Nationalisation of Water Companies Could Be Achieved at Minimal Cost Says Thinktank

A recent report by the thinktank Common Wealth has argued that bringing England’s water companies into public ownership could cost the government close to nothing. Experts propose using a process known as special administration, typically employed to safeguard failing public services, to achieve this shift in ownership. This approach could be applied to companies such as Thames Water, placing them into government control permanently and bypassing private ownership transfers.

Professor Ewan McGaughey of King’s College London, writing for Common Wealth, highlighted that the widely cited figure of £99 billion for the takeover is misleading. This estimate, which is derived from a metric called regulatory capital value (RCV), was developed by industry regulator Ofwat to calculate dividends. However, McGaughey emphasised that this metric fails to reflect the true market value of these companies.

The report pointed to contrasting examples like Thames Water, which has a regulatory capital value of approximately £20 billion, but drew a £4 billion equity injection offer from private equity firm KKR. With debts of around £20 billion, McGaughey suggested that these levels of liabilities, combined with the need for significant infrastructure investment and historical dividend pay-outs, could render the effective value of such companies negligible.

McGaughey further argued that under existing legislation governing special administration, the government could justifiably strip water companies of their operating licences for severe underperformance. He contended that environmental misconduct, such as widespread sewage dumping, alone could validate this action. The same legislative provisions, he said, allow a government administrator to prioritise the public interest, which makes full public ownership legally feasible.

While some Labour Party MPs support the idea of nationalising water utilities, government officials continue to maintain that the RCV remains the standard valuation measure. Critics have raised concerns about the cost of compensating shareholders and the gap left by vanishing private investments. However, McGaughey highlighted previous examples, such as Railtrack and Northern Rock, where similar measures resulted in no payments to investors, even amid legal challenges.

The government currently has no plans to nationalise water companies, citing potential costs in the billions and the difficulty of addressing underinvestment during a complex transition. Yet, with public dissatisfaction growing over sewage pollution and ageing infrastructure, pressure for systemic change persists. The Common Wealth report represents an escalation in the debate surrounding the future of England’s privatised water industry.