Andy Burnham, the prime minister, is reportedly considering a radical overhaul of the UK's insolvency laws to make it easier to drag utilities like Thames Water into public ownership. Because who needs stable legal frameworks when you have a 10-year plan and a promise to 'radically reshape' the water industry?
Sources briefed on Burnham's thinking say he's eyeing changes to the special administration regime (SAR) as a potential route to force companies like Thames Water into insolvency and then take control. This could be the first step toward his promised decade-long project to bring utilities under public control. But creditors, including US hedge funds, are already sharpening their legal knives, vowing to fight any change that threatens their investments.
One insider put it bluntly: 'Andy is completely committed to putting utilities such as energy and water companies into public control, and is looking at every option for how to achieve that. The special administration regime is one potential roadblock and his team is examining how they might have to change it to deliver on their promises.'
A government source added the obligatory spin: 'Our water industry has not been working for people for far too long. That's why this government is looking at how we can give the public more control and help keep bills as low as possible.'
Burnham's ambitious plan was already flagged in his first speech as PM, where he promised to 'build a new economy where we put life's essentials back under stronger public control to make them affordable to you again.' In June, he told the Guardian he favored public ownership for Thames Water, which is drowning in £20bn of debt. Emma Reynolds, the former environment secretary, had earlier opposed a £10bn bailout by existing creditors, calling it poor value for money.
It was expected Burnham would give a big speech on the water industry early in his tenure, but Downing Street officials briefed him on just how expensive and legally fraught the whole enterprise could be. On Tuesday, ministers denied reports that he'd shelved plans to take Thames into administration, but admitted they were taking their sweet time to explore every option - including legislative changes.
Matthew Pennycook, the housing minister, said, 'We are taking no options off the table when it comes to Thames Water… The water industry has been failing people for too long. We've seen rising bills while the number of serious pollution incidents are off the scale. We've got to do more.'
Officials have identified two major flaws with the current SAR. First, companies can only be taken into administration if they're insolvent or failing to provide basic services - and Thames, thanks to continued creditor support, is neither. Second, once in administration, the administrator's duty is to maximize returns to creditors, which would make public ownership expensive.
To get around this, Labour backbenchers, including former environment committee members Helena Dollimore and Andrew Pakes, along with the Good Growth Foundation thinktank, have proposed amending the upcoming water bill. Their plan includes new triggers for special administration, such as lower financial thresholds and environmental metrics, plus a 'bail in' mechanism similar to what banks faced post-2008. This would force shareholders and creditors to eat losses first, protect taxpayers, and let regulators - not courts - run the process, for speed.
Praful Nargund, director of the Good Growth Foundation, said: 'By putting emergency legislation in place now we can avoid litigation and ensure the special administration regime protects taxpayers, employees and customers from paying the price for shareholder failure.' Pakes echoed that, saying the challenge is stopping Thames from driving up costs through legal challenges and ensuring costs are fairly represented.
But creditors are not amused. A source close to them warned: 'Rejecting a fully funded £10bn turnaround plan and using legislation to force Thames Water into special administration and a new unfinanceable ownership model would be unprecedented and have an extremely negative read across to other struggling water companies. It will only result in litigation and the transfer of huge costs and risk to customers and taxpayers, while irretrievably damaging investor confidence in UK-regulated sectors.'
So, in summary: the government wants to take control of utilities, creditors want to keep their money, and lawyers are gearing up for what promises to be a blockbuster legal showdown. What could possibly go wrong?