Future of Thames Water

Calum Miller Excerpts

Tuesday 14th July 2026 Commons Chamber

[Charlie Maynard]

My apologies, Madam Deputy Speaker.

I am grateful to the former Secretary of State for setting out in a letter to the Environment, Food and Rural Affairs Committee in June last year that

“we expect that any Government funding required during a SAR would be recouped after the conclusion of the administration”.

The current Secretary of State set out the same point in a parliamentary debate on 16 June. It is also worth noting that the Tories—there are not any in the Chamber—continue to refuse to acknowledge this, and that Teneo, Thames Water’s own expert adviser, stated the same in its report to the High Court in December 2024.

[Calum Miller (Bicester and Woodstock) (LD)]

My hon. Friend is making a powerful argument. Does he agree that the Government’s reluctance to take a company that is clearly now technically insolvent into a SAR is loading costs on to consumers who use other water companies, by creating a moral hazard that means that companies are incentivised to take on ever more debt, with the debt providers being protected by the Government? Instead, the Government should allow companies to fail, if they are going to fail, and to be taken into a SAR, so that there can be investment in the infrastructure that my hon. Friends referred to.

[Charlie Maynard]

I agree 100%, and that is what is so depressing; by continuing to demonstrate that the regulators have no teeth, we create a bigger and bigger problem for ourselves.

The alternative to a SAR—a deal with the creditors, which, extraordinarily, seems to be the Government’s preferred option at this point—should not be countenanced. Giving these businesses, now operating as London & Valley Water consortium, yet more control of the company at ludicrously high interest rates would allow this downward spiral to continue. The Government must and can change course by using their power to ask for a SAR under existing legislation.

There is now the opportunity for Thames Water to exit special administration as a mutual, owned and run in the interests of its customers, and to break the cycle of financial mismanagement and egregious environmental failings once and for all. Legislation sets out that a water company insolvency SAR can conclude in two ways: rescue, whereby the company is restructured, debts are written down or converted, and the existing legal entity continues in a modified form; or transfer, whereby the regulated undertaking is sold or transferred to a new owner. That does not require a competitive auction, as the legislation provides for a transfer approved by the Secretary of State and Ofwat.Nothing in the legislation states that either route requires a competitive sale, as the overriding objective in a SAR is continuity of public service, not maximising creditor returns.

The Government could therefore set out at the point of SAR entry, or shortly after, that a mutual is the preferred exit route for Thames, and make that clear in the special administrator’s mandate. Work would need to be done in parallel with the SAR process to incorporate and put in place the governance framework for a new mutual, as well as more broadly updating water regulations to take into account the Cunliffe report’s recommendations. Ofwat could then work towards a licence transfer to the mutual, rather than running a market sale.

In conclusion, I have some questions for the Minister. If she is unable to answer them now, I would appreciate an answer in writing if possible. Have the Government sought legal advice on the SAR process from a specialist law firm? I appreciate that FTI Consulting has been instructed for many months, but that is not a substitute for legal advice. A proper, specialist understanding of the SAR as a legal process, and of the litigation risk—perceived or actual—of applying for a SAR, is critical.

Will the Government commit to publishing a SAR assessment policy, and does the Minister agree that the creditors consortium has material influence over Thames Water, and therefore meets the ultimate controller test? Will the Minister act with Ofwat to enforce the appropriate penalties on Thames Water for having undergone that change without having given notice, and will she provide an update on the negotiations between Ofwat and Thames Water? Will the Minister now take the London & Valley Water deal off the table, and work with the Secretary of State to apply to the court for Thames Water to be put into special administration? Finally, in response to a question about whether she would consider the Liberal Democrat call for water companies to be mutually owned public benefit companies, the Minister said:

“I would be happy to see more mutual ownership of water companies, but the question is how we get there.”——[Official Report, 16 June 2026; Vol. 787, c. 728.]

Given that, will she confirm her Department’s position on mutual ownership models for water companies? What are the Department’s plans for exploring how we get there?

--- Later in debate ---

[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—