Insolvency law blocks Thames Water takeover
Thames Water customers face bills up to 44% higher while an insolvency law loophole, not political will, keeps the utility out of public hands.
Thames Water customers have paid for record bills, a rising tide of pollution incidents and a finance chief’s £1m payout this year alone. The company that took their money is still not in public hands. The reason is not a shortage of political will in Downing Street. It is UK utilities public ownership insolvency law, decades old, that decides how, and whether, the state can take over a failing utility.
Prime Minister Andy Burnham is now looking at rewriting that law, the special administration regime, to clear a path to utilities public ownership without a legal fight that officials fear could cost taxpayers billions. That was the story the Guardian broke on Tuesday, sourced to people briefed on the plans. On the same day, the Times and Bloomberg ran the opposite line: that Burnham had “shelved” or “paused” moving Thames Water into administration after officials costed the operation at more than £2bn. Downing Street and housing minister Matthew Pennycook denied it outright. “We are taking no options off the table when it comes to Thames Water,” Pennycook said. “The water industry has been failing people for too long.”
The insolvency law standing between billpayers and utilities public ownership
Here is the mechanism at the centre of the row. Under the special administration regime as it stands, ministers can only force a water company into administration if it is insolvent or unable to provide a basic service. Thames Water is neither, because a consortium of creditors keeps propping it up with fresh loans rather than letting it collapse. Even if the company were pushed into administration, the administrator appointed to run it would have a legal duty to maximise returns to creditors first. That duty is what makes a swift, affordable public takeover impossible under current law. Change nothing, and the creditors keep the upper hand indefinitely.
That legal quirk did not appear from nowhere. Thames Water’s shareholders walked away in 2024 rather than inject more capital, leaving the company to survive on debt. That debt has since swollen to nearly £20bn, up from £17.73bn the year before, even as the firm swung back to a £226.4m pre-tax profit. Regulator Ofwat has provisionally waved through bill rises of up to 44% by 2030 to fund investment that customers have little reason to trust will materialise. The Consumer Council for Water’s latest survey found trust in the industry at a record low, with Thames Water bottom of the table on 4.74 out of 10, and only 44% of customers nationally believing their charges are fair.
Who the law protects
The creditors keeping Thames Water afloat, and out of state hands, are mostly US hedge funds and private equity firms: Elliott Management, Apollo Global Management and Silver Point Capital, alongside asset managers BlackRock and Invesco, operating under the name London & Valley Water. They have restructured their rescue offer more than once. A straight £10bn recapitalisation was rejected earlier this year by then-environment secretary Emma Reynolds as poor value for money. What replaced it is a “golden share” giving ministers a veto over decisions but no ownership, alongside a board reshuffle designed to look like reform. Campaign group We Own It called it “rearranging the deckchairs on the Titanic.”
The same consortium has already promised a judicial review if Burnham legislates. A source close to the creditors told the Guardian that forcing Thames Water into administration under new rules “would be unprecedented” and would only bring “the transfer of huge costs and risk to customers and taxpayers, while irretrievably damaging investor confidence in UK-regulated sectors.” That warning is doing double duty. It is aimed at Thames Water, and at any future government tempted to apply the same insolvency-law fix to a failing energy company.
Not everyone in Westminster is waiting for Burnham to decide. Labour backbenchers Andrew Pakes and Helena Dollimore, working with the Good Growth Foundation, have drawn up a plan to amend the water bill directly: new triggers for administration based on financial and environmental failure, a bank-style “bail-in” forcing shareholders and creditors to absorb losses before the state does, and a process run by regulators instead of the courts. “The difficulty of the SAR process highlights the failure of regulation to create the incentive for water companies to act faithfully,” Pakes said. Good Growth Foundation director Praful Nargund put the aim plainly: “to protect taxpayers, employees and customers from paying the price for shareholder failure.”
Thirty-nine Labour MPs, including Barry Gardiner and Will Stone, have already signed an open letter for special administration, breaking with their own government’s caution. GMB, Unison and Unite have jointly called for full public ownership, arguing it is the only outcome that protects the roughly 8,000 Thames Water workers’ jobs, pay and pensions “whoever the eventual owners.” Campaigner Feargal Sharkey goes further still, insisting ministers do not need to wait for new legislation at all: “If the Secretary of State wanted to she has the power to do so today with the stroke of a pen.” Thames Water, he says, is “morally, if not operationally and institutionally bankrupt.”
What happens next, and who pays for it
None of this resolves quickly. Whitehall’s own estimate puts the cost of an 18-month administration fight at over £2bn on Thames Water’s figures, or as much as £4.1bn on a 2024 Teneo estimate, a bill one Whitehall source admitted has “no quick or clean solution without an enormous price tag attached.” That number is real, and it explains the caution. But it is also, on the government’s own account, the price of a law written to shield creditors, not a neutral fact about what public ownership costs.
Thames Water says it will run out of money again around the end of this year. Whichever route Burnham takes, and however long the water bill amendment takes to pass, the customers who have watched their bills climb toward a 44% rise and their trust in the company fall to the bottom of the table will be the ones covering the gap in the meantime. The creditors threatening the courts have a decade of returns to protect. The billpayers who funded them have a winter bill to pay.
