Turn failing water firms into not-for-profit cooperatives, MPs and mayors tell PM

MPs and mayors close to Andy Burnham have told the prime minister there is a “third way” tlauo gain more control of failing companies, as the row over whether or not to nationalise Thames Water rumbles on.

Burnham is said to be concerned about the increase in government debt that Treasury projections show could be a result of nationalising water companies.

He has previously called for “public control” of the companies, which have pumped sewage into England’s waterways while hiking bills and failing to invest in infrastructure.

But Labour MPs and regional mayors say a mutualised model, where water companies are transformed to not-for-profit entities run by local people, could remove the debt risk while allowing for public control.

Their intervention comes with the release of a report published by the Good Growth Foundation on water cooperatives. Burnham has generally been supportiveof these kinds of models.

The Labour MP Helena Dollimore said Burnham should “end the era of extraction” in the water industry, as she launched the plans for the mutualised model, with the support of Surfers Against Sewage, the mayor of West Yorkshire, Tracy Brabin, the mayor of South Yorkshire, Oliver Coppard, the mayor of York and North Yorkshire, David Skaith, and the Co-operative party general secretary, Joe Fortune.

They say the model could be tested first with Thames Water, which is close to financial collapse and in talks with the government over a potential rescue deal for its creditors. This deal would let the company off fines and environmental obligations. If it fails to be agreed, the company will be put under temporary government control, known as a special administration regime (SAR).

According to the report’s recommendations, the rest of the sector would be “put on notice”, with every company facing tougher regulation, including enhanced monitoring, tighter restrictions on executive pay, and a ban on dividends unless a company meets performance targets.

Any company that fails under these conditions would be forced into SAR and then into a cooperative model.

Thames Water is on the verge of financial collapse. Photograph: Chris Batson/Alamy

MPs and mayors say Burnham should introduce a “bail-in” mechanism for the SAR, similar to the one used by the Bank of England for failing banks, so that shareholders and creditors bear the cost of failure rather than the taxpayer.

Companies that come out of a SAR would be required to do so as not-for-profit cooperatives, rather than being sold to the highest bidder, which is the case at the moment.

Coppard said: “Water is an essential utility that simply should not be farmed out to the private sector – that’s a lesson we’ve learned the hard way. A cooperative model would put control back in the hands of people, help keep bills as low as possible, and allow us to finally intervene in the inexorable dumping of sewage in our rivers.”

The prime minister is looking at options for how water could be brought under public control. Downing Street sources have said that there is no prospect of immediate nationalisation of Thames Water. The company’s creditors have also been gearing up to take the government to court if the deal fails.

Brabin said: “The people of West Yorkshire have paid the price for Yorkshire Water’s failings for far too long, with repeated pollution failings and hiking bills repeatedly during a cost of living crisis. Greater public control of water companies is the only way to protect our communities and environment for future generations.”

This plan would mean water company debts would not end up on the government’s balance sheet, and would give customers more control of how the businesses were run, the report’s authors said.

Praful Nargund, the director of the Good Growth Foundation, said: “Mutualisation offers a different route … It delivers the public control and long-term investment we need without handing taxpayers the bill for decades of failure.”

Dollimore, who is the MP for Hastings and Rye, said: “Our failing water infrastructure is a huge problem that must be a top priority for our Labour government. From pollution to outages to flooding, the people we represent experience the impact every day of this failure while paying more for the privilege.

“We have already taken important steps to ramp up regulation but we must now go further to protect this vital national infrastructure, while always being fiscally responsible.”