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 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 30% of its near £20bn debt pile and inject billions in new money, but want leniency from future pollution fines in return.

The Financial Times previously reported creditors would inject some £3.35bn into company as part of a turnaround plan.

It also said under the terms that Thames Water would pay £750m, including advisory fees to bankers and lawyers, if approved.

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

The government has previously said it would prefer "a market-based solution", but would put the utility in administration "if that were to become necessary".

The a form of temporary nationalisation on the table is known as a special administration regime (SAR), which ensures vital companies such as water, are kept running by government appointed managers

If the company does go bust, households will still have drinking water and sewerage services.

A spokesperson for Thames Water has previously told the BBC that a SAR would create problems rather than solve them.