Thames Water nationalisation: Burnham orders officials to draw up radical options
Prime minister Andy Burnham has told Whitehall officials to scrap existing plans for fixing Thames Water and bring him more radical options, as the company runs out of cash. The move is an early test of his pledge to bring the essentials of life under public control.
Thames Water nationalisation: Burnham orders officials to draw up radical options
What Burnham has asked for
Andy Burnham has told policy officials across Whitehall to contemplate options that were not previously considered feasible, even if that means spending taxpayer money and going to court. According to one source, he instructed them to "look at all the options and not feel constrained", marking a departure from the advice given under Keir Starmer, his predecessor as prime minister.
The instruction comes as Thames Water runs out of cash and has recently asked its creditors for an additional £2.4bn. Burnham has previously said he would nationalise the company, but has struggled to find a way to do so without spending billions of pounds, getting tied up in a lengthy court battle, or both.
One government source described the company's fate as a "litmus test" of whether the government could handle medium-term challenges, not just immediate and long-term ones.
There are more options than people have assumed to date including ones that have never been properly considered.
The same government source said there were more possibilities on the table than had been assumed. The move is an early test of Burnham's promise to bring "the essentials of life" under public control.
The options on the table
When Burnham took office, he was presented with two main courses: strike a bailout deal with the American hedge funds that own Thames's debt, or pursue an SAR. The creditors had earlier proposed a £10bn rescue plan, which Emma Reynolds, the previous environment secretary, opposed before Burnham became prime minister.
Among the options now under discussion are:
- Converting about £100m of outstanding environmental fines into a government stake in Thames Water, waiving the fines the company still owes and taking a share instead, with future fines automatically increasing the government's holding. This would give ministers some say in the company's running.
- A fines-for-stake arrangement that some see as straightforward, though many believe it would fall short of Burnham's promise to nationalise the company outright.
- A harder route pressed by some: strip Thames of its licence, push it into SAR immediately, then take it out of administration without offering anything to the existing creditors.
Government lawyers believe placing Thames into SAR will be difficult, given that it is being kept afloat financially by its creditors and has kept services running. Such a licence-stripping plan would inevitably face a court challenge, but Burnham is understood to be more willing to take on legal action than Starmer was.
Litigation was always a 100% certainty.
That is the view of one adviser, who said litigation over the company's fate had always been inevitable.
The wider plan for water
The instruction sits inside a broader agenda. Burnham has promised to end what he calls "40 years of neoliberalism" and has instructed ministers to draw up a 10-year plan for government later this year, including utilities under public control.
Environment secretary Angela Eagle is working on a water bill to lift a Thatcher-era cap on government ownership of water companies, and possibly to rewrite the industry's bankruptcy regime. Government advisers believe changes to the special administration regime would make it easier to take companies such as Thames into state control in future.
Burnham's advisers believe they can go further with Thames than with other water companies, because international investors see the company as a unique case. Officials say other companies are likely to be dealt with differently, through a mixture of stricter regulation and increased oversight by elected officials such as mayors.
What critics say
Ewan McGaughey, professor in law at King's College, London, said the government's best option is to start a special administration process for Thames Water before it runs up more debts.
An orderly transition to public ownership does not require that banks in control are bailed out.
McGaughey added that, on the contrary, the law says polluters should pay.
Lena Swedlow, deputy director of the Compass campaign group, said the obvious solution is to put Thames Water into SAR and into public ownership. She warned that recapitalisation and debt-to-equity schemes which do not permanently remove the company from private hands would fail workers, stakeholders and the 16 million people Thames serves.
Officials are now preparing the radical options Burnham has demanded.
