When former Undertones frontman turned campaigner Feargal Sharkey backed Keir Starmer for prime minister in 2024, he hoped the Labour leader would clean up Britain’s polluted rivers and bring the water industry into public ownership – starting with troubled Thames Water. Two years later, Sharkey has been disappointed. Now he is hoping that Andy Burnham will begin the job when he is confirmed as prime minister.
“This privatisation has been an unmitigated, catastrophic disaster,” Sharkey said, but rather than face the problem the Labour government has so far chosen to “kick the can down the road. There is no more road,” he added.
Burnham’s Ascent and Utility Company Nervousness
Burnham’s ascent has caused nervousness among utilities companies across Britain – and excitement from some campaigners. Several advisers to Burnham’s camp believe that the time has come again for public ownership of utilities, with regional monopolies such as the water industry and energy distribution networks particularly in their sights. Insiders have said that Burnham is considering a 10-year programme of taking control over “the essentials of life”.
A spokesperson for Burnham said he wanted “stronger accountability and better standards”. They said: “Andy is exploring all possible options for giving the public more control over essential services like water and energy. The water industry is a classic case of one where shareholders always win, and bill payers always lose. People are right to be angry that they are being asked to pay more for a service too often defined by failing infrastructure and excessive profits.” Yet the key phrase, “more control”, can span a wide range of options from full nationalisation to simply a more muscular approach to regulation.
The Case for Nationalising Water
The key argument made by advocates of nationalisation is that private owners of monopolies are able to extract money (in the form of dividends, fees and interest costs) that would be better spent on infrastructure – with no competition to push standards higher. The water industry counters that it brings investment without adding to public borrowing. However, Common Wealth, a thinktank led by the close Burnham ally Mat Lawrence, has argued that the higher cost of capital for private borrowers compared with government borrowing is making utility bills more expensive.
Yet even if Burnham accepts the argument in favour of public ownership, his government would face a series of complicated decisions on how to make it a reality. A bill to expropriate private assets at no cost is unlikely, as it would spook the international investors who lend the government money. That could mean waiting for companies to breach their licence conditions – as Thames and South East Water have done – before taking control. “It depends how adversarial you want to be,” said Chris Hayes, an economist at Common Wealth. The government could go all in on acquisitions at market-determined “fair value” – a process that would make nationalisation much harder to challenge on legal grounds by water companies. “I find it hard to believe they’d be keen to start a load of fights,” Hayes said.
Cost of Nationalisation and Alternatives
The total cost of nationalising the sector is also hotly disputed. Sharkey said the companies would all be worthless if the government imposed the real costs of cleaning up rivers. The Labour government has argued that the cost would be £100bn. Campaigners such as Common Wealth and We Own It argue that the upfront cost will be matched by revenue-generating assets.
Dieter Helm, an Oxford University professor who has advised previous Labour and Conservative governments on energy and water policy, pointed out that Burnham took control of bus planning and pricing as mayor of Manchester but left the actual operation of routes to private companies running franchises. Burnham may find something similar attractive for water – it would represent less political effort, given that the government under Starmer is already working (slowly) on a new regulator. “The difference in the Manchester case is the state is trying to sort out what the state should do, and what the market should do,” Helm said. “If you want the state to control, then you don’t have to own anything to control them.” Helm instead favours a system of local regulators for each of England’s 10 river basin catchment areas.
The Thames Water Problem
Whatever “more public control” means, Burnham will still face an imminent question on the future of one company: Thames Water. Britain’s largest water company, serving 16 million customers in London and the Thames Valley, has been on the brink of collapse for several years. Thames has been left in limbo as everyone tries to work out who will try to fix it, and Starmer’s government tries to avoid placing it into a special administration regime (SAR), a form of temporary government control. Thames has been left in the effective control of its creditors, a group of hedge funds and asset managers seeking to make a return on the money they lent.
Thames has been in breach of its licence for two years. Experts believe the government is legally able to impose SAR at any point. Starmer’s government has not done so, apparently fearful of costs potentially in the tens of billions of pounds. However, a government source said officials also believe they might struggle to win necessary court backing for SAR on performance grounds, and its creditors have kept it afloat financially.
The political calculation might be different for Burnham. SAR might represent a decisive and popular move. Thames has argued SAR will cost millions of pounds and would delay its turnaround, but Helm said the government would recover that money in an eventual sale, and that SAR is needed to make it clear that investors in failing companies will lose their money. However, the decisions for Burnham would not end there: while SAR essentially represents temporary government control, the administrator’s duties are first to preserve water supplies, and then to recover as much money as possible for creditors and shareholders. Administrators would be forced to consider any bids, including from the creditors and the Hong Kong investor CK Infrastructure. Nevertheless, Burnham’s team is thought to be considering a public corporation modelled on Paris’s municipal water company. If there were rival bids the government may have to compete on price to nationalise – a bill that could run to more than £4bn, if previous withdrawn bids are any guide. If the government tries to override the creditors’ demands through legislation options, say those involved in the process so far, they are likely to face a lawsuit – potentially under the Human Rights Act. Several of the creditors are large US hedge funds such as Elliott Management or Silver Point Capital, likely to take aggressive legal action if they feel their rights are not being upheld.
A Thames spokesperson said: “We continue to work with all parties to reach an agreement that supports Thames Water’s long-term financial stability and ensures the uninterrupted delivery of our biggest infrastructure upgrade in 150 years while continuing to meet the needs of our 16 million customers.” A spokesperson for the group of Thames creditors said: “Nationalising Thames Water is not the right answer and will not fix the company’s complex problems.”
Tackling Energy Bills
For those in the energy industry, the plight of Thames has created a clear dividing line in the debate over public control: utilities that fail should expect to be renationalised, they argue, but those delivering on the government’s agenda should be left to invest. “A failed water monopoly is not the same as a major company bringing jobs and billions in investment to help meet climate goals,” said Tara Singh, the chief executive of RenewableUK, which represents green energy investors. “We would be very concerned if all utilities were treated with the same approach.”
Singh, a former No 10 adviser, sees a role for the state-owned GB Energy to take a greater stake in renewable energy projects, particularly to “derisk” pioneering technologies or community schemes. But the capital-intensive heavy lifting is best shouldered by private investors, she said. The government’s ambition to create a virtually zero carbon electricity grid by 2030 will require private investment of up to £40bn every year. The cost of rewiring the UK’s electricity grid in the 2030s alone needs £90bn.
The clarion call to renationalise energy companies has become a familiar echo in Labour policy. Almost 10 years ago, the party’s 2017 manifesto called for the creation of at least one publicly owned energy company in every region of the UK, with public control of the transmission and distribution grids. The policy failed to survive Jeremy Corbyn’s departure as leader in 2019. By the time energy prices had jumped and remained high in the aftermath of Russia’s 2022 full-scale invasion of Ukraine, the energy secretary, Ed Miliband, dismissed nationalisation as a route that “wouldn’t be a solution to the problem we face” because the party wanted “every penny to go to help cut people’s bills”.
Whoever owns the infrastructure, more money will be needed to provide the level of service expected by voters – not to mention meeting the UK’s ambitious net zero targets. Burnham’s promises of pushing bills down may be tricky to square with large investments. “The reason nobody wants to do anything about it is someone will have to pay,” Helm said. “You do really need a step change. These infrastructures really are the critical bits of the economy. To do this it’s going to cost.”
