Nationalisation of struggling Thames Water is “not the answer”, environment secretary Steve Reed has warned after a private equity giant pulled out of a £4bn rescue deal, throwing the company’s future into doubt.
A bailout of the debt-laden utility would take money away from the NHS and other public services, he said.
Thames Water is about £19bn in debt, and MPs were told last month that at one point this year it had about five weeks’ worth of cash left before going bust.
Britain’s biggest water supplier, which has 16 million customers, chose KKR at the end of March to be its preferred bidder under plans to invest around £4bn of new equity. But the firm said on Tuesday that KKR was no longer “in a position to proceed” and that its status as preferred bidder had lapsed.
At the despatch box, Conservative shadow environment secretary Victoria Atkins accused ministers of having “talked themselves out of” a rescue plan.
Mr Reed told MPs: “The government stands ready for any eventuality and will take action as required. We are not looking at nationalisation because it would cost over £100bn of public money that would have had to be taken away from other public services like the National Health Service to be given to the owners of the water companies.
“It will take years to unpick the current model of ownership, during which time pollution would get worse and we know that nationalisation is not the answer – you only have to look at the situation in Scotland to see that.”
Mr Reed said he would “make no apology” for tackling the behaviour of water companies under the previous government. “I mean, we even had stories that have been confirmed by water companies of previous Conservative secretaries of state shouting and screaming at water company bosses, but not actually changing the law to do anything about the bonuses that they were able to pay themselves.”
Liberal Democrat environment spokesperson Tim Farron said Thames Water should go into special administration and emerge “as a public interest company”.
Reform UK deputy leader Richard Tice proposed a plan to “buy it for a pound – it’s a good deal for the taxpayer – then it won’t have to pay huge, egregious rates of interest, and the taxpayer and the customers will be the beneficiaries”.
The move by KKR comes as an interim report by the Independent Water Commission found the water sector in England and Wales needs a “fundamental reset” and called for a “strengthening and rebalancing” of Ofwat’s regulatory role.
It is understood that Thames Water is now working on alternative plans with senior creditors. These creditors are the bondholders who effectively own Thames Water after the High Court earlier this year approved a financial restructuring through a loan of up to £3bn to ensure it can keep running until the summer of 2026.
Sir Adrian Montague, chair of Thames Water, said: “We continue to believe that a sustainable recapitalisation of the company is in the best interests of all stakeholders and continue to work with our creditors and stakeholders to achieve that goal.”
KKR declined to comment.
An Ofwat spokesperson said: “We are liaising with the company on its next steps in light of its recent announcement to ensure its equity raise process continues to secure improved financial resilience and operational performance.”
The firm was put under further pressure last week when it was fined a record £122.7m by Ofwat after it was found to have broken rules over sewage treatment and paying out dividends.
Water companies have faced public and political outrage over the extent of pollution, rising bills, high dividends, and executive pay and bonuses.
Thames hiked consumer water bills for customers by an average of 31 per cent in April and incurred further wrath over plans to pay senior bosses large bonuses linked to the water company securing a £3bn emergency loan, which were later dropped.
