It is still a bit of a mystery to most of us – and possibly to the candidate himself – what Andy Burnham actually believes in. Still, amid all the waffle, one point has come through with complete clarity. He thinks utilities such as railways and water should be under public control. When asked about this earlier this month, he said: ‘Public ownership is absolutely an option. I would say for Thames Water, that is what should be done.’
That is all well and good. But it appears that Thames Water is likely to face a cash crunch in the coming months – and, should he become prime minister, Burnham and his administration will face its first big crisis as a result.
The outlook is dire
Keir Starmer’s government today decided to reject a proposed private sector rescue deal, meaning that Thames Water has already moved a step closer to full-scale state ownership. A consortium of investors had agreed to put £10 billion into the company through a mix of equity and loans, but the government has decided the planned deal does not do enough to protect consumers and the environment. If nothing can be agreed, Thames Water may well collapse over the summer.
By then, of course, Starmer may be out of a job. Indeed, with a more left-wing prime minister in No. 10, investors are going to be even less keen than they already are to put money into British infrastructure. The outlook is dire.
Assuming he wins the by-election on Thursday – and the Labour leadership soon afterwards – Prime Minister Burnham may then have to make a tough decision. He has promised so often to take the water companies back into public control that it will be very hard for him to resist calls for full-scale nationalisation.
The trouble is, Thames Water will still need the £10 billion to keep the taps running and start repairing its pipes. And of course, there would presumably need to be some compensation for shareholders and bondholders. Unless the new prime minister wants to go the full Trotsky, the existing owners will have to be paid something, and unless it is a fair price, it will serve as a warning that will make it impossible to attract any investment into Britain. No one wants to put money into a government where it might be seized by the government.
There is some debate about how much nationalising the water industry would cost, but the government itself estimates £100 billion for the country as a whole. So the cost for London would be at least £10 billion. It is hard to see how the Treasury can come up with that kind of money.
Sure, Burnham could make cuts elsewhere, but it is a whole other question entirely as to whether Labour backbenchers would tolerate that. The bond markets won’t be very keen to stump up cash for nationalising assets either, and while the public supports public ownership in focus groups, they probably won’t want a penny on the basic rate of income tax to pay for it.
Thames Water, then, is likely to become Burnham’s first big test – and at the moment, no one seems to have any idea how he will meet it.
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