Ministers plan legally binding debt targets for England’s water companies

The government is looking to avoid other corporate failures similar to that of Thames Water, which is buckling under £17.6bn of debt. Photograph: Sam Oaksey/Alamy View image in fullscreen The government is looking to avoid other corporate failures similar to that of Thames Water, which is buckling under £17.6bn of debt. Photograph: Sam Oaksey/Alamy Ministers plan legally binding debt targets for England’s water companies Exclusive: Move comes as allies of Andy Burnham work on proposals to take water companies into public control Ministers are drawing up plans to set legally binding debt targets for England’s water companies as they look for ways to avoid another corporate failure such as Thames Water . Sources say Emma Reynolds, the environment secretary, is working on proposals that would force companies to keep their debt below certain levels for the first time or face legal punishment. The move comes as allies of Andy Burnham work on proposals to take water companies into public control, which the incoming prime minister has said will be one of his main priorities once he enters Downing Street later this month. One source close to Reynolds said: “Under the Tories, water companies were allowed to rack up debt and pay out dividends while taking customers for a ride. The secretary of state is putting an end to that, asserting control over poor-performing companies, protecting customers and tackling pollution.” The fate of England’s water industry is in the balance as government officials and industry executives prepare for Burnham to enter office. The Makerfield MP has promised to take the “essentials of life” back into public control, but has not yet laid out detailed plans for how he would do so. Allies say he is likely to pursue a model such as those in Paris and Berlin, where water services are run by independent organisations but with most of the shares held by the municipal government. In a recent online question-and-answer session , he said: “Public control can include a range of measures, from strong regulation to public ownership.” Reynolds’s plan to set legally binding debt limits could go some way to strengthening the regulations on the industry, and is being worked on as part of an upcoming clean water bill. In a white paper paving the way for that bill, Reynolds said: “We will consider how the regulator can work with companies and investors to ensure companies do not accumulate unmanageable levels of debt, remain financially resilient to deliver vital services for customers and the environment, and are able to attract further investment as required.” The Guardian understands Reynolds is working on a plan that would set a binding target for how much debt a company could take on as a percentage of its overall value as determined by the water regulator, Ofwat – known as a gearing ratio. Ofwat guidance currently says companies should have net debt (total debt minus cash) worth no more than 55% of their value – but many companies are far