A parliamentary committee has urged ministers to turn down a proposed multi-billion pound lifeline for Thames Water and instead bring the struggling utility back under state ownership.
The Environment, Food and Rural Affairs Committee has called on the Government to refuse a rescue package put forward by more than 100 creditors worth approximately £10bn.
The cross-party group argues that public ownership represents the only viable solution to ending what it describes as a self-reinforcing cycle of debt and poor performance.
The committee contends that handing control back to existing creditors would fail to address fundamental problems within the business.
Committee chair Alistair Carmichael stated that while Thames Water could be restored to proper functioning, this outcome would not be achieved by returning management to parties responsible for the current crisis.
The group further recommended that any proposal involving creditor relief from penalties for pollution and service failures should be dismissed.
According to the committee, the proposed consortium of approximately 100 hedge funds and similar investors cannot be trusted to act in the interests of customers, the company itself, or environmental protection.
The preferred takeover arrangement, led by London & Valley Water, is said by the committee to favour immediate financial extraction over sustainable long-term operation.
Questions have also been raised regarding the lack of clarity surrounding the creditor group, which includes organisations such as Elliott Management and Apollo Global Management.
The current rescue proposal emerged after an earlier agreement with American private equity firm KKR collapsed in May of the previous year, with the latest plan widely regarded as a final attempt to prevent the company entering special administration.
The committee points out that existing legislation prevents regulators from acting on performance grounds alone, meaning authorities must wait until formal insolvency before taking steps.
Carmichael indicated that special administration would probably occur once Thames Water exhausts its available funds toward the close of the calendar year, but suggested this might represent the sole opportunity to reset the company’s trajectory and establish genuinely sustainable operations.
He proposed that the Government could eventually recover expenditure through a future sale once the utility stabilises.
Mayor of Manchester Andy Burnham has previously voiced support for a decade-long programme to return the water sector to public hands, though the Government has declined to confirm whether Thames Water specifically will be taken back into state ownership.
The committee recommended strengthening the Special Administration Regime to enable future regulators to intervene at an earlier stage with clear legal authority when persistent failures become apparent.
It also advocated closing a regulatory gap that permits bondholders to assume control of water companies without meaningful scrutiny.
The committee concluded that measures must be implemented to prevent repetition of the damaging cycle affecting certain companies, whereby penalties for poor performance worsen their capacity to improve, ultimately resulting in higher charges for customers.
Thames Water has indicated that its current financial resources are sufficient only until year-end.
A spokesperson for London & Valley Water stated that the investor group has never held management control of Thames Water and has never received any distribution from the company, having provided funding to cover a substantial revenue shortfall to allow the capital investment programme to proceed uninterrupted.
The spokesperson added that the enhanced proposal would address all concerns raised by regulator Ofwat and government ministers, representing the quickest path to resolving Thames Water’s complicated difficulties.
A Thames Water representative said the company required recapitalisation and solid financial foundations, with any delay to this process threatening to impede the turnaround effort.