22 Sep 2025
The government has tied itself in knots over the cost of nationalising water. On the 16th September 2025 they released a statement that sees them doubling down on their dodgy £100 billion figure. There have been some twists and turns along the way, and the government’s logic has not always held up.
In February 2018 the Social Market Foundation (SMF) released a report which put the cost of nationalising the water industry at £90 billion. The report was funded by Anglian Water, Severn Trent, South West Water and United Utilities.
In April 2019 Prof. Dieter Helm, an Oxford University economist specialising in utilities, said the SMF report had “virtually no intellectual substance and the [£90bn] figure was wrong.” Moody’s, the credit ratings agency, valued the water companies at £14.5 billion at this point.
In July 2024 Lord Sikka, a Professor of Accounting, asked Baroness Hayman, Environment Under-Secretary, for the details of the calculation used by her department. She later replied the cost was “calculated in a report published by the Social Market Foundation” – the very same discredited report funded by the private water companies.
Both the SMF report and the DEFRA calculations rely on Regulatory Capital Value (RCV). This calculation takes the value of the water industry at the time of privatisation in 1989, adds on the value of investment over 35 years, then adds on inflation. RCV enables greater payouts to shareholders and – in the words of Ewan McGaughey, Professor of Law at Kings College London – it is ‘cynically calculated to scare gullible governments off public ownership’.
The value of an asset is always determined by what the market is willing to pay for it – surely that’s economics 101.
Thames Water is a case in point of RCV’s complete detachment from financial reality. Under the RCV calculation, Thames Water is valued at £21 billion. So why have the owners failed to flog it to KKR for the knockdown price of £4 billion?
It feels as though the government is deliberately missing the point, to justify the ongoing rip off of households instead of standing up for the public interest.
This latest explanation from DEFRA fails to acknowledge that one third of our water bills leak out directly to pay for debt and dividends, and that over the next five years households will pay out £22 billion to shareholders and banks.
It ignores the powers and levers held by the government. Parliament can decide on appropriate compensation for nationalisation, weighing up public interest versus shareholder interest. And the government itself creates the regulatory framework for water which decides its market value. If it gets super tough on sewage and bills, the value of these water companies will plummet.
There is no mention of the fact that when you buy a profitable asset, you – we, the British public – also get a profitable asset. Nor of the fact that our English water companies are almost entirely foreign owned so the government is not defending us but shareholders abroad.
DEFRA totally sidesteps the very live issue of Thames Water and what should happen when these natural monopolies load up debt at the expense of households. The government could take Thames Water into public ownership tomorrow, slash the debt by half, refinance it more cheaply, invest in stopping sewage, reduce bills, defend the public interest and give households and environmental groups a role on the board.
But most importantly, Greenwich University research shows that even if shareholders did receive £90 billion in compensation, this would still be a good deal for the public purse, enabling savings of £3 billion a year.
If the government wants to win back trust it must prove it is acting in the public interest. Come clean on the true cost of public ownership and show that they are willing to protect us from the greed of the polluting profiteers.
Article first published in Left Foot Forward
