Water re-nationalisation could cost Government £400bn

(by Verity Mitchell)

Frontier Economics has produced a report commissioned by Thames Water’s creditors, which has suggested that re-nationalising the water sector would cost £400bn over the next 24 years. The number reflects only the cost to the Government, with no compensatory benefit assumptions.

The report put the initial cost of re-nationalisation at £144bn in 2029/30 prices, given the most realistic timeframe for any transaction. The Government would then be liable for a further £270bn of necessary investment to 2050.

The figure is higher than the £100bn assumption cited by Defra since September 2025, reflecting the cost of inflation since this original estimate was published, based on the 2024/2025 Regulatory Capital Value (RCV) of the industry. The report’s authors asserted that the RCV is a regulatory commitment but is also much lower than the replacement costs of the assets.

The report argued that the cost of primary legislation would need to be covered, as would a likely acceptable premium to RCV.

Academic and government advisor Dieter Helm has suggested a discount might be payable to utility owners to acquire the companies – but historically acquisitions have been premium-priced. EQT’s recent acquisition of a stake in Yorkshire Water for a 10% discount may not necessarily be a precedent for all companies, given that the listed companies have mostly traded at a premium to RCV, reflecting expectations of regulatory outperformance.

The fair value of debt for some distressed companies might be discounted but that cannot be assumed for the sector as a whole. There are also pension costs that the Government would have to bear.

The negative bond market sentiment towards UK re-nationalisation involving the refinancing of several billions of pounds of water company debt – because of change-of-ownership redemption clauses – is less easy to quantify. Leaving the debt in place, though, would burden the Government with debt-market premium costs above its own cost of debt.

Frontier Economics also concluded that costs could be even higher, reflecting: earned regulatory rewards; Competition and Markets Authority-determined extra revenues for AMP8; price re-openers; and higher-than-anticipated inflation.