The Department for Environment, Food and Rural Affairs (Defra) has set out how it estimated that nationalising the water industry would cost approximately £100 billion. The figure has been disputed by other commentators who have published alternative figures. 

In 2018 a research study by the Social Market Foundation said its best estimate of the costs of obtaining control of the regulated businesses gave a ‘takeover value’ of £90 billion – and if the government were to purchase the water industry’s assets at this value, it would entail a 5% increase in government debt levels. In 2019 an article in the Financial Times cited a figure of £14.7 billion suggested by the Public Services International Research Unit (PSIRU) at the University of Greenwich.

Defra has now published a technical note setting out the assumptions and approach taken by the Department to reach its estimate.

Three central assumptions

Defra has assumed that:

• the regulatory capital value (RCV) of the water sector is the closest proxy for the total value of the sector’s debt and equity
• the total cost of nationalisation would reflect the cost of purchasing the equity in companies and the cost of assuming their existing debt liabilities
• it is 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 regulatory capital value (RCV) was originally set with reference to the equity value and debt levels of each water and sewerage company at privatisation - since then it has been updated by Ofwat.

Defra said it 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’).

The water sector’s RCV was £99.3 billion in 2024, and £106.7 billion in 2025, as shown in Ofwat’s RCV updates.

Defra says it is able to 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 in Ofwat’s PR24 Draft Determinations Allowed Return Appendix.

Defra’s estimate therefore uses RCV as the best approximation of the enterprise value of the industry.

Factor equity and debt costs

Defra goes on to refer to the fact that 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 says it 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:

• the cost of purchasing the equity in companies
• 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 says it has instead used RCV to provide a clear central estimate of the cost of nationalisation, with a method that ensures its cost estimate is both comprehensive and grounded in reality.

However, Defra concludes by saying that 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,” Defra says..