Thames Water, which supplies water to part of Gloucestershire and has more than 16 million customers, has waded into deep problems today.

The private utility giant could be nationalised after shareholders backed off a plan to inject £500m into emergency funding.

After conditions were set by regulator Ofwat for the potential funding package, investors baulked at a perceived poor financial return on the investment.

Chris Weston, Thames Water's boss, told media this morning that if no funding could be found by the end of 2025, special administration measures may be necessary, with a scenario being likely where the government steps in directly to take control.

However, Mr Weston added: "we are a long way from that point at the moment".

In October, Ofwat announced a new policy on regulation of performance and investment in its sector. The regulator said all company plans would be "subjected to forensic scrutiny from Ofwat on their ambition for customers and the environment and on the affordability of their plans for customers."

It added: "Customers will only pay for future investment, not past company mistakes."

David Black, Ofwat's CEO, added: "The water industry needs to deliver a step change in investment and performance to clean up our rivers and seas, while also helping to ensure that we can meet the challenge of climate change."

In a statement this morning, Ofwat said: "Safeguards are in place to ensure that services to customers are protected regardless of issues faced by shareholders of Thames Water.

"Today's update from Thames Water means the company must now pursue all options to seek further equity for the business to turn around the performance of the company for customers."

Thames Water is a business with a regulatory capital value of £19 billion, with £2.4 billion of liquidity available, and an annual regulated revenue of £2 billon and new leadership team.

Ofwat added: "Ofwat's PR24 price control will put customer and environmental priorities at the heart of the water sector. In order to drive this change, we need to ensure that the sector attracts investment and is fair to bill payers. Since 2020 nearly £4.6 billion new equity has been injected into the sector. We will set out our draft determinations in June this year.

"We also need to see companies deliver the performance that customers expect and that they are run in a way that meets customers' expectations."

In political reaction, the Liberal Democrats urged the government to immediately take control of Thames Water's operations and nationalise it, and while Labour has pledged "new investment comes through to fix the broken sewage system without taxpayers being left to foot the bill", it has no made no mention of nationalisation. 

A spokesperson for the Green party has said the failure of Thames Water should be allowed to happen, so that public ownership can be made "on the cheap."