The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Emma Hardy)
I thank the hon. Member for Witney (Charlie Maynard) for inviting me to respond to his concerns about the future of Thames Water. I have listened with his interest to his comments, and I hope I will be able to add some facts to the debate. I also accept his sympathy and anger on behalf of his constituents. Indeed, they must feel very angry about the fact that water was left in such a state, and that the Environment Agency’s budget was cut by half by the coalition Government, who also introduced self-monitoring. The Environment Agency was unable to fulfil its duties during the time of the coalition Government, and the regulators did not put forward forceful accountability for the water companies. It was left to this Labour Government to clear up the mess left by the coalition Government and 14 years of the Conservatives. I am sure the hon. Gentleman shares my anger about that—I certainly felt angry about it when I came into government and saw the mess that we had been left to clear up.
Let me remind the hon. Gentleman exactly what we have done. We introduced the Water (Special Measures) Act 2025 within six weeks of entering government, to raise standards, enforce accountability, and make pollution cover-ups a criminal offence. We banned more than £4 million in bonuses, and unlocked money in private investment to rebuild vital infrastructure. Just last week we introduced automatic penalties. There is more I could mention, including 10,000 water inspections, which is many more than happened after the slash and burn of funding for the Environment Agency by the coalition Government. We have restored to the system the accountability that has been missing for so long.
Fleur Anderson (Putney) (Lab)
My constituents are cheering on the work that the Government have done by getting a grip of this situation after the Environment Agency was left to mark its own homework, and the self-monitoring and regulation framework failed. Will the Minister say more about the dedicated supervisory teams in the White Paper, which will be working to stop this happening again and ensure that Thames Water changes in future?
Emma Hardy
My hon. Friend is quite right to point out how self-monitoring, which was introduced by the coalition Government, was such an utter mistake that has done so much damage to the water industry. It is why we are in the current situation. The purpose of the supervisory regime is to be able to intervene earlier, and it works alongside the performance improvement regime so that we can hold companies to account. That is why we are abolishing Ofwat—
Emma Hardy
I have heard quite a lot from the hon. Gentleman, so I would be most grateful if he would not mind giving someone else a chance. We are looking at introducing the performance regime for the same reason, because we want to ensure that we can intervene early to stop the abject failure that we saw under the coalition Government.
Sean Woodcock (Banbury) (Lab)
Every week in my surgeries I hear about the consequences of Thames Water’s failures. An elderly widowed constituent was left without running water after it failed and botched the installation of a water meter, and she was forced to shell out hundreds of pounds on an emergency plumber to remedy the situation. Will the Minister confirm that she understands the anger of constituents like mine with regard to Thames Water and its continued failing? Will she confirm that she will keep all measures under review?
Emma Hardy
It is true that I feel angry on behalf of all our constituents who have been so badly let down by the system that we inherited, and that is exactly why we have taken the action that we have. There is, of course, lots more to do—nobody is saying there is not—but we have to acknowledge the dire straits and the mess that we inherited. We are going to bring forward a clean water Bill to deliver on our promise to clean up our rivers, lakes and seas, and not just for today but for generations to come. The reforms will create a single powerful water regulator to act, and we will ensure that it has teeth in the way that the current regulator does not.
Turning to some of the issues raised by the hon. Member for Witney about the consortiums proposal, regarding the recapitalisation proposal being negotiated between Thames Water, London & Valley Water Consortium—a group of Thames Water’s creditors—and Ofwat, I reiterate that this Government will always act in the national interest. Before I turn to the proposal itself, it is important to be clear about the respective roles and responsibilities of the parties involved, because there is so much misinformation and misunderstanding out there. I welcome the opportunity to at least introduce a few more facts into the argument about the proposals.
Ofwat, as the independent economic regulator, is responsible for assessing that proposal and deciding whether it meets the relevant regulatory and statutory requirements, including whether it is appropriate to take the proposal forward for consultation. However, section 2 of the Water Industry Act 1991 places a duty on both Ofwat and the Secretary of State to exercise their respective relevant functions in the manner best calculated to further or achieve certain objectives. This includes protecting customers, securing the proper delivery of water and sewerage services, ensuring that companies can finance those services and that statutory obligations are properly carried out.
Mike Martin
Does the Minister think that the Secretary of State exercised those duties well when, under the Blair Government, Macquarie was allowed to come into Thames Water and South East Water and asset strip those companies?
Emma Hardy
Quite clearly, some of the behaviour that we have seen in the past from water companies shows that the regulatory system did not work, and that is exactly why we are changing it. Of course, between Blair and the current Government there were 14 years of Tory Government and five years of coalition Government during which those Governments could have taken the actions that we are taking today.
On 16 June, the Secretary of State gave her preliminary views on the consortium’s proposal to Ofwat, with reference to section 2 duties of the Water Industry Act 1991. She was clear that she does not believe that the current proposal goes far enough to protect customers and the environment. She cited three particular concerns in line with her duties: unfair costs to customers, delays to infrastructure investment and delays to environmental improvements.
However, the decision on how to assess the proposal and whether to proceed with consultation ultimately rests with Ofwat as the independent regulator. It is therefore important that the Government respect those boundaries. While the Secretary of State may express views in accordance with her statutory duties, it would not be appropriate for the Government to direct Ofwat’s decision making, prejudge the outcome of its assessment or be seen to exert undue influence on an independent regulatory process.
We are working closely with Ofwat, which will engage with the consortium on any revised proposal. It is important to be clear that it is ultimately a matter for Ofwat to decide whether to consult on the consortium’s proposal. However, I reassure the House that while the company is stable, we stand ready for all eventualities and the Secretary of State takes her duties very seriously.
I will also use this debate as an opportunity to address some of the misconceptions that have developed about special administration. Too often, SAR is presented as a simple lever that the Government can pull whenever there are concerns about a water company’s performance, but that is simply not the case. The reality is that there is a high bar for the imposition of a special administration regime. A company can enter into a SAR only if it becomes insolvent, or if there has been such a serious breach of its principal statutory duties or an enforcement order that it is no longer appropriate for the company to retain its licence.
Where performance is concerned, any application for a special administration regime would have to be supported by a robust and compelling body of evidence and would ultimately need to satisfy the courts. Bringing a case forward without sufficient evidence would not only risk the failure of that case, but waste a huge amount of taxpayers’ money. For any case brought forward, the Government and Ofwat would need to be convinced that there was a robust and compelling body of evidence. That is quite different from what is presented out there too often—that this is just a button the Government can press at will.
Calum Miller
I am glad the Minister has moved on to the substance of DEFRA’s case. Will she clarify for my residents whether she considers a company that is spending 33% of the income it gets from customers on servicing its debt and paying a 10% premium on that debt is actually viable as a company? Will she set out for the House what she considers to be the measure of insolvency for a privately held monopoly?
Emma Hardy
As I have just said, on the issue of performance, cases have to be brought forward to court, and the court must be convinced that the company is not performing—I will move on to insolvency.
This issue is why regulators start by using the full range of supervisory and enforcement powers available to them where appropriate. Companies must be held to account, put forward credible plans to improve and deliver for customers on the environment. Indeed, that is one of the reasons why we are introducing a new performance improvement regime through the clean water Bill.
The performance improvement regime will help to prevent poorly performing companies from falling into a cycle of decline, allowing regulators to step in before a company approaches the point of failure. It will strengthen accountability, support improvements in performance and provide a clearer pathway for intervention long before special administration may be required.
Let me address another misconception about special administration. Some suggest that placing a company into special administration would simply allow the Government to take over and run the company directly. That is not how the regime works. A special administrator is appointed by a court and has specific legal duties and objectives. It must manage the company’s affairs, businesses and property for the statutory purposes set out in the Water Industry Act.
The special administrator’s primary responsibility is to ensure the continued delivery of essential water and waste water services while securing a long-term solution for the business. Depending on the circumstances, that could mean rescuing the company, such as through a restructuring, or transferring it as a going concern to new owners. That is why the special administration regime exists to protect customers and maintain vital public services while providing a framework for recovery or transfer. Customers continue to receive their services throughout the process, and the special administrator operates under the supervision of the court and within a clear legal framework.
I know the hon. Member for Witney is particularly concerned about whether the consortium meets the criteria of acting as the ultimate controller of Thames Water. Let me use this opportunity to address his concerns. The classification of ultimate controller is a matter for Ofwat, as the independent economic regulator, by reference to the terms of the company’s licence. Ofwat has given a detailed explanation of why it does not consider the creditors to be the ultimate controllers of the company in its letter to the Chair of the Business and Trade Committee, my right hon. Friend the Member for Birmingham Hodge Hill and Solihull North (Liam Byrne), dated 8 September 2025.
Ofwat has stated that one of the reasons why it does not believe creditors are in a position to materially influence the company’s policies or affairs is that it does not have the right to appoint directors to the board, and it does not hold any governance or veto rights over the Thames Water business plan or other strategic decisions that the company’s board is making. I am reassured that it has reviewed the matter and that the ultimate controller of the company has not changed—
Emma Hardy
This is the thing with the hon. Gentleman: he makes many assertions in this House when he stands up to comment, but then he refuses to allow me to address and answer them. I am still answering his point about the ultimate controller. If he wants to ask me a question, he should have the decency and respect to listen to the answer.
I am also reassured that Ofwat will continue to keep the position of Thames Water’s ultimate controllers under review, and that it has made clear to the company its expectation that the company will continue to monitor whether there is, or may be, a change to the ultimate controller position.
I hope that what I have said has introduced a few facts to what can otherwise be quite an inflamed conversation. This Government are serious about tackling water company failure, acting on behalf of customers and protecting the environment. We have demonstrated this with the action we took on our very first day in office, and the action we have taken every day since. I am always happy to discuss issues related to special administration. I have held a private briefing with the hon. Member for Witney before. I would do so again, but what I do not like is when things are presented to the House in a way that is—I am not allowed to say dishonest, so how can I put this?—incorrect. This Government will always act in the national interest, and while the company is stable, we stand ready for all eventualities, including being ready to apply for a special administration regime if necessary.
Question put and agreed to.