Professor Len Shackleton is Editorial and Research Fellow at the Institute of Economic Affairs and Professor of Economics at the University of Buckingham.
Nigel Farage has announced that “a Reform UK government would give serious consideration to taking a 50 per cent stake in South West Water”, which he denounced as a “fat-cat private monopoly”. This followed a trip to Plymouth, where he heard about an incident of drinking water contamination. Farage’s statement, however, is carefully worded; it only commits to unverifiable “consideration”.
Andy Burnham has also leaned into popular discontent with water companies. When campaigning for the Labour leadership in June, he called for Thames Water to be nationalised as a first step to taking “the essentials of life” back into public ownership.
However, by September our new Prime Minister had changed his position, acknowledging that privatisation of England’s water companies would be “very difficult to reverse”.
It would also be very costly. Estimates vary, of course: a Defra estimate last year (commissioned by Thames Water’s creditors) suggested it would cost about £100 billion. Some put it lower – the OBR calculated that bringing the companies onto the public balance sheet would add about £78 billion to net liabilities – though Frontier Economics thinks it might be £144 billion by 2030.
The process would probably take years, with water companies arguing the toss over proposed compensation and legislation taking an age to go through Parliament. This would slow down action to deal with the problems the industry undoubtedly faces.
But the costs of changing ownership would only be the first call on the taxpayer. A renationalised industry would have to take on the cost of the investment needed over coming decades. The National Audit Office reckons that it would cost something of the order of £290 billion over a 25-year period to ensure long-term resilience. Under the current arrangements, private water companies are required to spend £105 billion on capital investment in the period 2025 to 2030 alone.
Given the precarious fiscal position, any government is going to be wary of the cost of full-scale nationalisation. Of course, some, such as the Common Wealth think tank, call for public ownership without compensation, but the knock-on consequences of expropriation of private property on such a scale must give any serious politician the heebie-jeebies.
It’s only too easy to point to the failings of some water companies, Thames Water being the most obvious example. The public would cite its failings in sewage disposal – in May 2025 it was fined £104.5 million for wastewater runout into rivers and the sea – and the continuing high level of leakages. The other aspect is its perilous financial situation, where far too much debt has been run up, raising interest payments to a level that has made it difficult to maintain the system and meet the company’s commitments to the regulator, while arguably excessive dividends were paid out. Shareholders have withdrawn support and creditors are proposing the restructuring of ownership and recapitalisation of the company, but the Government has not so far endorsed their proposal.
Looking at the bigger picture, though, the water industry in England (Wales, Scotland and Northern Ireland have different set-ups) has a better story to tell than the long-running Thames saga suggests. The privatised water industry’s record has not been as bad as people claim. It has funded a major programme of investment which would probably not have happened in the public sector. Drinking water quality (which consistently failed to reach EU standards prior to privatisation) has clearly improved, as have sewage systems and the quality of beaches, notwithstanding the continuing problems with overspills. Twenty-five years after privatisation, the National Audit Office concluded that most measures of water-service quality had improved markedly. Moreover, international comparisons suggest that state control of water does not produce significantly better results. Germany’s rivers are more polluted than ours, while water costs more to the consumer in several European countries, notably Denmark (more than three times the cost in England), the Netherlands, Belgium, France and Sweden.
The water industry is not the neoliberal free-for-all that Burnham claimed during his leadership campaign and that Farage’s recent rhetoric seems to endorse. It is, in reality, a heavily regulated industry. Currently there are three regulators with some overlapping responsibilities. These are Ofwat, the Environment Agency and the Drinking Water Inspectorate. Ofwat sets the limits on what water companies can charge over a five-year period, approves investment plans and costs, and aims to assure financial probity. It can and does fine companies which breach their obligations. The Environment Agency is responsible for rivers, sewage discharges, water abstraction, flood risk and so forth. The Drinking Water Inspectorate checks that tap water meets health and quality standards and investigates contamination incidents, such as the one in Brixham, which roused Nigel Farage’s ire.
Nobody can claim regulation has been an unqualified success. The Starmer administration decided that the three bodies should be merged into a “super regulator”, though no legislation has yet been introduced.
The industry’s performance, though perhaps not as bad as it is often portrayed, is not yet good enough – and it must be improved. Progress is an uphill struggle. In the last decade the population has grown by 5 million, and all these extra people wash, shower and go to the toilet. As incomes have grown, more houses have multiple bathrooms. This summer’s prolonged period of drought brought home the possible impact of climate change, and may indicate the need for more reservoirs and some form of water grid. We need improvements to our ancient sewer systems and new means of coping with storm run-offs, the numbers of which have increased with developments on flood plains and the paving over and astroturfing of gardens to accommodate cars and those wh. And the advent of data centres is creating substantial new demands for water.
To fund necessary improvements, we need to be able to access continuing flows of investment from the private sector, for it is optimistic to assume that the government will ever be willing to increase taxes or borrowing on the scale required. That is the main reason water was privatised in the first place: long-term investment was always easy to postpone when cuts in spending were needed. We have already seen that for the current Government social security trumps defence. New sewers will be even further behind in the pecking order.
To facilitate higher levels of investment, prices to the consumer will have to rise – to allow eventual returns to investors. A legitimate criticism of Ofwat is that it has prioritised keeping prices down – a short-term gain to the consumer which has held investment back and is thus in part responsible for the environmental problems that people deplore.
If government wants to improve matters directly, at zero cost to the water consumer or taxpayer, it could start by relaxing planning controls and reducing delays which hamper all major infrastructure projects in this country. The Havant Thicket Reservoir, which will be the first new reservoir in more than 30 years, was first conceived and land purchased in the 1960s: there were consultations in 2008 and planning submissions were produced in 2020. Construction began in 2024, and completion is expected in 2031. The Thames Tideway Tunnel, which prevents overflows from 30 points on the Thames, was first conceived in the 1990s and endorsed by the Government in 2007. It was completed last year and is already functioning but won’t be officially signed off until 2028.
The water industry needs to change and improve. But populist calls for nationalisation – backed up on social media with hysterical calls to jail directors and confiscate their houses – are less than helpful. They will lead to expectations which cannot be met and still further damage the credibility of our political class.
Increasing demands from what has been a rapidly growing population (noted by the author) is too often overlooked. The recent drought orders in Somerset and Sussex were partly blamed on climate change but it is worth noting that over the last 12 months the UK has had 98% of average rainfall (Environmental Agency figures), the SW region more than average, the SE about 93% of average. To my mind this throws the spotlight back on demand and the need for more investment on the supply side.
Thames Water was "MacQuarried out" (their usual mix of debt taken on at exorbitant rates to pay dividends to fist round of shareholders) instead of tackling the replacement of Victorian/Edwardian mains that privatisation was supposedly going to fund. The pension funds conned into investing have already written off their shareholdings. The vulture funds who bought the debt cheap have already received more than a fair return. It should be bought down, bought by the British National Bank for £1 and then broken up... part to the GLA rest to a relaunched Thames Conservancy.