Nationalising the water sector: how we assessed the cost
Published 16 September 2025
Applies to England and Wales
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The Department for Environment, Food and Rural Affairs (Defra) has estimated that nationalising the water industry would cost approximately £100 billion. Other commentators have published alternative figures.
This technical note details the assumptions and approach taken by Defra to reach its estimate.
Defra’s 3 central assumptions
Defra has assumed that:
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the regulatory capital value (RCV) of the water sector is the closest proxy for the total value of the sector’s debt and equity
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the total cost of nationalisation would reflect the cost of purchasing the equity in companies and the cost of assuming their existing debt liabilities
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it’s not appropriate to apply a discount or a premium to RCV, given the significant uncertainties and possible variation between companies
Regulatory capital value as a proxy for enterprise value
The water sector’s RCV was £99.3 billion in 2024, and £106.7 billion in 2025, as shown in Ofwat’s RCV updates.
RCV was originally set with reference to the equity value and debt levels of each water and sewerage company at privatisation. It has been updated by the Water Services Regulation Authority (Ofwat) since and is recognised by observers as the best proxy for the total value of the water industry’s equity and debt (otherwise known as ‘enterprise value’).
We can observe the true enterprise value of the publicly listed water companies because their shares are publicly traded on the stock market. Between 1993 and 2024, the enterprise value of these companies was on average approximately 10% higher than RCV, described on page 57 of Ofwat’s PR24 Draft Determinations Allowed Return Appendix (PDF, 1.81 MB, 115 pages).
Defra’s estimate therefore uses RCV as the best approximation of the enterprise value of the industry.
Factor equity and debt costs
Some commentators have suggested that the total cost of nationalisation should only include the cost of equity, and not the cost of acquiring company debt. Defra has not taken this approach, given that water sector creditors could demand compensation immediately, diverting critical funds from our essential public services.
By using RCV as a proxy for enterprise value, Defra has instead sought to include both:
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the cost of purchasing the equity in companies
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the cost of assuming their existing debt liabilities
Use of a central estimate
Some commentators use RCV as the starting point for their estimations, but apply a discount based on poor performance and financial distress. Others apply a premium based on typical experiences of takeovers of profitable companies.
Defra has instead used RCV to provide a clear central estimate of the cost of nationalisation, with a method that ensures our cost estimate is both comprehensive and grounded in reality.
The estimate provided is intended to be illustrative and does not reflect an assessment of market conditions or companies’ individual circumstances. The true enterprise value of water companies could indeed be higher or lower than Defra’s estimate.