Fears for economy if water firm collapses

Senior Whitehall officials fear Thames Water's financial collapse could trigger a rise in government borrowing costs not seen since the chaos of the Liz Truss mini-budget, the Guardian can reveal.

- Anna Isaac

Such is their concern about the impact on wider borrowing costs for the UK, even beyond utilities and infrastructure, that they believe Thames should be renationalised before the general election.

Officials in the Treasury and the UK's Debt Management Office (DMO) fear that, unless the UK's biggest water company is renationalised as soon as possible, "prolonged uncertainty" about its fate could "damage confidence in UK plc at a sensitive time", with elections in the UK and the US later this year.

This month, the Guardian revealed details of government contingency plans, known as Project Timber, to renationalise Thames via a special administration.

This could lead to the bulk of its £15bn of debt being moved on to the government's balance sheet. Thames's investors have refused to pump in more money amid a standoff with the water regulator, Ofwat.

Some lenders to its core operating company could lose up to 40% of their money under the plans, a move that officials believe marks a careful balance between managing public outrage at the water company's many failures and the need to sustain investor confidence in the UK.

Those contingency plans also describe a risk of "contagion" from Thames's plight, which could trigger a loss of confidence that feeds through to wider state borrowing costs.