Ministers have lined up insolvency practitioners to prepare for the potential collapse of Thames Water, Britain’s biggest water utility.

Sky News can exclusively reveal that Steve Reed, the environment secretary, has signed off the appointment of FTI Consulting to advise on contingency plans for Thames Water to be placed into a Special Administration regime (SAR).

Sources said on Tuesday that the advisory role established FTI Consulting as the frontrunner to act as the company’s administrator if it fails to secure a private sector bailout – although approval of such an appointment would be decided in court.

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Thames Water, its largest group of creditors and Ofwat, the industry regulator, have been locked in talks for months about a deal that would see its lenders injecting about £5bn of new capital and writing off roughly £12bn of value across its capital structure.

The discussions are said to be progressing constructively, although they appear to rely in part on the prospect of the company being granted forbearance on hundreds of millions of pounds of regulatory fines.

Responding to an enquiry from Sky News on Tuesday, a government spokesperson said: “The government will always act in the national interest on these issues.

“The company remains financially stable, but we have stepped up our preparations and stand ready for all eventualities, including applying for a Special Administration Regime if that were to become necessary.”

Insiders stressed that FTI Consulting’s engagement by the Department for the Environment, Food and Rural Affairs (DEFRA) did not signal that Thames Water was about to collapse into insolvency proceedings.

A SAR would ensure that customers would continue to receive water and sewage services if Thames Water collapsed, while putting taxpayers on the hook for billions of pounds in bailout costs – a scenario the chancellor, Rachel Reeves, is keen to avoid at a time when the public finances are already severely constrained.

The SAR process can only be instigated in the event that a company becomes insolvent, can no longer fulfil its statutory duties or breaches an enforcement order, according to insiders.

Mr Reed has repeatedly stressed the government’s desire to avoid taking Thames Water into temporary public ownership, but that it was ready to deal with “all eventualities”.

“Thames Water must meet its statutory and regulatory obligations to its customers and to the environment–it is only right that the company is subject to the same consequences as any other water company.

The company remains financially stable, but we have stepped up our preparations and stand ready for all eventualities,” he told the House of Commons in June.

Thames Water, which has about 16m customers, serves about a quarter of the UK’s population.

It is drowning under close to £20bn of debt, and was previously owned by Macquarie, the Australian infrastructure and banking behemoth.

Its most recent consortium of shareholders, which included the Universities Superannuation Scheme and an Abu Dhabi sovereign wealth fund, have written off the value of their investments in the company.

The government’s SAR process has only been tested once before, when the energy retailer Bulb failed in 2021.

Bulb was ultimately sold to Octopus Energy with the taxpayer funding used to save and run the company since having been repaid.

Thames Water is racing to secure a rescue plan involving funds such as Elliott Management and Silver Point Capital, with a deadline of late October to appeal to the Competition and Markets Authority against Ofwat’s final determination on its next five-year spending plan.

Ofwat has ruled that Thames Water can spend £20.5bn during the period from 2026, with the company arguing that it requires a further sum of approximately £4bn.

Mike McTighe, a veteran corporate troubleshooter who chairs BT Group’s Openreach division, has been parachuted in to work with the funds.

The company said in its accounts last month that there was “material uncertainty” over whether it could be solvently recapitalised.

Earlier this year, Thames Water was fined a record £123m over sewage leaks and the payment of dividends, with Ofwat lambasting the company over its performance and governance.

In recent weeks, Thames Water has been engulfed in a row over the legitimacy of bonuses paid to chief executive Chris Weston and other bosses, even as it attempts to secure its survival.

Under new laws, Thames Water is among half a dozen water companies which have been barred from paying bonuses this year because of their poor environmental records.

The creditor group was effectively left as the sole bidder for Thames Water after the private equity firm KKR withdrew from the process, citing political and reputational risks.

The Hong Kong-based investor CK Infrastructure Holdings (CKI), which already owns Northumbrian Water, has sought to re-engage in talks about a rescue deal but has gained little traction in doing so.

News of FTI Consulting’s appointment also comes on the same day as a “nationally significant” water shortfall was declared across swathes of the country.

Last week, Sky News revealed that David Black, the Ofwat chief executive, was to step down following the publication of a government-commissioned review which recommended the regulator’s abolition.

He has been replaced by Chris Walters, another Ofwat executive, on an interim basis.

The water shortfall situation in England has been described as a “nationally significant incident”, with five areas officially in drought ahead of an amber heat health alert coming into force for large parts of the country.

Six further areas are experiencing prolonged dry weather following the driest six months to July since 1976.

Many river flows and water reservoir levels in England continue to recede compared to June despite some storms and showers in July, which helped mask that it was still the fifth-warmest July on record.

Drier conditions have returned in August and now parts of the country are bracing for the fourth heatwave 2025, with today’s amber alert covering the East Midlands, West Midlands, East of England, London, and the South East.

Temperatures are forecast to rise above 30C (86F) in some areas, possibly even soaring past 35C (95F) in the south, threatening this year’s heat record of 35.8C (95.4F) in Faversham, Kent, on 1 July.

A milder yellow heat health alert is in place for the South West, North East, North West, Yorkshire and The Humber.

The alerts by the UK Health Security Agency (UKHSA) are due to be in place from 9am today until 6pm tomorrow, and put more pressure on struggling public water supplies and navigational waterways.

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‘We are calling on everyone to play their part’

The National Drought Group (NDG), which includes the Met Office, government, regulators, water companies, the National Farmers’ Union, Canal & River Trust, anglers, and conservation experts, met at the start of the week to highlight the water-saving measures each sector is taking.

The group praised the public for reducing their daily usage, after Yorkshire Water reported a 10% reduction in domestic demand following the introduction of their hosepipe ban, which saved up to 80 million litres per day.

“The situation is nationally significant, and we are calling on everyone to play their part and help reduce the pressure on our water environment,” said Helen Wakeham, NDG chair and director of water at the Environment Agency.

“Water companies must continue to quickly fix leaks and lead the way in saving water.

“We know the challenges farmers are facing and will continue to work with them, other land users, and businesses to ensure everyone acts sustainably.”

The rainfall at the end of July was welcomed by growers, even though the dry weather is set to have an impact on the harvest, with the National Farmers Union (NFU) noting how water shortages have impacted the growing season.

“Some farms are reporting a significant drop in yields, which is financially devastating for the farm business and could have impacts for the UK’s overall harvest,” NFU vice-president Rachel Hallos said.

Ms Hallos urged that investment in water infrastructure and a more effective planning system was urgently needed “to avoid the swing between extreme drought and flooding and to secure water supplies for food production”.

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The dry weather also impacts the health of the waterways, as low water levels reduce oxygen levels in the water, which can lead to fish deaths, more algae growth, and could prevent wildlife from moving up or downstream.

Water minister Emma Hardy said the government is “urgently stepping up its response” to respond to dry weather, including investment in new reservoirs, but called on firms to do their bit.

“Water companies must now take action to follow their drought plans,” she said.

“I will hold them to account if they delay.”

“We face a growing water shortage in the next decade,” the minister warned, which she said is why building new reservoirs – something the government has criticised the previous administration for not doing – is so important.

The hot and dry conditions have also led to warnings of wildfires, following blazes near Wimborne in Dorset and at Edinburgh’s Arthur’s Seat over the weekend.

Campaigners have criticised a change to the rules around declarations of interest in the House of Lords as a “retrograde step” which will lead to a “significant loss of transparency”. 

Since 2000, peers have had to register a list of “non-financial interests” – which includes declaring unpaid but often important roles like being a director, trustee, or chair of a company, think tank or charity.

But that requirement was dropped in April despite staff concerns.

Tom Brake, director of Unlock Democracy, and a former Liberal Democrat MP, wants to see the decision reversed.

“It’s a retrograde step,” he said. “I think we’ve got a significant loss of transparency and accountability and that is bad news for the public.

“More than 25 years ago, the Committee on Standards in Public Life identified that there was a need for peers to register non-financial interests because that could influence their decisions. I’m confused as to what’s happened in the last 25 years that now means this requirement can be scrapped.

“This process seems to be all about making matters simpler for peers, rather than what the code of conduct is supposed to do, which is to boost the public’s confidence.”

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Rules were too ‘burdensome’, say peers

The change was part of an overhaul of the code of conduct which aimed to “shorten and clarify” the rules for peers.

The House of Lords Conduct Committee argued that updating non-financial interests was “disproportionately burdensome” with “minor and inadvertent errors” causing “large numbers of complaints”.

As a result, the register of Lords interests shrunk in size from 432 pages to 275.

MPs have a different code of conduct, which requires them to declare any formal unpaid positions or other non-financial interests which may be an influence.

A source told Sky News there is real concern among some Lords’ staff about the implications of the change.

Non-financial interest declarations have previously highlighted cases where a peer’s involvement in a think tank or lobbying group overlapped with a paid role.

Cricket legend among peers to breach code

There are also examples where a peer’s non-financial interest declaration has prompted an investigation – revealing a financial interest which should have been declared instead.

In 2023, Lord Skidelsky was found to have breached the code after registering his role as chair of a charity’s trustees as a non-financial interest.

The Commissioner for Standards investigated after questions were raised about the charity, the Centre for Global Studies.

He concluded that the charity – which was funded by two Russian businessmen – only existed to support Lord Skidelsky’s work, and had paid his staff’s salaries for over 12 years.

In 2021, Lord Botham – the England cricket legend – was found to have breached the code after registering a non-financial interest as an unpaid company director.

The company’s accounts subsequently revealed he and his wife had benefitted from a director’s loan of nearly £200,000. It was considered a minor breach and he apologised.

‘Follow the money’

Lord Eric Pickles, the former chair of the anti-corruption watchdog, the Advisory Committee on Business Appointments, believes focusing on financial interests makes the register more transparent.

“My view is always to follow the money. Everything else on a register is camouflage,” he said.

“Restricting the register to financial reward will give peers little wriggle room. I know this is counterintuitive, but the less there is on the register, the more scrutiny there will be on the crucial things.”

‘I was shocked’

The SNP want the House of Lords to be scrapped, and has no peers of its own. Deputy Westminster leader Pete Wishart MP is deeply concerned by the changes.

“I was actually quite horrified and quite shocked,” he said.

“This is an institution that’s got no democratic accountability, it’s a job for life. If anything, members of the House of Lords should be regulated and judged by a higher standard than us in the House of Commons – and what’s happened is exactly the opposite.”

Public confidence in the Lords is already at a low ebb after the PPE controversy surrounding Baroness Michelle Mone, who took a leave of absence in 2022.

The government has pledged to reform the House of Lords and is currently trying to push through a bill abolishing the 92 remaining hereditary peers, which will return to the House of Commons in September.

But just before recess the bill was amended in the Lords so that they can remain as members until retirement or death. It’s a change which is unlikely to be supported by MPs.

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A spokesperson for the House of Lords said: “Maintaining public confidence in the House of Lords is a key objective of the code of conduct. To ensure that, the code includes rigorous rules requiring the registration and declaration of all relevant financial interests held by members of the House of Lords.

“Public confidence relies, above all, on transparency over the financial interests that may influence members’ conduct. This change helps ensure the rules regarding registration of interests are understandable, enforceable and focused on the key areas of public concern.

“Members may still declare non-financial interests in debate, where they consider them directly relevant, to inform the House and wider public.

“The Conduct Committee is appointed to review the code of conduct, and it will continue to keep all issues under review. During its review of the code of conduct, the committee considered written evidence from both Unlock Democracy and Transparency International UK, among others.”