Beyond nationalisation: A partnership model for UK water?

The future of UK water may not be a simple choice between privatisation and nationalisation. 

The UK water sector continues to be under the spotlight, with the government recently announcing plans to “remove the current limits on government ownership of shares”.

Some may read this as a step towards eventual re-nationalisation of this challenged sector. However, the small print in the statement is more nuanced. The government recognises that the UK water sector “relies on continued private sector investment” and is “committed to delivering these reforms within the fiscal rules”. 

We believe that uncertainty around the ‘public control’ agenda may be weighing on debt and equity valuations in the sector, potentially increasing costs for consumers.  However, we also see scope for a partnership solution that combines private capital with greater public influence.

Private investment is flowing, but there are calls for more public influence

The UK faces complex trade-offs around its public budget and finances. The Office for Budget Responsibility (OBR) has highlighted the potential implications of bringing the country’s water sector onto the state balance sheet. In contrast, shareholders have been providing more capital. Several UK water companies are raising equity from investors, most recently South West Water’s parent Pennon*. 

In the 2025/2026 financial year, the sector significantly increased capital investment, which exceeded earnings before income, tax, depreciation and amortisation in many cases. The UK’s water services regulation authority, Ofwat, is also seeking to draw other sources of private capital into the sector through its Major Water Infrastructure Programme. Investment that comes from the private sector does not need to be funded by the state and reduces the strain on taxpayers.

However, after years of disappointing performance, there are growing calls for the public to have a greater say in how water companies are run. Some have suggested moving to a mutual ownership model, like Welsh Water, although we think such a model could face constraints in accessing equity capital. 

Others have proposed changing operating company constitutions to bring in public service objectives alongside duties to shareholders, an approach like that implemented by Anglian Water in 2019. The Independent Water Commission has recommended a system of regional water planning authorities, and, in his conference speech, Prime Minister Andy Burnham suggested mayors could receive new powers to hold water companies accountable. In some other sectors and jurisdictions the state also holds a minority stake. 

There are various ways to increase public influence without full nationalisation. The key is to find a model that can combine improved accountability with a stable regulatory framework that can also attract long-term debt and equity investment on sustainable terms.

A partnership solution in the pipeline for Thames Water**?

We believe Thames Water* may provide an early test of whether such a model can work in practice, while also offering greater clarity on the ‘public control’ agenda. Lenders have been negotiating with Ofwat over a possible equity injection, which could provide a natural entry point for a new public sector shareholder. In July, creditors signalled their willingness to commit to enhanced public influence over a restructured and stabilised water company, including the granting of a ‘golden share’ to ministers. A golden share is a special stake that may grant specified governance or veto rights, depending on its legal terms.

An approach like this could unlock a potential ‘partnership’ solution for the company – including private sector funding, but with greater public influence. The key questions from here are whether such a solution can be designed that meets the needs of stakeholders and whether there is sufficient political will to deliver it, rather than allowing further delay.

If Thames Water can be resolved successfully, it could provide an important blueprint for the wider sector when it comes to combining private capital and stronger public oversight. The test will be whether the sector can attract the investment it needs, while improving operational performance and delivery for the public.

Investment implications – capital needs clarity and accountability 

For investors, greater clarity over ownership and regulation should help reduce uncertainty and support the long-term capital the sector needs. But capital also comes with expectations around accountability and delivery.

As a significant investor across equity and fixed income, we launched a dedicated UK water stewardship campaign in 2026. Our engagement focuses on operational performance, governance and accountability, climate and nature, financial resilience, and delivery of the AMP8 investment programme – the sector’s five-year programme of investment in water and wastewater infrastructure for 2025–2030

This builds on our broader engagement across the UK water sector, including the publication of our Water Policy in 2024. We have engaged with Ofwat and Defra, participated in collaborative investor initiatives, and held discussions with water companies including Thames Water, United Utilities*, Severn Trent* and Pennon Group* on UK water infrastructure and wider investor concerns. We intend to continue working with government, industry peers and water companies to support the development of long-term solutions for the sector.

We believe private capital and greater public influence can be complementary. Through our investment decisions and engagement, we seek to support a sector that can attract long-term capital while aiming to deliver stronger operational performance, resilience and outcomes for customers.

 

Assumptions, opinions, and estimates are provided for illustrative purposes only. There is no guarantee that any forecasts made will come to pass.

* For illustrative purposes only. Reference to a particular security is on a historic basis and does not mean that the security is currently held or will be held within an L&G portfolio. The above information does not constitute a recommendation to buy or sell any security.

** Case study shown for illustrative purposes only. The above information does not constitute a recommendation to buy or sell any security.