Andy Burnham upped the stakes in his speech to Labour’s conference when he promised to end the ban on public ownership of water companies. Previously he had called only for more public control.
Campaigners believe water privatisation has been a disaster, with poor environmental performance and rising bills for customers coupled with huge dividends for shareholders and extravagant bonuses for executives.
But politicians are split on what needs to be done. Full public ownership would be too costly, say some. Extending public control, say others, would be simply tweaking an existing system that has failed. Is the prime minister trying to straddle both sides?
Context
Margaret Thatcher’s government privatised the water industry in 1989, creating 10 natural monopolies from the regional water authorities of England and Wales. The privatised companies’ debts were cleared and they received a further cash injection in the hope of unlocking billions of pounds of private investment for a much needed upgrade of infrastructure.
The investment did materialise – to the tune of more than £236 billion, according to trade association Water UK. But that came with £78 billion in dividends for shareholders – much of them paid for through borrowing – and a 44 per cent increase in bills for consumers.
Meanwhile, the water companies shrug off fines for illegal discharges of sewage with apparent impunity, and have failed to build a single new reservoir since 1992. No other country has followed the England and Wales experiment of full privatisation.
In a recent speech, Feargal Sharkey, who has been campaigning about water for more than 10 years, said: “The brutal reality is as employees, bill payers, as customers, we have been lied to, we’ve been misled, we’re being extorted, we’ve been cheated.
“For 37 years, we’ve been subjected to nothing more than the greatest act of organised criminality perpetrated against the British people.
“We’ve had little in return apart from corporate greed, profiteering, financial engineering, political failure and regulatory incompetence.”
Public control versus public ownership
In the form of Defra, Ofwat, the Environment Agency, the Drinking Water Inspectorate and the Consumer Council for Water, there is already public control of the water industry, although Sharkey and many other campaigners characterise it as “regulatory failure”.
Keir Starmer’s government began to take action, inspired in part by recommendations from an independent commission into the water sector in 2025.
In May’s King’s Speech Starmer announced the Clean Water Bill. It includes the abolition of Ofwat and the creation of a new single regulator for the sector, a new Water Ombudsman to resolve customer complaints and “plans to attract greater investment”.
Campaigners welcomed the bill as a step in the right direction but not far enough, and called for full public ownership of water companies. Then environment secretary Steve Reed had prevented the independent commission from investigating nationalisation, and Burnham himself, post-Makerfield but pre-Downing St, said it was “complex and probably expensive”. But his conference speech in Liverpool, as well as promising yet more control measures such as new powers for mayors in a “strengthened” bill, also opened the door to public ownership.
“The centrepiece of that bill will be this – the repeal of Margaret Thatcher’s ideological ban on public ownership of water companies,” said Burnham, adding that water is a “symbol of what has gone wrong with Britain.
How to own it
A report by We Own It says when countries own public assets and services, “they are wealthier, they can benefit from revenue streams from household bills and they have the real control that only ownership can provide”. Against that is the costs the government would face for compensating shareholders and assuming liabilities.
Much attention has focused on Thames Water, teetering on financial collapse, with £20 billion of debts, and in talks with creditors over a takeover. Because of its near insolvency, the government can place it into temporary state ownership, known as a Special Administration Regime (SAR), while its future is secured.
That could mean a return to private ownership, or the government, under Burnham’s new law, could seek to retain it, having to pay limited compensation because of its low market value. The think tank Common Wealth puts the figure somewhere between zero and £4 billion, based on a bid for Thames Water by a private equity firm that then withdrew it.
Last month, the cross-party Environment, Food and Rural Affairs Committee urged the SAR option, saying it would be “cost-neutral”. It criticised the “opaque consortium” of hedge funds and other creditors for claiming they had the public interest at heart, not least because they want to be let off the fines they owe.
“We believe Thames Water can be turned around, but not by giving the keys back to the people who have been joyriding in the family car,” said Alistair Carmichael, Liberal Democrat committee chair.
But Thames Water is a special case. A SAR would only apply to other water companies if their financial performance worsened or they were judged to be in serious breach of their statutory duties. The costs of bringing the entire industry into public ownership are hugely contested.
Last year Defra assessed the bill to be around £100 billion, basing it on companies’ regulatory capital value (RCV), assessed by Ofwat, which it believes to be the “closest proxy for the total value of the sector’s debt and equity”.
Frontier Economics, commissioned by Thames Water’s creditors’ group, this year put the figure as high as £144 billion also using RCV.
In 2019, Moody’s credit rating agency came up with a figure of £14.5 billion using a different calculation.
Common Wealth says RCV is a “construct of the regulator” that over-estimates companies’ true worth because of the way it treats their debt.
It says the SAR process should be used for the worst companies – Thames Water and also South East Water, because of its breach of duties – meaning zero cost for the taxpayer.
The next ones, the “very bad” for polluting, should be forced to release their full repair costs. If they then can’t comply with their statutory duties, they should be put in a SAR and on to public ownership at zero cost. The “bad but better” rest of the companies might need compensating up to £12 billion in total, says Common Wealth.
Public ownership is not synonymous with nationalisation. It could include mutuals and co-ops. But “public ownership is what 90 per cent of the world does and what 82 per cent of the British public want because they see the failures of privatisation,” says Common Wealth’s most recent report.
What people are saying
“My constituents in Morecambe and Lunesdale are really cross about the level of their water bills, and they get more cross when they see the profits being taken out of the water industry.” - Labour MP Lizzi Colling
“Around 80 per cent of water companies are foreign owned – in other words, the majority of their shareholders live abroad, in all kinds of places, including China. Most users of water would be shocked to hear that. The government have an obligation not to allow key utilities to fall into foreign hands.” -Conservative MP Sir John Hayes
“The whole investment world must realise that while we believe in markets and competition, we will not allow the taxpayer to be shafted.” - Reform MP Richard Tice calls for Thames Water to be placed in a SAR
“We need public ownership now, and we have all the tools we need to make it happen. Forget compensation for shareholders and creditors – these are insolvent companies. It’s time to take them back.” - Green Party deputy leader Rachel Millward
What happens next
A repeal of a ban on public ownership does not amount to advocating for public ownership. The government will be uneasy at incurring any additional costs that ownership entails, especially as it remains committed to Rachel Reeves’ fiscal rules. Nor do some ministers around Burnham want to be seen as unfriendly to industry, defy its lobbying or deter future investors.
On the other hand, even Starmer’s government was willing to nationalise British Steel. A clearer picture will emerge in environment secretary Angela Eagle’s new bill about Burnham’s 10-year journey to a very different water system. ■
About the author: Kevin Gopal is a Manchester-based journalist who has returned to freelancing after editing Big Issue North from 2007 until its closure in 2023. He writes regularly for The Lead to untangle the issues facing the UK and also reporting on social justice and other issues across the North of England as part of our award-winning The Lead Local titles.
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