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The water industry is braced for Andy Burnham to set out plans to take control of Thames Water as the utility warned of “material uncertainty” over its long-term future.
Burnham, who is set to become prime minister on Monday, said last month that he was interested in greater public ownership of utility companies, adding: “I would say for Thames Water, that is what should be done.”
Water executives believe the incoming prime minister could end years of uncertainty around Thames Water by quickly pushing it into a special administration regime, a form of temporary nationalisation.
That looked more likely on Wednesday after Thames Water said it could survive for another 12 months but warned of “material uncertainty” over its long-term future.
Britain’s largest water company has been on the brink of collapse for several years, weighed down by huge debts. It is currently in the effective control of its creditors, who are trying to get permission for a takeover from Ofwat, the sector regulator.
Burnham is expected to make an announcement on “the water industry” within weeks, according to people close to the situation. His team refused to clarify on Wednesday whether or not this was about Thames Water.
“I think having promised that [public control], he will come under huge pressure within the Labour Party and trade unions to push the company into SAR, which would be the first step towards nationalisation,” said one senior water industry figure.
“It would look odd after his rhetoric if he didn’t go ahead with it.”
The powerful GMB trade union is among those pushing for Burnham to move fast and take control of the utility, which serves 16mn customers.
Gary Carter, GMB’s national officer, said: “It’s clear the free market is no place for a natural monopoly like water and this disastrous experiment has failed,” he said.
More than 80 per cent of the public support state ownership of the utilities, according to a YouGov poll earlier this year.
There is also some support from other political parties. Charlie Maynard, Liberal Democrat MP, urged the new prime minister to put Thames into SAR as a “perfect way for Burnham to demonstrate that he will [. . . ] stand up for customers and take genuine steps to fix the water sector.”
Thames Water said in its annual report on Wednesday that it was “reasonable to assume” it would have “adequate resources” to continue its operations for the next 12 months.
But the group’s directors cautioned that there was “material uncertainty” over the company’s ability to secure enough liquidity to see it through to a successful recapitalisation.
It has just £588mn of liquidity left as of June, enough to last through the last quarter of 2026. The company’s gross debt has grown to more than £19bn.
If Burnham does pursue a SAR, the government would have to apply to a high court on one of two grounds.
It could either argue that the company is financially insolvent or it could insist there has been a “serious breach” of its environmental and services licence requirements.
The company is not insolvent, even though it is reliant on the financial package provided by creditors, lawyers said.
And although the utility has breached its licence multiple times, Ofwat has created a special regime to deal with that.
Other water companies have performed equally poorly as Thames Water on environmental grounds, too. Several companies, including South East Water, also have high debt levels and have breached licence conditions.
“It would be a big legal risk for Burnham to take Thames Water on now when there is still a creditor deal on the table,” said one lawyer close to the discussions.
“To minimise the legal and political risk, the government should wait until it has run out of money and the company asks to be taken into SAR.”
If Thames Water tipped into SAR, it would be in the hands of an independent insolvency practitioner who would ensure services keep running and staff continue to be paid. The debt and interest payments would be frozen, freeing up cash for infrastructure improvements.
The company could then be bought out of administration by fresh private-sector bidders, as happened with energy group Bulb when it entered a SAR.
Any additional costs borne by the Treasury would be first in line to be recouped on the sale.
Senior creditors, which own the bulk of the debt pile, have been locked in negotiations with Ofwat for more than a year over their proposed rescue of Thames Water.
If a deal with creditors — which include Silver Point Capital and Elliott Management — is not reached by the beginning of October, Thames Water will need a further £2.4bn to get through the end of 2027.
Ofwat must submit any deal with creditors to a three-month public consultation, and it will also have to be signed off by the High Court.
Environment secretary Emma Reynolds last month said the plan submitted by the group of senior lenders was not “good enough” and that “we stand by for any outcome” including state control.
The utility said on Wednesday: “We continue to work with all parties to reach an agreement that supports Thames Water’s long-term financial stability and ensures the uninterrupted delivery of our biggest infrastructure upgrade in 150 years while continuing to meet the needs of our 16mn customers.”
Burnham’s team and Ofwat declined to comment.
