Outlook & action · Revenue options

Public ownership of water: a model

What it would cost to bring the water companies of England and Wales into public ownership, what it could save each year, and which assumptions decide the answer.

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Where a saving would come from

Water bills pay a return on the value of the companies’ pipes, works and reservoirs — the regulatory capital value, £106.7bn in March 2025. For 2025–30 Ofwat allows a return of 4.03% a year above inflation on that value, which is what attracts private investors and lenders. The state can usually borrow for less. Owning the same assets with public money would cut the cost of financing them; that gap, not the dividends, is where most of any saving would come from.

Dividends are paid out of the allowed return, so they are not an extra saving on top. They are smaller than often assumed: the companies declared £645m for 2024–25 (£1.0bn the year before), and nine paid none. The bigger flows are interest on the sector’s £76.3bn of net debt — average gearing is 67.9% of asset value — and the returns that build up for shareholders as asset values rise with inflation and investment.

On central assumptions — buying shareholders out at book value (£30.4bn), and the state borrowing at 1.5% above inflation — the annual saving is about £2.7bn, roughly £109 per household. Change the assumptions below and the answer moves a lot, which is the honest finding.

The model

Price paid for shares: 100% of book valueBook equity is the asset value (£106.7bn) minus net debt (£76.3bn) = £30.4bn. A failed company in special administration might be taken for little; healthy listed ones trade above book.Government borrowing cost (real): 1.50%Assumption. Compare current index-linked gilt yields (Debt Management Office). The state would also take on the companies' existing bonds at their own rates until refinanced.Return customers pay now (real): 4.03%Ofwat's allowed return for 2025–30 is 4.03%. Companies that outperform or underperform earn more or less.

Cost to buy out shareholders

£30.4bn

plus £76.3bn of debt taken on — £106.7bn on the public balance sheet

Annual saving on financing

£2.7bn

£4.3bn return paid now − £1.6bn public financing cost

What the saving could do

£109

off each of 24.8m households' bills a year — or enough to finance about £64.8bn of extra investment over 30 years

Real terms (today’s prices). Annual saving = asset value × return customers pay − (net debt + price paid) × government real borrowing cost. It is a steady-state figure: it ignores the years of transition, the cost of breaking existing financing, any change in how efficiently the companies are run, and the risk of cost overruns falling on taxpayers instead of shareholders.

What would cut the other way

Public debt rises. About £106.7bn would move onto the public balance sheet — around 3–4% of a year’s GDP — unless ownership were structured to keep it off, as some proposals suggest.
Investment still has to be paid for. Ofwat’s plan for 2025–30 is £104bn, with asset values growing 32% in real terms. Public ownership changes who finances it and at what cost, not whether bills rise to pay for it.
Risk moves to taxpayers. Cost overruns and failures (Thames Water’s debts, for example) would fall on the public purse rather than on lenders and shareholders.
Efficiency is uncertain. Evidence on whether public or private ownership runs utilities better is mixed, and depends heavily on how each is governed and regulated.
A model already exists. Dŵr Cymru (Welsh Water) has been owned by a not-for-profit company with no shareholders since 2001 — but it still borrows privately and is regulated like the others, so it is not full public ownership.

Rail and electricity

Rail: track and signalling (Network Rail) is already public, and passenger services are returning to public ownership as operators’ contracts end, under the Passenger Railway Services (Public Ownership) Act 2024. The trains themselves are mostly leased from private rolling-stock companies, which is where a rail model would focus.

Electricity: the same logic applies to the regulated wires — Ofgem’s allowed return on equity for electricity transmission in 2026–31 is 5.70% above inflation — but generation and supply are competitive markets, where the case is different. The electricity-networks version of this model, using the network companies’ regulated asset values, is at public ownership of the grid: a model.