Ministers are negotiating a rescue deal for Thames Water with a consortium of creditors led by American investment firm Elliott Management, but the agreement is under threat due to uncertainty over the next prime minister, government insiders have said.
Political Uncertainty Casts Shadow Over Deal
Government sources indicated that the deal, which some expected to be concluded this month, has encountered problems partly because of the precarious position of Prime Minister Keir Starmer. Starmer's most likely successor, Greater Manchester Mayor Andy Burnham, has advocated for bringing utility companies under public control. His supporters have suggested that he could start with Thames Water if he enters Downing Street.
One senior source in the environment department said: "Things are changing every day – it's very uncertain." The source acknowledged the uncertainty about who will be prime minister by the end of the year but expressed dissatisfaction that details of the deal had been leaked to the press. "We aren't very impressed that things keep getting leaked by the creditors," they added, noting there is currently "little direction" from the top of government.
Government Stance and Creditor Demands
A government spokesperson stated: "The government will always act in the national interest on these issues. The company remains financially stable, but we stand ready for all eventualities, including applying for a special administration regime if that were to become necessary." Both Thames Water and the creditors group have been contacted for comment.
Thames Water has been struggling to avoid financial collapse for over two years, having accumulated a £17.6 billion debt pile since its privatisation decades ago. Last year, the company attempted to sell itself, but preferred bidder KKR pulled out at the last minute. Creditors, who provided £3 billion in emergency funding last year, have demanded a write-off of tens of millions of pounds in fines for sewage dumping and a reduction in environmental investment until 2030.
Cost of Nationalisation Disputed
Government sources have defended the proposed deal, arguing that taking the company under public control would cost £100 billion to compensate private sector creditors. However, experts dispute this figure, claiming that ministers would be legally entitled not to compensate creditors at all, given the company's financial state and the profits creditors have already made.
If the deal collapses, Thames Water would enter special administration—a form of temporary nationalisation. The government would then decide whether to sell the company to the highest bidder or bring it under permanent public control.
Burnham's Public Ownership Push
Andy Burnham, who is expected to contest the Makerfield by-election next month before challenging Starmer for the Labour leadership, has called for greater willingness to take utility companies into public ownership. Speaking about Manchester's buses, which he brought under public control, Burnham said on Saturday: "You've got £2 fares. So you take that principle and you apply it to energy and you apply it to water. That's what I think we need to do."
Many of Burnham's supporters, including the thinktank Compass run by his ally Neal Lawson, have campaigned for public ownership of the entire water industry. Lena Swedlow, Compass's deputy director, said: "The reluctance to move Thames Water into special administration is really shortsighted and dangerous. It will simply mean taking more debt out to service the existing debt."
Earlier this month, Yuan Yang, an MP from the Tribune group seen as close to Burnham, wrote an essay urging the government to consider putting Thames into special administration. Defra sources suggest that even if Burnham does not become prime minister, a weakened Starmer or any other Labour leader would struggle to allow the deal to proceed.
