Thames Water's poor condition a major risk to UK, warns Starmer and Reeves | Thames Water

According to the Guardian, the Prime Minister and Chancellor of the Exchequer were briefed by Whitehall officials that the poor state of Thames Water poses a grave risk to the country.

Concerns about the company extend beyond its precarious financial situation to the management of its facilities, which provide drinking water and sewerage services to millions of customers across the capital and Thames Valley.

Keir Starmer and Rachel Reeves were among the first to be briefed on the issue, with sources saying they had been warned by civil servants that the dire state of Thames infrastructure was one of the most pressing issues facing the new government.

The condition of Coppermills, a huge water treatment plant in north-east London that serves up to three million people, is particularly worrying, ministers and advisers have heard. The plant is classified as one of the UK's most important pieces of national infrastructure.

A financial update due on Tuesday will reveal more details of the UK's biggest water company's tattered finances. Following Thames' annual results, Thursday will see the water company's five-year spending plan and an initial ruling from water watchdog Ofwat on rising bills.

According to a briefing provided to the Prime Minister and Chancellor, the Thames River has been included in a list of critical risks requiring urgent attention, with potential financial disruption from the river seen as a potential major threat to critical national infrastructure.

Fear that infrastructure collapse could lead to widespread disruption to essential services appears to have been compounded by management failures.

It has been reported that tackling ailing water companies is one of the top priorities for the Prime Minister's top adviser, Sue Gray.

On Monday, the prime minister's spokesman said the government would prefer not to nationalise the company, saying that was not the right course of action.

Instead, they added, the government should focus on holding these companies accountable and getting them to invest in and improve our systems instead of rewarding themselves.

Nevertheless, the government will be forced to take action to protect London's water supply if Thames fails. Thames is the most indebted of the UK's water monopolies, with debts of $15.6 billion.

The company's finances have been in shambles since former shareholders, led by Australian bank Macquarie, embezzled billions of pounds in dividends and fined it for pollution and leaks.

The contingency plan, drawn up by Whitehall and seen by the Guardian, would transform the company into a publicly owned, neutral entity under a special administration, allowing it to continue providing water and sewerage services to 16 million customers in London and the Thames Valley.

Thames is burning through its cash reserves as it struggles to attract new investment. Last month, the Guardian revealed that existing shareholders had agreed to pay out a $150m dividend at the end of March, before turning around to provide $500m in emergency funding.

Concerns about the future aren't limited to the company's financial position. Managers fear the company's ability to make and maintain essential improvements to its creaking operations and infrastructure.

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In a sign of serious concern about the future, this debate is being addressed not only by the Department for Environment, Food and Rural Affairs, but also by 10 and 11, which have been working with the Treasury on a rescue plan.

A Defra spokesperson said: “We are monitoring the situation closely and the company remains in a stable position.

A source close to the newly appointed Defra secretary, Steve Reid, said: “We are in this situation because of 14 years of Tory incompetence. They weakened regulation, left water companies in debt, the sewer system collapsed and illegal wastewater dumping reached record levels.

They added: The election of this Labour government is a reset moment for the water industry, and in the coming weeks and months this government will outline its first steps to reform the water sector.

The plan to nationalise Thames would actually put a dent in the government's balance sheet, with investors likely to see huge losses on loans to the company.

Thames Water declined to comment.

An Ofwat spokesperson declined to comment on the specific briefing. In a statement, they said: “Regardless of the challenges facing Thames Water shareholders, safeguards are in place to ensure customer services are protected. We will publish our views on our business plan for 2025-2030 alongside all other water companies on 11 July as part of our PR24 proposals. Thames Water must continue to pursue all options to secure additional capital to fund its turnaround plan for the benefit of customers and the environment.

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