Thames Water’s proposed £10bn rescue deal has been described as "weak" by the Government, as the troubled utilities firm moves closer to being placed in temporary public ownership.

The Times has reported that the environment secretary, Emma Reynolds, has written to the regulator, Ofwat, to highlight concerns around the deal, ahead of the final decision on the creditors’ plans for the firm.

This comes after the utilities firm, which serves 16 million customers across London and the South East, was handed a £122.7m fine last year, the largest ever penalty issued by the regulator, relating to sewage spills and shareholder payouts.

It is reported that while Thames Water would receive around a cash injection of £10bn from London & Valley Water, comprising equity and debt, it would have to pay around £749m to creditors.

While Ofwat had stated that it was proposing to accept "undertakings" for renewed investment, Reynolds has described the deal as "weak”, adding that the takeover would place an "undue burden" on customers.

She stated: "I have written to Ofwat to set out my early concerns that the creditor's proposals don't do enough to protect consumers and the environment. And overall, I don't want Thames Water's consumers to have to pick up the bill for their failures."

Reynolds added that the Government "stands ready for all eventualities, including a special administration regime".

Head of markets at AJ Bell, Dan Coatsworth, said that Thames Water’s "ongoing saga" is set to continue.

He concluded: "This raises the likelihood of nationalisation of the business and could be a signpost to the wider direction of travel. There is speculation Andy Burnham might put water and energy businesses under stronger public control if he wins the Makerfield by-election on Thursday and launches a successful bid to get into Number 10.

"The latest developments are unwelcome for an industry which has been making progress in cleaning up its act."

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