A radical overhaul of England’s water industry that would transfer ownership from shareholders to customers is being considered by Andy Burnham as he prepares for an early showdown over the future of Thames Water.
The proposal offers a potential route to public control without the cost of a taxpayer-funded nationalisation programme.
It has been developed by the Good Growth Foundation (GGF) – a progressive think-tank focused on economic growth and reform – alongside Labour and Co-operative MP Helena Dollimore.
It comes as he weighs up whether to place Thames Water into a Special Administration Regime (SAR), a process that would allow Britain’s largest water company to continue operating under government supervision while its long-term future is decided.
Sources familiar with the discussions say Burnham is considering mutualisation as a way to bring the water industry under greater public control without the potentially high taxpayer cost of full nationalisation. If the proposal was applied to Thames Water, it could provide a blueprint for the wider sector, with other companies able to voluntarily transition to customer-owned co-operatives through a share exchange model.
The GGF argues the current debate presents a false choice between leaving water companies in private hands and buying them back into state ownership. Its report, A Watertight Solution for Public Control, proposes instead that water companies should ultimately be owned by their customers through not-for-profit cooperative structures.
Under the plans, the threshold for triggering SAR would be lowered, making it easier for ministers and regulators to intervene in failing companies. A new “bail-in” mechanism, modelled on powers used in the banking sector after the 2008 financial crisis, would require shareholders and creditors to absorb losses before taxpayers are asked to contribute public money.
Companies emerging from a reformed SAR process would be required to become not-for-profit, customer-owned cooperatives rather than returning to shareholder ownership.
The GGF also proposes tougher rules for the rest of the sector. Water companies would face closer monitoring, limits on executive pay and a ban on dividends unless they meet strict financial, environmental and customer service targets. The proposal would extend dividend restrictions already recommended for companies in financial difficulty across the entire industry.
Companies could choose to mutualise voluntarily, selling at a fair price and transferring ownership to customers through a share exchange scheme, with support from the National Wealth Fund available to help the transition. Those that fail to meet the new standards would face a lower threshold for being placed into SAR.
The think-tank proposes that the changes would be delivered through primary legislation.
The proposal comes as polling commissioned by the GGF suggests voters support greater public control of water but are wary of the cost. Just 8 per cent of adults in England say water companies should remain owned by private shareholders, while 59 per cent oppose a costly taxpayer-funded buyout. Only one in five respondents said public ownership would be worthwhile regardless of the cost.
One Labour-to-Reform switcher in the GGF focus groups summarised the dilemma: “Privatisation was a massive mistake, but nationalisation costs too much.”
Supporters of the model argue that customer ownership offers a way through that impasse, delivering public control while ensuring that investors, rather than taxpayers, bear the costs of failure.
The proposals are backed by Tracy Brabin, Mayor of West Yorkshire, Oliver Coppard, Mayor of South Yorkshire, and Joe Fortune, General Secretary of the Co-operative Party, of which Burnham is also a member.
Fortune said water had been “accountable only to shareholders” for too long, with communities paying the price for companies’ failures.
Praful Nargund, director of the GGF, said the current water model had become a case study in “extraction” taking precedence over the public interest, with pollution, rising bills and executive pay fuelling public anger. He argued that mutualisation offered a way to deliver public control without forcing taxpayers to fund a large-scale bailout.
Dollimore said failing water infrastructure must be a priority for the next government, with communities facing the consequences of pollution, cuts in supply and flooding. She said regulation had already been strengthened but that further action was needed, adding that the GGF’s proposals should be “seriously considered”.
Burnham pledged to take greater “public control” of the nation’s utilities with the “courage to fix the big things that politics has neglected” in his first set-piece speech as Labour leader on Friday.
The decision over Thames Water could become one of the first major tests of that pledge. The company has warned it will run out of cash by the end of the year unless a deal is reached with its creditors.
However, the creditors’ plan to take over Thames Water was cast into doubt in a row last month when Environment Secretary Emma Reynolds, who is expected to lose her job under Burnham, said it could end up with “unfair” costs being heaped onto customers.
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