Public markets, not the state, can fix the water sector
Andy Burnham will likely put renationalising utilities back on the table, but that’s not the way to turn on the investment taps, says Rupert Hargreaves
The arrival of Andy Burnham in Westminster has once again reignited the debate around the future of the UK’s key infrastructure. The Guardian has reported that Burnham’s allies have talked about overseeing a 10-year project to take large parts of Britain’s water and energy sectors into public control. However, it’s unclear how such a project would be funded and the legal ramifications.
But if there’s one thing politicians and voters across the country seem to agree on, it’s the sorry state of the UK water industry. Heavily polluted rivers and crumbling infrastructure are the result of decades of underinvestment and ineffective regulation in a sector that’s fundamentally important to the country’s health and wealth. Those on the Left believe that by rolling back the privatisations following the Water Act of 1989, all of the sector’s issues can be solved and the country will finally have a water system it can be proud of again.
This is wishful thinking. A country that can’t even decide if it wants to spend £13bn or £28bn on defence over the next five years certainly won’t be able to design and implement a sensible 10 or 20-year investment plan for the water sector.
Building critical infrastructure, such as water reservoirs, airports and power plants, requires an ultra-long-term mindset. Thames Water’s White Horse Reservoir (formerly known as SESRO) in Oxfordshire is a critical and sorely needed piece of infrastructure, which began life on the drawing board in 2006. After the initial plans were rejected, it was brought back to life in 2019 and on the current timeline, isn’t expected to be fully operational until 2040.
Five-year political cycles are no way to run an industry that depends on these multi-decade capital spending plans. That said, nor should private equity, given the typical private equity fund has a lifetime of five to 10 years.
The other more pressing issue is money. Private equity tends to be a poor steward of infrastructure, partly due to its short-term focus and partly because funds prefer to use debt rather than equity to finance capital spending, which can hang around a utility’s neck like an albatross.
The £290bn challenge
Sadly, there’s no evidence whatsoever the government would be any more generous. The National Audit Office has estimated water companies will need to invest at least £290bn into infrastructure before 2050 to maintain networks and meet the growing needs of the UK’s population. For a country that can’t afford to rebuild its crumbling hospitals, parliament or armed forces, there’s no way any government, either red or blue, will be able to find the money to fix the water sector.
Just look at Thames Water. Last week, Labour has threw cold water on the utility’s private-sector rescue deal, raising the prospect of nationalisation once again. Thames’s creditors have agreed a £10bn package (£3.5bn in equity and £6.6bn in debt) to rescue the utility, roughly equivalent to the long-delayed and hollowed-out defence investment plan.
This is where public markets should be allowed to step in and fill the funding gap.
Over the past three years, there’s been a surge in equity issuance by public utilities seeking growth capital, starting with National Grid in 2024, which completed a £7bn fully underwritten rights issue over three days. A few months later, water group Pennon launched a near-£500m rights issue to fund its capital spending plans, followed by SSE’s £2bn placing in November 2026 and United Utilities raised £800m in April 2026.
None of these companies had any issue raising funds; the market absorbed the extra capital quickly and efficiently and taxpayers didn’t have to spend a penny. In most cases, smaller investors were more than willing to stump up the extra cash via the Retail Book platform, showing smaller UK investors are willing to back the spending if they’re given the chance.
The ability for these companies to raise billions from investors in a few hours contrasts sharply with the months or years it can take for government to give the green light to funding decisions. At a time when the country is so desperate for cash, public markets, not nationalisation, seem to offer the perfect solution to fix the UK’s crumbling infrastructure.
Rupert Hargreaves is COO at City PM