The Prime Minister’s rhetoric has collided with the reality that nationalisation is unaffordable
Daily Telegraph 23/10/26
The quest to save Thames Water is the saga with no end. Two and a half years after shareholders abandoned the company, its future is no more certain.
On the contrary, it is even more of a financial basket-case now than it was then, having been kept afloat by a steady drip-feed of emergency loans at a business that was already drowning in debt.
Additional borrowings since March 2024 stand at roughly £3bn with another £2.4bn on the cards, just to see it through the next 12 months.
That assumes, of course, that a disparate creditor base can agree on a deal – far from a foregone conclusion despite the high stakes.
The arrival of Andy Burnham in No 10 would bring an end to this financial purgatory, we were told.
Under Showtime Andy a privately led, debt-heavy industry ownership model that prioritised shareholder enrichment rather than customer care would be consigned to the dustbin, replaced by a system of greater “public control” – even though no one in Government has been able to explain what that means.
Burnham’s intervention has been characteristically cack-handed. Instead of steadying the ship, the Prime Minister has done precisely the opposite, exacerbating the uncertainty.
The problem is his propensity to speak first without thinking about the consequences. Just three months into his Premiership, a clear pattern has already been established: Burnham’s desire to be popular means he cannot help but put his foot in his mouth.
On Thames Water, he has backed himself into the tightest of corners. Burnham’s enthusiasm for nationalisation was such that it was widely assumed it would be among the first truly meaningful things the former mayor of Manchester would do upon setting foot in Downing Street.
The problem is that nobody in government, including the Prime Minister, paused to consider whether such a move was even plausible. Everyone was too concerned with playing to the gallery, telling an exasperated British public what it was assumed it wanted to hear.
But as ministers have quickly discovered, there is a big difference between wanting to do something and being able to, and the reality is that he inherited a country that cannot afford public ownership of critical assets such as Thames.
Some Labour figures have allowed themselves to be fooled into thinking that the Government could simply seize control without having to buy out the creditors.
But as has been pointed out, including in this column, such a move would amount to expropriation, something more associated with failing Communist regimes.
It’s fine to talk about wanting to end neoliberalism, but the reality is that the UK economy is massively reliant on foreign capital, much of it from long-term investors of the sort that had been lending to Thames long before the Wall Street hedge funds turned up.
Government contempt for the rule of law and property rights would be devastating to this country’s standing.
But even if Thames could be nationalised without recourse to the creditors, there is another glaring flaw that the pro-nationalisation crowd are unable to address: where will the investment come from afterwards?
There can be no doubt that water suppliers and their many shareholders are guilty of woeful underinvestment in the industry stretching back many years, something that a supine regulator must take some of the responsibility for.
But the country’s decrepit Victorian pipes and filthy waterways require a staggering £290bn of funding in the next 25 years just to ensure the taps stay on and our rivers are cleaned up.
These are figures from the National Audit Office, which also points out that at the current rate, it would take 700 years to renew the entire network.
Does this Government have that sort of money lying around? Of course not – not even close. It’s preposterous to even suggest that nationalisation of the water sector, or even just Thames, is somehow feasible.
Yet having seen his rhetoric collide with reality, the Prime Minister refuses to accept defeat. Officials are being told to come up with other ideas that would enable him to claim his promise of greater public control has been achieved.
The latest half-cocked plan supposedly on the table is to convert £100m of fines into a government stake, but a fag-packet calculation suggests that would equate to around 3pc of the company.
Not only is that close to meaningless, the creditors would still own the vast majority of it – something Labour MPs have made it clear they are vehemently opposed to.
It would also mean letting the company off a slew of fines for pollution when ministers have made a big song and dance about ensuring irresponsible water suppliers are properly held to account for any damage to the environment.
The result is a dangerous stalemate that will come back to bite the Prime Minister.
Burnham refuses to give his blessing to a restructuring proposal that’s been on the table for 18 months and will result in billions of pounds of Thames Water’s debts written off along with billions more in fresh equity pumped into the business.
Yet he and his team are yet to come up with any credible alternatives.
If the hedge funds aren’t the answer, and the Government doesn’t have a plan B, then what instead?
Wouldn’t a better solution be one in which the private sector continues to provide the vast financial resources required but under a regime of greater outside oversight and governance?
This can be done without the need for full nationalisation or for the state to have any economic interest at all.
Thames Water’s creditors have already agreed to a dividend freeze. They are willing to give the Government a golden share too, and the idea of allowing local mayors to have representation on its board has been floated too.
There could be an employee representative as well, which is the model in many European countries. Perhaps the privately held suppliers could also be partially floated on the stock exchange, a move that would guarantee much greater transparency and scrutiny.
There are many versions of this, but the Government urgently needs to clarify what its position is.
The longer Thames is left in limbo, the greater the risk that the vilified investors who have been propping it up will lose patience and walk away, leaving the Government to attempt to contain the fallout. This includes ensuring services aren’t interrupted.
If that happens, ministers will be responsible for one of the most spectacular slow-motion car crashes of all time.
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