Burnham on water reforms: Will he stick or twist?
One year since Sir Jon Cunliffe’s landmark review of the water sector and the UK now has a new prime minister promising greater public control over water. The sector waits with baited breath to see how far he will go.
By Ella Jessel, water editor
© Lauren Hurley / No 10 Downing St
“I will bring life’s essentials back under public control.” Andy Burnham told the nation in his first address as prime minister this week, talking to the cameras in Downing Street, lectern discarded.
While campaigning for the Makerfield seat that would enable his breathless rise to No. 10, Burnham repeatedly promised to tackle water ownership. Even though vague, the pledges rang alarm bells in the industry. But the idea has captured the public mood. And environmental campaigners also see Burnham’s potential to disrupt the status quo – something they feel the Cunliffe Review never fully set out to do.
Thames Water will be his first big test. The company is teetering on the edge of insolvency, and Ofwat and the former government recently sent the latest version of creditors’ £10 billion rescue deal back to the drawing board.
But other challenges are waiting in the wings - such as driving transformation across the wider sector. Here, there is already frustration at the pace of change; it is a year this week since the abolition of Ofwat was announced and the regulator has now outlived most of the politicians that signed off on its departure, including two environment secretaries and a prime minister.
The latest reshuffle sees Angela Eagle in the top job at the Department for Environment, Food and Rural Affairs (Defra) and Emma Hardy promoted to minister of state. The industry is now waiting to see if Burnham will push through “landmark” water reforms started by the previous administration, or reopen the debate on how to fix the sector.
The Thames test
Calls have been growing from MPs and campaign groups for Thames Water to be placed into special administration, and the political hot potato has now landed in Burnham’s lap. This week, creditors made their latest attempt to avoid this fate by offering him a “golden share” and greater local oversight.
Now he will have to decide. “That's fascinating, because there's both a political and a legal judgment,” says Alistair Carmichael, chair of the Defra committee. “As [economist] Dieter Helm said a while ago, if Thames doesn't qualify for special administration then you have to wonder what the point of special administration is.”
If Burnham decides to put Thames into special administration, that would be “at least” as significant as the publication of the Clean Water Bill itself, says Carmichael. However, he warned that in recent weeks it looked like his intention to trigger a SAR (Special Administrative Regime) was coming from the Burnham press machine, not the policy unit.
Will Bond, former adviser to the Environment Agency’s chief executive, says special administration for Thames is designed to be Burnham’s “big bang” to please MPs, the party at large and show he is the “shiny new PM who can make the big decisions”.
“Taking on Thames will give Burnham a fresh political story that he’s gone further than Starmer to clamp down on polluters, which was increasingly seen by campaigners to be dithering and kicking the can down the road,” he says.
Creditors are already building a legal case against SAR, but there are other risks for Burnham beyond a battle with hedge funds. There are different types of SAR, and not all options will lead to greater public control for the state. “We need to think about how we exit a SAR, and what the model is, and that it doesn't just go back into another version of what we've currently got,” says Erica Popplewell, head of public affairs at campaign group River Action, which backs SAR for Thames.
Either way, a decision will need to come soon. “Given that Thames Water is about to fall off a financial cliff before the end of the year, this will be one of his big first political tests because there is another timescale driving it,” Popplewell says.
More public control
The sector has been put on edge over the nationalisation threat Burnham carries. The “wrong turns in the 1980s” he spoke about in his first speech were a clear reference to his views on the failure of privatisation in industries like water.
One industry source said there is a “genuine willingness” to work with the government on what greater public control could mean in practice. “Nobody wants this to get off on the wrong foot.” Yet few really expect him to gun for full state control. Popplewell says Burnham has talked “more strongly” than anyone for a long time on “how we own and run our water system”, but says language in recent weeks has become more careful. “I don't think he is calling for an out and out nationalisation of the water system.”
Clues on Burnham’s thinking about water can be found in his vision of “Manchesterism”. A blueprint for expanding the success of the philosophy nationally was published last month by Mainstream, a think-tank allied with the new government, and set out plans for water companies to be turned into public corporations backed by revenues from the infrastructure that they develop.
Bond points out Burnham is a Labour and co-operative MP, and there are “alternative ways” of public ownership which are less expensive than full state control. This could mean co-operatives, mutualisation and other types of non-profit models.
While sector-wide nationalisation remains unlikely in the short term, Jordan Rowse, water sector lead at Copper Consultancy says Burnham is clear that greater public control is “firmly on the table”.
“The challenge will be balancing oversight and public expectations with the need to maintain investor confidence and deliver the unprecedented levels of infrastructure investment the sector requires,” Rowse says.
“The challenge will be balancing oversight and public expectations with the need to maintain investor confidence and deliver the unprecedented levels of infrastructure investment the sector requires.”
Jordan Rowse, water sector lead, Copper Consultancy
Mapping Manchesterism
There are overlaps with Burnham’s philosophy and the work already carried out by the previous government. Gordon McCreath, water industry expert with Pinsent Masons, says it is possible that his desire for greater public control could be achieved in the existing water reforms being brought forward through the Clean Water Bill.
The move to supervisory regulation will mean a shift away from Ofwat’s “largely numbers based” model to a more "engineering led” approach carried out by teams on the ground, he says. “The concept of a supervisory approach is inevitably more interventionist,” he adds, because water companies will be in closer contact with regulators. “He [Burnham] and his team could look at that and say, I’m standing behind the previous government.Politically, though, you feel like he will want to put his own stamp on the bill, and that will be really interesting to watch on the regional water planning front.” There is general consensus among commentators that this is an area that will naturally align with Burnham’s drive for greater devolution.
Daniel Johns, managing director of Water Resources East and director of the think-tank Aldersgate Group, predicts the sector could see elected mayors taking a stronger role in holding water companies to account. “We could also see mayoral authorities taking a more significant role in regional water planning, to align infrastructure investment with local growth ambitions,” he says.
Burnham has some direct experience in this area already. As mayor of Greater Manchester, he wrote to Ofwat in 2024 to share his views on the regulator’s draft determination for United Utilities’ 2025-30 business plan. The supportive letter also contained a call for Ofwat to raise the amount that United Utilities could spend on reducing storm overflows, saying it was “unacceptable” and the decision needs to be revisited. The regulator later overturned its decision.
But while there are areas of crossover, it is likely Burnham will seek to make some changes too. Bond points to Burnham’s desire to remove the “privatisation premium” from Britain’s essential services. He expects Burnham’s team to rework core aspects of the bill to create more “tangible wins” for the public. “At the moment too many campaigners see the bill as business as usual and that’s something Burnham will need to change.”
Rowse also points out there is plenty of work still left to do on the water reforms. “The question everyone is asking is how far will he go in accepting further Cunliffe review recommendations?”
Momentum
The Burnham government has come into power with the water reforms having fallen off the pace. Ofwat staff this week voiced concerns about a “year of uncertainty”. Meanwhile a draft copy of the transition plan, obtained recently by Utility Week, showed key milestones had been missed.
Carmichael, whose committee is planning further scrutiny of the sector, admitted he was “a bit frustrated“ at the pace of change. He says the Starmer government lost “political momentum” on water because they did not come in with a set of firm policies and had to undertake the Cunliffe Review first.
“The churn that you have in government is enormously disruptive,” he says. The latest reshuffle has seen former environment secretary Emma Reynolds redeployed to the Treasury and seasoned politician Angela Eagle in the top job at the Defra.
Isabella Gornall, founder of Seahorse Communications and secretariat for the All Party Parliamentary Group (APPG) on Water Pollution, says Eagle was a “smart appointment” because she has good relations with farmers. She also welcomes the retention of Emma Hardy in the department, who as water minister has been “instrumental in the development of the Clean Water bill”.
Gornall also points out that Reynolds’ return to the Treasury will mean that any potential SAR for Thames Water will go through her. “Reynolds had been hesitant to announce anything on Thames Water while at Defra so we may soon find out if that was because her hands were tied by Rachel Reeves or whether she thinks another option should be on the table."
The new Burnham government has brought the debate on ownership from fringe to mainstream, and has the potential to disrupt the sector. But there is also opportunity to inject impetus and greater public buy-in into the current reforms.
As Carmichael says, the priority should be to put “focus back on customers”. “It's not enough just to put Thames Water into special administration. It has to be wider than a one-company move.”
“It’s not enough just to put Thames Water into special administration. It has to be wider than a one-company move.”
Alistair Carmichael MP, chair of the Environment, Food and Rural Affairs committee
