Uncertainty has been a relatively constant fixture of Britain’s water companies, with the implications for the price of water for businesses remaining unclear until the fate of several of the biggest companies has been sealed.
It has reached the point that the Good Law Project has requested clarity on why action has not been taken, especially since the likelihood of a deal being reached between the creditors of the London & Thames Valley Water group and Ofwat becomes more remote by the day.
This unlikelihood has been compounded by a report by The Guardian that the UK government is considering changing the law surrounding special administration and insolvency in order to remove expensive and time-consuming legal challenges.
Why is this necessary? Why have failing water companies not been nationalised yet despite that being a stated intention? And what does this all mean for businesses and domestic customers?
Why Has Thames Water Not Been Nationalised Yet?
According to a more recent report by the Guardian, Environment Secretary Angela Eagle has reiterated that water industry reform is her top priority, but it has been complicated by the nature of the law surrounding special administration.
Most recently modified by a set of regulations in 2024, special administration is a process where essential industries which need to keep functioning are temporarily put under government ownership and managed by a chosen special administrator.
This can only take place under one of four conditions:
- The water company is insolvent, defined under the Insolvency Act 1986 as being unable to or likely to be unable to pay off debts when they become due.
- The water company has already failed or is extremely likely to fail to meet its statutory obligations.
- The water company has requested to be placed in special administration, usually because they know internally that one of the first two conditions is true.
- It is in the public interest to place the water company in special administration.
The typical goal of an SAR is to keep the company going, restructure debts and get it ready to be sold off again, making it different from nationalisation, even if the two concepts are conflated.
The problem, according to Ms Eagle, is that whilst the latter three could very easily be argued, Thames Water is technically not insolvent yet as negotiations are technically still in place between Thames, L&VW and Ofwat for another emergency loan.
This could, the environment secretary claims, open up the government to legal challenges, although this and the assertion that Thames Water is meeting its basic statutory requirements have both been disputed.
The result is yet another impasse and further uncertainty for business customers who need to know how best to manage their accounts and improve their water security.
What Will Happen Next To Britain’s Private Water Businesses?
The biggest question is what comes next for Thames Water, as this has major implications even outside of the 16m people and thousands of businesses who are directly served by the water company.
Exactly what will come next is unclear, as the Prime Minister’s ten-year renationalisation plan runs counter to the long-stated government position that they want a “market-led” solution to what has been characterised as a market-led problem.
Whilst other options have been considered, there are four main ways this situation can go.
A Deal/Rescue Plan/Emergency Loan Is Agreed To
Depending on which report you believe, Thames have up to three months (according to the Guardian’s reporting) and as little as a month (according to The Financial Times) to agree to a deal.
The problem is that only one is being seriously considered, a controversial rescue plan with several British and American investment firms under the banner of London & Valley Capital.
Whilst they have agreed to invest a total of £10m (including loans and haircuts on existing debt), the caveats they have requested include a pause on fines and lower standards for water quality, both terms Ofwat and previous environment secretary Emma Reynolds refused to accept.
Whilst a deal is theoretically possible within three months, including a statutory consultation period, it is all but impossible by the start of autumn to complete without additional funds.
There is another £2bn loan that could be sanctioned by the courts, but this process also takes several weeks and requires reassurances from Ofwat that the plan will be put to public consultation or that they will engage with the plan.
Thames Runs Out Of Money
If Thames Water is unable to pay its debts, obligations and/or liabilities, this will automatically force it into administration, which for a utilities company means that the special administration regime will come into effect.
For the government, this is a win-win situation; a legal challenge is unlikely to be successful as the government did not force the company’s hand, whilst it allows for a much-needed restructure and either nationalisation or selling it back to the private sector at practically no cost.
The Government Forces Special Administration
Alternatively, the government could opt to apply to the High Court to request a special administration of Thames Water, but this could lead to a legal challenge and potentially major implications for the rest of the water sector.
Several reports have claimed that the risk of legal challenge is the reason why special administration has not been invoked already.
The Government Passes Legislation To Nationalise Thames Water
One option, which Devi Sridhar noted in The Guardian, was taken in Scotland, is to pass legislation similar to that used to nationalise British Steel to bring Thames Water into public ownership.
The danger is that it could be expensive and would likely require the entire sector to be nationalised at once.
