The Choices Facing Burnham's Government On Water
Illustration by Tracy Worrall
8 min read
Campaigning in Makerfield, Andy Burnham threatened Thames Water with public ownership – but has not so far followed through. Ben Gartside reports on a decision that will define his approach to privately owned suppliers of public goods.
What, exactly, does the word ‘control’ mean when applied to those entities that supply vital public goods?
Does it mean full nationalisation, with every decision in the hands of ministers and officials in Whitehall? Or does it rather mean that customers exercise a measure of control over their operation through ownership of a portion of equity? Or some other variant in which locally elected representatives take a golden share in the companies that serve their region?
These are not theoretical questions but are coming sharply into focus as Andy Burnham wrestles with what to do about Thames Water.
As of today, Thames Water supplies 16 million customers, owes more than £20bn and has been in breach of its licence for two years.
A large portion of the Labour Party would like to see the company – which critics say has become emblematic of the failures of utility privatisation – back in public ownership.
Its creditors, however, want to take over the company and keep it afloat by releasing tranches of cash to help the beleaguered firm.
The financiers are quietly optimistic. Industry sources suggest Burnham and the officials supporting him are pragmatic on the issue, and hope that the focus on control could reheat plans for the minister to hold a “golden share” in Thames Water, offering the government a veto while retaining private ownership of the suffering water company.
A concerted effort is being made by some in the City to understand Burnham’s policy brain. Some of Thames Water’s creditors have commissioned research into Burnham’s work on taking buses into public ownership in Greater Manchester, extrapolating out what it would mean for their financial interests.
They take heart from public comments by John Healey, the Chancellor, who insisted that ‘control’ need not mean full nationalisation.
“Some might claim that public control is public ownership,” the Chancellor told his audience, “but it’s broader than that.” What it meant instead was “local leaders and a stronger centre”, accountability for “fair bills, better services, investment that gets delivered”, and “an active state driving better regulation, quicker decisions”.
Within the Labour movement, two rival plans are circling ahead of the party’s conference.
On one side is Mainstream, the group co-founded by Compass and Open Labour. It did more than any other to get Burnham back to Westminster by criticising Keir Starmer’s economic policies from the left and encouraging bolder decision making from the government.
With an ally in No 10, the group is still singing the same tune. Mainstream supports public ownership of water generally, and believes that Thames Water should be put immediately into special administration.
Initially, Burnham struck a similar tone on water. In June, campaigning in Makerfield, Burnham told the Guardian that public ownership was “absolutely an option” and that “for Thames Water, that is what should be done”. By the end of August, the plan to put the company into special administration had gone quiet, with a Whitehall source telling the Times there was “no quick or clean solution without an enormous price tag attached”.
While Mainstream’s motion has been left open-ended for the interpretation of the new government, its motive is clear: a source close to the group says that the system now is itself an attempt at public control without public ownership, and it is not working.
Mainstream is careful to say this is not a confrontation, that it wants the government to succeed, and that the motion is deliberately open. It also does not expect to win. Under Starmer, it tried something similar on the two-child benefit cap last year, had its initial motion blocked but counted the overall shift in tone around the debate as a success.
“Copying the failed model of non-profits like Welsh Water doesn’t get around the questions of compensation, debt or legal risk”
The parliamentary case is led by Clive Lewis, whose own water bill had its first reading a week before the Cunliffe review was commissioned, and who secured an urgent question on the sector in June. He told the Commons then that this “was never a market failure” but “the market working as designed”. Allies of Lewis say that like-minded MPs are prepared to rebel if government proposals do not go far enough.
Lena Swedlow, the deputy director of Compass, tells The House that the left-wing pressure group is now campaigning with Labour MPs to push the government to more wide-ranging action.
“I think we got here because Ofwat and the Starmer-led government believed the creditors and the Thames Water leadership could get themselves out of this mess, which was short-sighted.
“It’s part of the larger theme of Starmer’s No 10 that they didn’t adequately prepare for power, and figures like Morgan McSweeney are now on record saying so. Fast-forward two years later, the hesitance to put Thames Water in special administration is as short-sighted and dangerous.”
Those supportive of implementing the special administration regime are “incensed” by the clear change in government language from public ownership to control.
However, the government is clear that the special administration threshold hasn’t been cleared, as of now. The law only allows it if a company is insolvent or in serious breach of its licence, and while creditors keep lending, Thames is not insolvent. “You either are, or you aren’t,” Environment Secretary Angela Eagle said this month. “And whatever people think of Thames at the moment, it isn’t technically insolvent.”
Another plan is that of the Co-operative Party, which Burnham recently became the first Prime Minister to represent.
A recent report by the Good Growth Foundation think tank, with a foreword by Labour MP Helena Dollimore, proposes a bill that would create a path to mutualisation by encouraging water companies to sell up to customers via a share exchange scheme. If they refused to comply, the bar for an enhanced special administration regime would be lowered.
As with nationalisation, the government is thought to have cooled on the co-operative idea, with industry sources expecting the plans to go nowhere.
Officials recognise that any attempt to mutualise would likely lead to the largest rise in customer bills, as investors would be unwilling to stomach any short-term losses without an equity stake. Investors agree, highlighting the mutualised Welsh Water as having the highest bills in Britain.
Illustration by Tracy Worrall
The left of the party is sceptical too, for the opposite reason.
Mainstream says mutuals work well in many settings but that water needs something stronger, and that it is not clear mutualisation changes who owns anything.
Swedlow says: “Of course devolved and regional leaders should have a say in the future of water. But copying the failed model of non-profits like Welsh Water doesn’t get around the questions of compensation, debt or legal risk.”
One policy wonk highlights that, currently, the Co-operative Party, the Liberal Democrats and Reform all have policies to mutualise water, all with little clarity about what would actually happen next.
What seems sure either way is a significant downgrade in the powers of Ofwat, with responsibility set to be transferred to ministers. The regulator has not had a permanent chief executive since August 2025, and cannot have a successor until the government’s clean water bill is introduced.
The research of the financiers into Burnham’s bus plan seems to be beneficial – earlier this month, The Telegraph reported that regional bodies would be set up to oversee water companies, with a responsibility to hold company bosses accountable for bills and sewage.
As Burnham battles for control, water waits. For the moment, the sector once in the eye of the storm waits to find out the government’s decision and MPs wait to hear the direction of travel.
Within a month of Labour’s conference in Liverpool, Andy Burnham’s government will have delivered its first Budget and Thames Water’s lenders will have decided whether to extend its emergency funding without a signed rescue deal. Labour’s new 10-year plan promising “stronger public control” of water is set to be delivered by the end of the year too. Here are the three leading plans circulating around Westminster.
Public ownership.
Mainstream, the Andy Burnham-affiliated campaign group co-founded by Compass and Open Labour, has drafted a conference motion calling on the Prime Minister to “urgently return water in England into public ownership”. Its paper, The Productive State, sets out the details: put Thames Water into special administration, restructure its debts and have it function as a national public water corporation, run at arm’s length from ministers and paying for investment by borrowing against customers’ bills.
A private solution.
London & Valley Water, a consortium of 100 investors holding £17bn of Thames’ £21bn debt, wants to take over the beleaguered firm. Its £10bn plan would write off billions of debt, add new capital and pay no dividends until 2035. In return, it wants leniency on penalties worth up to £1bn. In June, the then environment secretary Emma Reynolds said the deal did not go far enough – a month later, the creditors offered the government a “golden share”, offering a veto over important decisions and hostile takeovers.
Mutualisation.
A proposal by the Good Growth Foundation, backed by the Co-operative Party and three Labour metro mayors, suggests a law giving water companies a choice: sell up to customers through a share exchange, or face a lower bar for special administration and leave it as a customer-owned co-operative. While it would keep the debt off the government’s books, investors say that borrowing costs and bills would rise without shareholders to absorb any losses.
