch a leadership challenge.

Mr Burnham recently signalled he could bring in a 10-year plan to renationalise the water industry, saying reform is needed to put the public interest first.