The UK government has called for “radical options” to be considered rather than the “market-based solutions” for the future of Thames Water and business water more broadly, but exactly what that means could range from using existing powers to drafting emergency legislation.
According to a report by The Guardian, Prime Minister Andy Burnham has instructed policy officials to “rip up” existing plans for how to handle the stricken water company and consider all possible options for the immediate future of the water sector.
With potentially mere months or even weeks before Thames Water runs out of financial runway unless a rescue deal is approved, radical options are increasingly becoming the most likely outcome for Thames Water.
To understand how radical the proposals are, it is important to look at the two previous options, why neither was desirable, and what alternatives could be considered instead.
What Were The Existing Options For Thames Water?
The current problems surrounding Thames Water have existed for at least five years, with their financial issues and exceptionally poor reputation for causing sewage leaks creating an existential crisis for the biggest purely private water company in the UK and possibly the world.
One of the complications is that any significant intervention would have reverberating ramifications for the rest of the water sector, and as a result, the policy for many years has been the pursuit of a “market-based solution”.
This was intended to be a sale, in whole or in part, of Thames Water to another company, but has ultimately led to the company being controlled by its lenders, the biggest group of which forms the London And Valley Water Consortium (L&VW).
Thames Water is running out of money, and whilst another rescue loan is being negotiated to extend their runway another few months, an impasse is quickly being reached, and action will need to be taken.
Up until mid-2026, this action took the form of two options:
London And Valley Water Rescue Deal
Without any other companies wanting to buy Thames Water and assume over £20bn in debt, the only deal left on the table is a £10bn recapitalisation plan by L&VW, which would involve writing off significant amounts of debt and adding extra capital to fund infrastructure upgrades.
There have been several problems with this deal as reported by the BBC in June 2026, but the biggest was that L&VW wanted leniency on fines and reduced performance standards.
This plan had been rejected multiple times despite several concessions, most recently the appointment of Lord John Hutton as its new chair, as reported by City AM.
Whilst it is possible the deal could be approved, it would require at least a month of consultation and negotiation time before and after, meaning that it is unlikely to be completed before Thames Water runs out of money.
Special Administration Regime
The other option was the Special Administration Regime, a unique status where a water company or other essential business is temporarily placed under public control in order to ensure that the taps still run and the toilets still flush.
It can only be put into effect by the Secretary of State for Defra (Department of Environment, Food and Rural Affairs) following an application to the High Court. Because of this, there is a significant bar that needs to be crossed before a special administration takes effect:
- A water company is no longer able to pay its debts or is very likely to become unable to pay its debts.
- A water company fails its statutory obligations or is likely to fail to do so.
- A water company requests to be placed into a special administration regime.
- It is in the public interest for a water company to be placed in a special administration regime.
The barrier to entry is somewhat high, to the point that a special administration has never been enacted for any water company since privatisation in 1989, and the first attempt to do so will almost certainly lead to a legal challenge unless a company is very clearly insolvent.
This could make it particularly costly to nationalise the water sector, though to what extent is still a matter of debate.
What Radical Options Are Available For British Water?
With the two main options for the government less than ideal, ministers and officials have been given permission to explore more radical options, even if they may include legal challenges or overt nationalisation of the kind actively avoided earlier in 2026.
A complete set of radical options is not currently available, but here are four of the most plausible outcomes.
Converting Fines To Equity
One potential option was to convert the over £100m in fines that the company owes into equity in Thames Water, and rather than fining the company, simply taking more and more of a share.
Whilst straightforward to execute and would provide a small degree of public control, £100m of a company with over £20bn worth of debt alone is a drop in the bucket, even on top of the “golden share” promised as part of the bailout deal.
Removing Thames’ License
A more straightforward route to special administration would be to remove Thames’ water company license, which would immediately put it in violation of its statutory obligations and would therefore force it into special administration.
This could potentially be challenged, but the unique failings of Thames Water mean that the government has a greater chance of succeeding and significantly limiting the amount of money that would be offered to current Thames creditors.
They would also have the benefit of the court of public opinion for standing up to private investors perceived as not having the country’s best interests at heart.
Call The Bluff Of Creditors In Courts
Similarly, Thames has already breached their statutory obligations and may already be insolvent, which means that whilst there would be a legal challenge to any special administration claim, there is no reasonable chance of succeeding.
Enact Emergency Legislation
One final option, seen most recently with British Steel, would be to enact emergency legislation in the public interest to take control of Thames Water. A similar approach was taken when nationalising aeronautics engineering company Rolls-Royce before its luxury car division was separated.
