Thames Water nearer to nationalisation after government rejects rescue deal

The environment secretary is concerned it would put an ‘undue burden’ on consumers

Struggling utilities firm Thames Water is reportedly edging closer to public ownership after the UK government rejected a £10bn rescue package for the business.

It is understood environment secretary Emma Reynolds wrote to water regulator Ofwat on Monday, saying the current terms would put an “undue burden” on consumers.

Last year, a group of Thames Water creditors put forward a deal for the struggling supplier, pledging an extra £1bn in investment and plans to write off around a third of the firm’s near-£20bn debt pile.

Thames Water covers a large area of London and the Thames Valley as well as Oxfordshire, Berkshire, Wiltshire and Gloucestershire, and has some 16 million customers.

The company slumped to a £1.65bn annual loss in July. It was also handed £122.7m fine last year – the largest ever issued by Ofwat – for failing to comply with rules around sewage spills and shareholder payouts.

According to the Times, which first reported the news, the latest deal would have spared creditors London & Valley performance penalties for four years in exchange for higher investment levels.

But a government spokesperson said the current offer “does not do enough to protect consumers or the environment”.

Meanwhile, it is understood that Thames Water and its lenders believe a market-led solution would be better for the business.

If Ofwat does not approve a rescue plan for Thames Water – or its creditors withdraw – it could be placed in a special administration regime, a form of temporary renationalisation.

Ms Reynolds is due to explain her decision to ministers later on Tuesday.

A spokesperson for Thames Water said: “We remain of the view that a market-led solution is the best way to secure the long-term stability needed to continue improving performance and advancing our turnaround plan, for the benefit of customers, the environment and our stakeholders.

“Our priorities remain on providing safe, resilient services for customers, supporting our colleagues and working closely with suppliers, government and regulators.”

If the company does collapse, households will still have drinking water and sewerage services.

“We are reviewing the letter from the Secretary of State and considering her views on the current proposal,” a spokesperson for Ofwat said.

“Ofwat’s board has not made a decision on the proposal. We continue to engage with London & Valley Water and are reviewing their plans carefully to assess whether they deliver a turnaround in the company’s operational performance and strengthen its financial resilience to the benefit of customers and the environment.”