MPs and mayors close to Andy Burnham have told the prime minister there is a "third way" to gain more control of failing water companies, as the row over whether to nationalise Thames Water continues.
Burnham is said to be concerned that nationalisation could increase government debt, according to Treasury projections. He has previously called for "public control" of water companies, which have pumped sewage into England's waterways while hiking bills and failing to invest in infrastructure.
Mutualised model
The new proposal, launched by Labour MP Helena Dollimore, would turn water companies into not-for-profit cooperatives run by local people. It is backed by Surfers Against Sewage, West Yorkshire mayor Tracy Brabin, South Yorkshire mayor Oliver Coppard, York and North Yorkshire mayor David Skaith, and Co-operative Party general secretary Joe Fortune.
Dollimore said Burnham should "end the era of extraction" in the water industry. Supporters argue the mutualised model removes the risk of adding debt to the government's balance sheet while allowing public control.
Thames Water could be first test
The model could first be applied to Thames Water, which is close to financial collapse and in talks with the government over a potential rescue deal for its creditors. That deal would let the company off fines and environmental obligations. If no agreement is reached, the company would be put under temporary government control through a special administration regime (SAR).
The report's recommendations put the rest of the sector "on notice", proposing tougher regulation including enhanced monitoring, tighter restrictions on executive pay, and a ban on dividends unless companies meet performance targets. Any company failing under these conditions would be forced into a SAR and then into a cooperative model.
Bail-in mechanism
MPs and mayors say Burnham should introduce a "bail-in" mechanism for SARs, similar to the one used by the Bank of England for failing banks, so that shareholders and creditors bear the cost of failure rather than taxpayers. Companies emerging from a SAR would be required to do so as not-for-profit cooperatives, rather than being sold to the highest bidder as is currently the case.
Oliver Coppard, the mayor of South Yorkshire, said: "Water is an essential utility that simply should not be farmed out to the private sector – that's a lesson we've learned the hard way. A cooperative model would put control back in the hands of people, help keep bills as low as possible, and allow us to finally intervene in the inexorable dumping of sewage in our rivers."
The prime minister is looking at options for bringing water under public control. Downing Street sources have said there is no prospect of immediate nationalisation of Thames Water, and its creditors have been preparing to take the government to court if the deal fails.
Tracy Brabin, the mayor of West Yorkshire, said: "The people of West Yorkshire have paid the price for Yorkshire Water's failings for far too long, with repeated pollution failings and hiking bills repeatedly during a cost of living crisis. Greater public control of water companies is the only way to protect our communities and environment for future generations."
Keeping debts off the balance sheet
According to the report's authors, the plan would mean water company debts do not end up on the government's balance sheet, and it would give customers more control over how the businesses are run.
Praful Nargund, director of the Good Growth Foundation, said: "Mutualisation offers a different route … It delivers the public control and long-term investment we need without handing taxpayers the bill for decades of failure."
Dollimore, the MP for Hastings and Rye, said: "Our failing water infrastructure is a huge problem that must be a top priority for our Labour government. From pollution to outages to flooding, the people we represent experience the impact every day of this failure while paying more for the privilege."
She added: "We have already taken important steps to ramp up regulation but we must now go further to protect this vital national infrastructure, while always being fiscally responsible."
