The Guardian newspaper is reporting that civil servants in the Treasury and the UK’s Debt Management Office believe Thames Water should be renationalised before the general election to avoid setting off a significant increase in government borrowing costs.

According to the newspaper, the officials are concerned that the knock-on effect of the water company’s financial predicament on the UK’s finances would be on a scale “not seen since the chaos of the Liz Truss mini-budget.”

The Guardian quotes officials as saying “prolonged uncertainty” about the future of Thames Water could “damage confidence in UK plc at a sensitive time” with “a real risk of contagion from Thames” which could impact on wider UK borrowing costs beyond utilities and infrastructure.

Civil servants also expect any solution that results in investors losses in the Thames Water operating company could trigger legal action against both Ofwat and the government, the report says.

The Times has separately reported that the wider break-up of Thames Water is one of the scenarios under consideration by Ofwat with the UK’s largest water utility facing the possibility of “being sold off as piecemeal to rival suppliers.”

Last week the Financial Times ran an article covering a survey conducted by Barclays Plc which suggested that the UK water sector could face challenges in attracting financing if Thames Water’s senior bondholders “end up experiencing losses.”