Thames Water moves step closer to nationalisation after government objects to rescue deal

The government has objected to a proposed rescue deal for Thames Water, in a move which takes the UK's largest water company a step closer to a form of nationalisation.

Environment Secretary Emma Reynolds wrote to the industry regulator on Monday to raise concerns over the £10bn package put forward by the firm's lenders.

Fears the company could collapse first emerged three years ago, and the government has been on standby to take control if required ever since.

A government spokesman told the BBC that the current offer "does not do enough to protect consumers or the environment".

Thames Water - which serves about 16 million customers, mostly across London and parts of southern England - has faced heavy criticism in recent years over its performance, sewage discharges, and pipe leaks.

In May last year, it was handed a £122.7m fine, the biggest ever issued by the water industry regulator, for breaching rules on sewage spills and shareholder payouts.

A group of its existing lenders has offered to write off £9.4bn of its near £20bn debt pile and inject billions in new money, but want leniency from future pollution fines in return.

London & Valley Water, a consortium of large financial institutions and investors, said some £3.35bn of cash would be put into the company along with a new £6.55bn debt facility. It would be part of a £10bn business plan until 2030.

A spokesman for the group has previously said the proposed rescue deal would "fund significant improvements for customers, clean up local rivers and achieve full compliance as quickly as possible".

Ofwat, which regulates water companies in the UK, has been reviewing the proposal and a decision is expected this summer.

Without a rescue deal agreed, Thames Water is set to run out cash within a matter of months and could collapse.

The Times, which first reported the story, said the government's intervention was over concerns the deal would place an "undue burden" on customers. Reynolds is due to address Parliament on Tuesday.