Burnham government weighs mixed-ownership model for England's water industry

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LONDON — Private investors could continue to hold a long-term stake in England’s water industry under plans to overhaul the sector being weighed up by Andy Burnham’s new government.

The puzzle spotlights one of the main challenges facing Burnham’s 38-day-old administration — how to reconcile his bold rhetoric with the economic and legal realities of being in power.

Officials are considering a “multi-stakeholder” model that would mean the water industry was owned and monitored in different ways simultaneously — for example, by private investors, their own workers or customers, and elements of national government or local leadership, three people with knowledge of the thinking said. All were granted anonymity to discuss internal conversations.

The system, nicknamed a “pie chart” by a fourth person with knowledge of the thinking, would, in theory, allow a cheaper and more gradual transition away from the fully privatized system that has existed in England since 1989. However, it would also disappoint some campaigners to Burnham’s left, including some trade unions, who want a strong focus on public ownership.

One of the three people cited above, a government official, said: “It is definitely one of the proposals that exists, and it would be a way of moving from the current situation to one where there is greater public control. But it is only one of various things, and there isn’t a favored option at the moment on the wider water sector.” This person added that it is still possible that the government could choose a model without private shareholders.

Another of the three people said: “There are lots of gradations in the middle between fully privatized and fully nationalized. The question is whether it leads the sector to better outcomes.”

‘Strung out for months’

England’s nine water and sewerage companies oversee aging pipework that often leaks, resulting in sewage being discharged into public waterways during heavy rain, prompting public outcry. This year’s drought has triggered repeated instances of thousands of users losing access to tap water , sometimes for days.

Burnham has promised an “end to neoliberalism” and said that in the water industry “the shareholders never lose, the public never win.” But he has also long made clear that he would not fully nationalize the industry, which the government previously estimated would cost £100 billion for England and Wales. Instead, the prime minister vows “greater public control.”

So far he has confirmed little about what this will look like in practice. The Department for Environment, Food and Rural Affairs has been examining the issue over the summer and invited pro-Labour think tanks and campaign groups to discuss the policy, but is still keeping several options on the table and is not expected to make a recommendation imminently.

A second government official predicted the water question “could probably be strung out for another six months” — and noted that with limited funds available to the Treasury, separate decisions about whether the state should intervene in other industries, some of them unexpected, could provide a more urgent “’oh shit’ moment.”

Government officials have looked at reforms to the bus network in Manchester, where a public body regulates the network but issues contracts to private operators. They have also looked to Paris, which put the French capital’s water services under control of a municipally owned company in 2010. Another strand of thinking concerns “mutualization, ” in which ownership of a firm is held by employees or customers but is not on the government’s balance sheet.

However, opinions on how to reform the sector differ between Labour-friendly groups. The campaign groups Compass and Mainstream have called for “public ownership” of water and will press a motion on the issue at September’s Labour conference, while the Good Growth Foundation think tank has called for a plan to convert water firms into not-for-profit co-operatives. This would involve lowering the legal bar to placing firms in special administration, and a “voluntary share exchange scheme” in which private shareholders’ stake in firms would reduce gradually, transferring to a mutualized firm.

Water firms argue that the billions of pounds needed to upgrade infrastructure are best raised through private capital, and that the costs would otherwise fall more heavily on billpayers or taxpayers. | Dan Kitwood/Getty Images

There are further layers of complexity within all these options, such as whether a single group would have full ownership, a majority share, or a “golden share” allowing it a veto on key decisions. Then there is the related question of how services would be monitored; a government-commissioned review last year suggested this could be done via “regional system planners” where local councils and mayoral bodies are represented.

A third government official said: “There seems to be an increasing understanding of why the last administration [run by Labour Prime Minister Keir Starmer] got to where they were and some of the hurdles and costs involved.”

One person who speaks regularly to the government said: “They’re still keeping a lot of different models in contention, basically, and have lots of different people trying to influence them.”

Another person who speaks regularly to the government said: “There is a bit of a vacuum of a clear strategy on this.” An industry figure agreed, adding: “There’s a realization that you can’t do it all at once or quickly … They are trying to find different models but in all honesty it’s really unclear what they want the end result to do.”

A Defra spokesperson said: “After years of failure, we have already taken swift action to hold water companies to account and deliver for the public. We are ending the era of water company self-monitoring, banned unfair water boss bonuses, introducing new MOT-style checks on company assets and bringing in ‘no notice’ inspections.”

“We know we need to go further. That’s why we will be legislating to fundamentally reform the water sector so that it works for the public; keeps bills as low as they can be, and delivers higher standards, better performance and help clean up our rivers, lakes and seas for good.”

Or maybe just split Thames Water in two

Water firms argue that the billions of pounds needed to upgrade infrastructure are best raised through private capital, and that the costs would otherwise fall more heavily on billpayers or taxpayers. Industry figures also argue that mutualization would still need significant up-front capital to buy out existing shareholders.

A spokesperson for industry body Water UK declined to comment.

The questions about the future of the industry are wider than conversations about Thames Water, whose net debt swelled to £18.5 billion in March and which has been singled out for criticism by Burnham. Government officials are still wrangling over whether the firm will be placed into special administration.

Officials have examined the idea of splitting Thames Water into two entities, one for the city and another for the surrounding countryside, two people with knowledge of the planning said. They both stressed it was merely one idea under consideration.

Burnham’s government is also still planning to bring forward other reforms over the next year via a “clean water bill” that was promised under Starmer, while the new prime minister has promised to unveil a “10-year plan” for the future of Britain later in 2026.