Burnham orders officials to draft radical new plans for Thames Water

Prime Minister Andy Burnham has instructed government officials to discard existing strategies for addressing the financial crisis at Thames Water and instead develop more radical policy options. This directive represents an early test of the government’s broader commitment to bringing essential services under public control. The prime minister is urging advisers to reconsider approaches that were previously deemed unfeasible, even if such measures require the expenditure of taxpayer funds or result in protracted legal disputes.

The current situation at the water utility is critical, with the company facing a severe cash shortage. Thames Water has recently requested an additional £2.4bn from its creditors to maintain operations. While the prime minister has previously expressed a desire to nationalise the firm, he has struggled to identify a method that avoids significant public cost or extensive court battles. Sources familiar with the prime minister’s thinking indicate that he has now told policy officials across Whitehall to contemplate a wider range of solutions. One government source described the resolution of the Thames Water crisis as a litmus test for the administration’s ability to manage medium-term challenges, moving beyond immediate cost of living support and long-term structural reforms.

Among the options currently under consideration is the conversion of approximately £100m in outstanding environmental fines into a government equity stake in the company. This approach would save creditors money while granting ministers a degree of influence over the company’s management. If the company were to incur further fines in the future, the government would automatically increase its shareholding rather than collecting cash payments. While some view this as a straightforward method to secure a say in corporate governance, others argue it falls short of the prime minister’s stated goal of outright nationalisation. The prime minister has promised to end what he describes as 40 years of neoliberalism and has instructed ministers to prepare a 10-year plan for government, which will include detailed proposals for bringing utilities under public control.

When the prime minister assumed office, insiders say he was presented with two primary options for Thames Water. The first was to strike a bailout deal with the American hedge funds that hold the company’s debt. The second was to pursue a special administration regime. Thames Water’s creditors had proposed a £10bn rescue plan, but the previous environment secretary, Emma Reynolds, had indicated opposition to such a scheme before the change in leadership. Government lawyers have noted that placing the company into special administration may be difficult because it is currently being kept afloat financially by its creditors and has managed to maintain service delivery.

The prime minister is also exploring more aggressive measures, such as stripping Thames Water of its licence and forcing it into special administration immediately. This would involve taking the company out of administration without offering compensation to existing creditors. Such a plan would inevitably face legal challenges, but the prime minister is understood to be more willing to engage in litigation than his predecessor, Keir Starmer. Advisers believe the government can pursue a more assertive course with Thames Water because international investors view the company as a unique case rather than a precedent for how all water companies will be treated. Officials suggest that other water companies will be managed through stricter regulation and increased oversight by elected officials, such as mayors.

Angela Eagle, the environment secretary, is concurrently working on a water bill that would lift a Thatcher-era cap on government ownership of water companies. This legislation could also rewrite the bankruptcy regime for the industry. Government advisers believe that changes to the special administration regime would facilitate the transfer of companies like Thames Water into state control in the future. Ewan McGaughey, a professor of law at King’s College London, argued that the government’s best option is to initiate a special administration process before the company incurs further debt. He stated that an orderly transition to public ownership does not require bailing out banks in control, noting that the law dictates polluters should pay. Lena Swedlow, deputy director of the Compass campaign group, called for Thames Water to be placed into special administration and brought into public ownership to serve the interests of workers, stakeholders, and the 16 million people the company serves.