Andy Burnham's high stakes policy headache that could split Labour MPs

To Andy Burnham, the privatisation of our water industry represents more than just a failure.

It's also a "leaking monument" to the decades of Thatcherism and Neo-liberalism he wants to reverse, or so he decried in his first Commons speech as prime minister.

Its bold rhetoric that raises the stakes on a challenging policy issue after a summer of rising poll ratings and near-unanimous loyalty from the backbenchers.

One Labour source, on what could upend the honeymoon, told Sky News: "Water is going to be a big one. It's both a very technical test of how you handle a fragmented industry/service AND a test of his '40 years of neoliberalism' line."

So what will the prime minister do? He hasn't ruled out nationalisation but he talks much more often about public control, which favours regulation over state ownership.

Such a move risks putting him on a collision course with his backbenchers, at least 30 of whom are expected to speak at a debate about the public ownership of water in Westminster Hall on Monday, Sky News has been told.

This includes members of the left-wing socialist campaign group, who made water nationalisation a key demand during the leadership transition. Clive Lewis, of the soft-left Mainstream group, will argue control equals "more failed regulation" and a Labour government that "doesn't grasp the nettle" on this won't give voters a proper choice at the next election.

However it is not just those on the left who back ownership. Paul Davies, a 2024 intake MP who will be leading the debate, argues the sector needs a "fundamental rewiring".

He told Sky News: "Years of mismanagement and abuse by private water companies have left the public frustrated and disillusioned, and tightening regulation alone will not fix this.

"Public ownership is essential to rebuild trust in the sector because it would give the public a voice in the system which they fund and rely on."

The key argument against nationalisation is the cost. Last year, the Treasury put the price tag at £100bn, though that figure has been disputed.

An alternative road the government could go down is mutualisation - where water companies would be restructured into customer-owned co-operatives similar to Welsh Water, with all financial surplus reinvested back.

The Good Growth Foundation, which is a Labour-leaning think tank, has drawn up a report on how this could work, which Sky News understands Number 10 is looking at.

The report has been backed by several Labour mayors and MPs, including Helena Dollimore, whose Hastings and Rye constituency has been blighted by water outages and sewage dumping.

"It's an oven-ready plan," she said.

"We have to be fiscally responsible. This takes away the profit motivation so it would be run in the interests of the people, not profits."

Some critics of the mutualisation model question how it would raise the capital required to invest in new infrastructure, with mutuals likely to face higher interest on borrowing than a government.

However cost isn't the only issue the government faces, with questions over how it would legally take companies out of private hands.

Environment Secretary Angela Eagle has said she is prepared to change insolvency laws to make it easier for the government to put failing companies into special administration - from which point they could be renationalised or transferred to new owners.

Thames Water, grappling with billions in debt and seeking a rescue deal, is expected to be the first company the government deals with and could provide a blueprint for the wider industry.

A government source stressed "nothing is off the table" and ministers may take a different approach to individual water companies based on how they are performing.

Ultimately, not all MPs are dogmatic about what should happen. Will Stone, the Labour MP for Swindon North, said he would like to see at least Thames Water nationalised but he is "not hung up on ideology" and what matters is "best value and service".

That might save the prime minister a fight with his own MPs, though he would still have Green Party leader Zack Polanski to contend with, who has long backed public ownership and is looking for reasons to undermine Burnham's left-wing credentials.

More detail on the direction the prime minister will be in his 10-year-plan for the country, expected by the end of the year.

A government spokesperson insisted they are already "holding water companies to account" citing new reforms that "will create a water system that works for customers, the environment and investors for decades to come, with tougher regulation, stronger enforcement and greater accountability".

(c) Sky News 2026: Andy Burnham's high stakes policy headache that could split Labour MPs