Government now looking at “all possible solutions” for the water industry

(by Karma Loveday)

Defra’s decision to exclude ownership models from the Independent Water Commission’s (IWC) remit looks set to be revisited by the new government.

Water minister Emma Hardy told Parliament last week: “I have always wanted to introduce a water Bill that meets the political moment and the public appetite for change. I am delighted that it feels that we are closer to that. The change in prime minister has opened up options that were previously not available… more things are suddenly on the table.”

She would not be drawn on detail, explaining “that is honestly because we are working through things right now”. But in response to a question from Labour MP for Brent West Barry Gardiner on whether the Government’s hesitation to put Thames into special administration might be because the Government is "now looking much more holistically at what could be done with the whole water sector”, Hardy said: “We are looking at all of the sector and what can be done right across it.”

She continued: “I completely understand why people are asking fundamental questions about ownership. For too long, pollution, poor performance and financial instability in the water industry have left customers and communities to pay the price… we need significant reform to give people and places greater control and to make the industry work for them again.”

She added: “There is no single easy fix, but the prime minister has been very clear that the failures of the past cannot continue. We will look at all possible solutions for the water industry and bring forward reforms to make the sector work for people and places again. As the prime minister has said, later in the year our 10-year plan for Britain will set out plans for stronger public control over essentials such as water.”

Mayoral control?

Reports last week, originating in The Telegraph, mooted that mayors and other local political leaders could be given oversight of water firms via the creation of nine new regional bodies in England, under draft plans being drawn up. The bodies would contain, the reports suggested, an independent chair, experts and sector representatives such as for agriculture and transport, alongside the mayor or local government figure. They would plan, run consultations and engage with customers and the public.

Such an arrangement would put a new spin on an IWC recommendation that was rejected by Defra when it published its White Paper in January. The IWC proposed Regional Water Authorities be created; the White Paper committed to create a dedicated regional water planning function to plug the ‘missing middle’ between national and local priorities, but hinted this would be through rationalisation and alignment of existing functions. Defra said in the paper: “We are committed to reducing duplication, making better use of existing expertise, simplifying engagement for stakeholders... and ensuring a more coherent system. This is critical to unlocking better joined-up water planning while avoiding the system getting bogged-down in more layers of bureaucracy and process.”

Debate since The Telegraph article was published has considered whether mayoral oversight would in fact deliver the ‘public control’ the Burnham government has promised. For instance, The Guardian quoted Common Wealth think tank director Mathew Lawrence and former director of the Labour Growth Group Mark McVitie who challenged that without financial control for politicians, the plan would fall short. Lawrence questioned: “Can they [mayors] ban dividend payments, stop financial extraction, reduce the cost of capital that determines overall cost, or choose to take the service back into public hands to run for the public benefit? If the answer is no, devolving oversight risks handing over responsibility without the power to fix the problem.”

Plea for public ownership

The Parliamentary debate at which Hardy was speaking last week was brought by Labour MP for Colne Valley Paul Davies on public ownership of water, after a Windrush Against Sewage Pollution petition calling for a national referendum on whether the water industry should be returned to public ownership secured 208,000 signatures.

Davies argued the 1989 privatisation of water “has been an economic, environmental and public health failure,” citing factors including £83bn of dividend payouts, billions of pounds of debt, leaky pipes, sewage discharges, no new reservoirs since 1992, and illness risk from swimming.

Davies welcomed Labour reforms to date, but argued: “They only tinker at the edges of reform.” Failure to consider ownership, he continued, “signifies a further issue, which is the continued lack of democratic inclusion in the decisions that affect the sector.”

He said public ownership is popular (82% support in a May YouGov poll, up from 59% in 2017) and would enable the £22bn earmarked for shareholder returns and interest over the next five years to be invested in infrastructure and/or used to address water poverty.

He saw Andy Burnham’s premiership as a clear opportunity to rectify the fact that “Despite its popularity and the strength of the case behind it, there has been a total failure from successive governments to consider the merits of public ownership.” Davies listed practical steps Government could take now as: 

• Defra could conduct a feasibility study of alternative ownership models, including public ownership. “I understand that previously the department has cited a total cost of £100bn for full nationalisation, which it based on the regulatory capital value of the sector. However, that approach has been widely criticised as misleading for failing to represent the accurate market value of a company. For example, Thames Water’s RCV is more than £20bn, yet the 2025 rescue bid from Kohlberg Kravis Roberts & Co., before it walked away, valued the equity at around £4bn because the company’s debts had all but wiped out the value of the capital base. A feasibility study would provide full transparency and accuracy.”

• Putting Thames into special administration as a means to “test the waters for more far-reaching reform”.

• Pursuing greater decentralisation and democratisation, drawing on international precedents such as the re-municipalisation of Berlin Water following a 2010s grassroots campaign. This would, he said, also help rebuild trust and reduce the cost of regulation through greater transparency. 

Davies concluded: “This Government now face that moment. They must choose whether to preserve a failed model or to deliver a system that is stronger and more accountable. The choice is clear: it is time to put water back into public ownership.”

MPs’ views

The debate was well attended, with MPs queuing for interventions. Many, especially Labour and Cooperative members, spoke in support of Davies’ position. Common issues raised included high bills without visible benefit for customers (especially where combined with high profits), sewage discharges, and various operational failures – from outages to street disruption.

Some Liberal Democrat participants championed the mutual model. Some Conservatives spoke in favour of bolstering controls while retaining private ownership. For instance, shadow health minister Gregory Stafford argued: “The challenge is to ensure that we have strong regulation, proper investment and real consequences for failure, without putting the bill on the taxpayer.”

Concern over ownership had more nuanced forms, too, with some MPs raising the matter of who owns the water companies as a critical question. Indeed, this theme was developed in a separate Parliamentary question from shadow environment minister Lord Blencathra, who asked the Government what assessment it had made of the Chinese Government's financial influence over UK water companies. Lord Blencathra said the Industrial and Commercial Bank of China issued nearly £1.26bn in loans and borrowing options to UK water and energy companies up to July 2024. “As a result of its investment in our strategic industries, there are deep concerns that this poses a financial security risk.”

Referendum rejected

Hardy did not yield to the need for a referendum, as suggested by the 200,000-signature strong petition. She said: “I think we know what the public think about this sector. The prime minister has been clear that the Government’s priorities must be the public’s priorities. People want more ownership and control over the things that matter most to them. Public trust in the sector has been damaged by pollution, financial difficulties at some companies and a failure to invest sufficiently in infrastructure.”

Gardiner commented:  “I do not want a referendum to bring the water industry back into public ownership. I just want ministers to get on and do it. The secretary of state has the power under the Water Industry Act 1991 to petition the High Court for any water company to lose its licence for either poor performance or insolvency.”