The fate of the British water sector has been catapulted back onto the front pages, following Andy Burnham’s appointment as Prime Minister.
The immediate priority is Thames Water, which announced its annual financial reports on 15 July. The company, which is struggling under £20 billion of debt, is faced with “material uncertainty” over its ability to secure liquidity to see it through recapitalisation. A long-term solution to Thames Water’s financing is urgently required.
But Burnham has already acknowledged that nationalising Britain’s water companies would be “complicated and probably expensive”. That’s an understatement: full nationalisation of Britain’s water sector would cost the taxpayer an estimated £100 billion, rising to £144 billion by 2030.
According to the UK’s National Audit Office, the Treasury would need to find £290 billion to invest in Britain’s water system by 2050 to ensure it meets demand. This is an astronomical figure. To compare, the British government raised £329 billion in total income tax in 2026.
As for Thames Water, the figures are steep. It will cost the Exchequer an estimated £23 billion to compensate Thames Water’s creditors before bringing the company under public control. That’s before the £20 billion in urgent infrastructure the company needs by 2030.
Even placing Thames Water under a temporary Special Administration Regime (SAR), a temporary government-controlled insolvency process, would cost at least £4 billion.
The real bind for Burnham is that a nationalised water sector would compete for this vast funding against other urgent spending priorities. Shortly following his election as MP for Makerfield, Burnham delivered a speech at the People’s History Museum in Manchester, setting out his ambitious programme for government.
The vision included eye-catching pledges from the “biggest council housebuilding programme since the post-war period”, to “committing to decent infrastructure in all parts of the UK”.
As necessary as they are, Burnham must realise that his policy pledges will be extraordinarily expensive. In June last year, the government earmarked £39 billion for the Social and Affordable Homes Programme which, over the course of its 10-year operation, is expected to deliver 300,000 homes. The figure is impressive but falls well short of the mark needed to address the UK’s social housing shortage: Shelter, the homeless charity, estimate over 1.3 million people remain on housing waiting lists.
As for infrastructure, the UK is littered with notorious projects that run well over the initial time and costs set aside for them, none more so than HS2, the high-speed railway programme to connect London to Manchester. £44 billion has already been spent on the project, with a further £60 billion in estimated costs before the rail line begins operating in the late 2030s.
In the context of so many significant spending priorities facing Burnham’s newly formed government, surely he would be best served allocating the UK’s stretched financial resources to where they are really needed?
The government must also understand that nationalising Britain’s water industry would likely send shockwaves through the investor community. It would result in multiple high-profile legal challenges as investors contest the terms the government imposes. This would be a long and expensive process for the Treasury that would pit government against the private investors it is purportedly looking to court.
It would also cause serious concerns for bondholders, who would question where the government is planning to source the billions of pounds needed to take water under public control. When the UK’s national debt already stands at 94% of GDP, any additional borrowing could raise interest rates further, ultimately worsening the government’s fiscal headroom.
The case for nationalising the UK’s water sector is understandably an emotive one, not least when sewage overflows continue to pollute British waterways.
But nationalisation comes at a great cost and would require the government to assume the sector’s debts and investment needs at a time when the public purse is under intense strain.
Governments are never blessed with easy decisions, and Andy Burnham is right in his assessment that nationalising Britain’s water would be “complicated and probably expensive”. With so many competing items on his in-tray, don’t be surprised if Burnham chooses the pragmatic way forward