Key allies of Andy Burnham have warned against any retreat from his promises to bring water companies under public control, after details emerged of plans to give mayors and regional bodies greater oversight of the industry rather than financial power over it.
Mathew Lawrence and Mark McVitie, who both helped shape the intellectual case behind Burnham's project over the summer, said that granting politicians scrutiny powers without financial control would fall short of what had been promised.
Their intervention follows reports that the prime minister is considering creating regional bodies across England and Wales to hold water companies to greater account, including questioning executives over bills and sewage discharges.
Lawrence, director of the Common Wealth thinktank, said mayoral oversight of water services had proved successful internationally, but questioned whether it would go far enough. "The critical question is, will public oversight without ownership provide meaningful control over privatised companies or not?" he said.
"Can they ban dividend payments, stop financial extraction, reduce the cost of capital that determines overall cost, or choose to take the service back into public hands to run for the public benefit? If the answer is no, devolving oversight risks handing over responsibility without the power to fix the problem," Lawrence added.
McVitie, former director of the Labour Growth Group, said local leaders having real power over water investment would represent a positive step, but stressed that public control needed to mean more than scrutiny. "The question is whether the public interest can actually be enforced in the face of the interests of monopoly operators," he said.
He added that a functioning system needed to "raise the required investment at a reasonable cost, prevent financial extraction when services fail, and ensure that operators which are no longer viable can be restructured".
McVitie warned that regional boards might improve planning, but unless the financial model worked for the public rather than the other way round, "we risk giving local leaders more responsibility for a system they don't have the power to fundamentally change".
Burnham is expected to publish a 10-year plan for Britain in November, which will set out how he intends to bring utilities including water and energy companies under greater public control.
According to plans first reported by the Telegraph, Burnham is understood to be considering nine regional bodies, broadly matching the geography of the largest water companies in England and Wales. These bodies would be tasked with setting company objectives and holding executives to account over bills, shortages and sewage discharges.
The boards are expected to engage with customers and hold public consultations, though it remains unclear whether they would be given any financial control over the companies themselves.
Government sources described the reports as "speculation" and said further detail would be included in the forthcoming 10-year plan.
In the shorter term, the prime minister faces a decision over the future of Thames Water, which is financially stricken and the subject of a bailout bid from its creditors. At the end of March, the regulated value of Thames's assets stood at an estimated £23bn, while its net debt had risen to £18.5bn.
Burnham said during his campaign to become an MP that he would nationalise Thames Water, though doing so could cost several billion pounds. It has previously been reported that he is considering changing the law to place the company into special administration, a move that could represent a first step towards nationalisation.
Meanwhile, customer dissatisfaction with the water industry continues to grow. Complaints made by households about water companies have risen by 48% year on year, according to the Consumer Council for Water, marking the steepest annual increase in two decades.
Mike Keil, chief executive of the Consumer Council for Water, said the figures reflected "just how dissatisfied many people still are with the state of the water sector and the enormous task water companies face in rebuilding consumer trust".
A government spokesperson said: "Our water industry has not been working for people for far too long. We're bringing in tougher regulation, stronger enforcement and greater accountability, so water companies deliver for customers and the environment."
