UK Water Companies: Chinese Financial Influence
Tuesday, 15 September 2026
Contributions
Private Notice Question
Asked by
Lord Blencathra
To ask His Majesty’s Government what assessment they have made of the government of China’s financial influence over UK water companies.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)
My Lords, the noble Lord raises a very important issue. It is critical that those who own and invest in our water companies are good custodians of these nationally important businesses. The reforms that we are putting in place will transform our water system to ensure that it delivers for customers and the environment, but also that it attracts investors who are committed to securing the long-term performance of our water companies.
Lord Blencathra (Con)
I thank the Minister for that reply, but that is for the future. The Times has revealed that emails on financial records obtained from the London office of the Industrial and Commercial Bank of China, the world’s largest bank, show that the Chinese bank issued nearly £1.26 billion in loans and borrowing options to UK water and energy companies up to July 2024. Furthermore, there were examples of concerns raised in the London office about internal due diligence being overruled by bank staff in Beijing, as well as concerns about money laundering when the bank moved £960 million for Huawei back from the UK into China following the arrest of one of its top officials. As a result of its investment in our strategic industries, there are deep concerns that this poses a financial security risk, especially since the ICBC has continued to accept business from Russian and Belarusian clients. What will the Government do about this potential security threat?
Baroness Hayman of Ullock (Lab)
The Government take all security threats extremely seriously. I am sure the noble Lord will be pleased to hear that the water industry will be included in the National Security and Investment Act’s mandatory notification scheme. That will require water companies and certain infrastructure delivery providers to notify government of certain proposed acquisitions. These notifications from companies will ensure that government can undertake a robust assessment of any national security risks. It will operate alongside powers that allow government to call in certain acquisitions. If necessary, we can then intervene with various remedies. These could include legally binding conditions or, in rare cases, blocking or unwinding a transaction.
Lord Fox (LD)
My Lords, the National Security and Investment Act 2021 allows the Government to scrutinise and intervene on certain acquisitions made by companies, including businesses which and investors who could harm our national security. The Act covers 17 sensitive areas in the economy, but although there was much discussion when the Bill was before your Lordships’ House about including critical infrastructure, it was not included in those 17 areas. I thank the noble Lord for bringing this issue up. With what we know today, is it not time to add services such as water to the list so that the Act can be used in full to scrutinise who controls our critical water supply?
Baroness Hayman of Ullock (Lab)
As I just mentioned, the water sector is in the National Security and Investment Act. That is mainly because of the essential services that it provides for public health and the economy. There are 17 existing sectors in that mandatory notification scheme, including civil nuclear, energy and transport. We are assessing whether proposed acquisitions pose a national security risk. However, the noble Lord makes an important point, so I am happy that we consider the water industry when we review the terms of that Act.
Lord Foulkes of Cumnock (Lab Co-op)
My Lords, this PNQ refers to UK water companies. My noble friend will be aware that Scottish Water is publicly owned, so the Chinese can have no such influence. Is that not the way forward?
Baroness Hayman of Ullock (Lab)
My noble friend will be aware that we published the water White Paper earlier this year. We are looking, in that White Paper and in the legislation that we will bring forward, at what ownership looks like and at the best way to secure our water industry for the future. Clearly, who owns our water industry and who has influence over it is a key part of that decision-making.
Lord Hunt of Kings Heath (Lab)
My Lords, once upon a time we owned the water industry: local authorities used to run water services very well up to 1974. Will my noble friend look, alongside security issues and the White Paper work that has been undertaken, at how these bodies can be made more publicly accountable locally?
Baroness Hayman of Ullock (Lab)
My noble friend makes an important point. We have to ensure that not just water companies but any industry that is critical to our national infrastructure and our national security is fully accountable. We absolutely must look at that.
Lord Harris of Haringey (Lab)
My Lords, the question of ownership is not the only security question that we should consider. There are reports that Iranians carried out a cyber attack on dozens of water plants in the United States at the same time as they attacked an electricity generator in this country. I refer to my interest as chair of the National Preparedness Commission. What assurance does my noble friend the Minister have that the security of the physical arrangements is sufficient to deal with those sorts of cyber attacks? Incidentally, the Chinese are also very capable of such attacks; it is not just the Iranians.
Baroness Hayman of Ullock (Lab)
One of the issues the Government have to face is the increasing threat from cyber attacks. The previous Question was around AI. We have to understand what the potential for such attacks is, and for drone attacks. We are seeing drones being used much more, if we look at the attacks Russia is making on Ukraine. We have had meetings in COBRA about national security because, as a country, we have to look at how we get together proper, resilient plans that include cyber attacks, for example.
Baroness McIntosh of Pickering (Con)
My Lords, will the Minister look carefully at the ownership of other water companies—Thames Water is obviously very much in the spotlight? Is she mindful of the contribution, over a number of years, that privatised water companies have made to the UK’s pension funds? Were these to be nationalised, what would the impact be on pensions funds?
Baroness Hayman of Ullock (Lab)
Pension funds are an incredibly important part of how our investment works. One of the questions that the noble Lord, Lord Blencathra, raised with me is: what do we consider to be good investment in this country? Actually, good investment is from businesses that and investors who are committed to the industry they are investing in. That includes the pension funds.
Baroness Ludford (LD)
My Lords, can the Minister clarify what she said about whether the National Security and Investment Act covered the water sector? I was not an expert on it, I have to admit, but I have looked online at the 17 types of notifiable acquisitions and water does not seem to be there. There seems to be some indication that the Government are considering adding it. Could she clarify, for the benefit of the House, exactly what the status is of the water industry under the National Security and Investment Act notifiable acquisitions?
Baroness Hayman of Ullock (Lab)
My understanding is that one of the recent announcements we have made is that the water industry will be subject to the National Security and Investment Act, which was brought in in 2021.
Lord Sikka (Lab)
My Lords, 90% of England’s water industry is foreign owned, including by the Chinese state. The result has been low investment, high bills, raw sewage in rivers, over 1,200 criminal convictions, and harms to nature, health and national security. Everyone knows that public control of the water industry has failed to deliver and that the only way forward is public ownership. Why are the Government in denial?
Baroness Hayman of Ullock (Lab)
I do not think that the Government are in denial. Through the White Paper and the Bill that we will bring forward, the Government will look at the best form of ownership for water companies, but it is also really important that we get the right kind of investment. The water industry requires over £200 billion in new investment before 2050 and we have to remember that capital markets are global. If we artificially restrict the kind of investment that we want to see, we will reduce competition and increase costs for customers. It is incredibly important that we get this right, while closing doors to investment that compromises our national security.
Lord Redwood (Con)
My Lords, given the very big capital requirements that the Minister has rightly identified, and the need to pay compensation to existing shareholders if the Government wanted to buy it out, is it not the case that the country cannot afford nationalisation of the water industry?
Baroness Hayman of Ullock (Lab)
I have expressed concerns previously in your Lordships’ House about the costs of nationalisation, which is why we are looking at the best way forward when we bring forward the new water legislation. I really look forward to hearing what noble Lords have to say about how we move forward.
Lord Grantchester (Lab)
My Lords, being unaware of the specific confidential financial arrangements of the UK water companies with the Bank of China, but given the high level of public anxiety over water companies’ performance and competence, can my noble friend the Minister give a full assurance that progress on water provision, waste management and adherence to environmental health will nevertheless be upheld in that most critical part of the UK’s national infrastructure?
Baroness Hayman of Ullock (Lab)
Yes, I can give my noble friend that assurance but, to deliver all this, we need to make sure that we encourage the right kind of investment into the infrastructure. That is one reason why the water industry is going to be included in the National Security and Investment Act mandatory notification scheme: to ensure that we have that assurance, as well as having information about delivery providers and the options to intervene, where necessary, if we are not happy with the transactions that are going forward.
Lord Cromwell (CB)
I know the Minister agrees with me that one of the reasons why the water industry got into such a mess was because it was so poorly regulated. A lot of the issues, such as overlaying debt, are simply a result of the regulator not being up to the job. I underline that the new regulator that we are promised—it will be called a super-regulator, apparently —really needs financially acute people who understand this sort of financial engineering. This need not have happened. We could have had a privatised water sector that was properly regulated. We did not; it was badly regulated and it got away with murder.
Baroness Hayman of Ullock (Lab)
The noble Lord hits the nail on the head regarding regulation. We know that it is not who owns the water company—whether it is nationalised or private—that decides how effective and efficient it is, and how well it works. It is how it is actually run and the financial nous that underpins it that does not allow it to get into debt and use leverage systems in a way that is not sustainable. That is what has caused so many problems. I completely agree with the noble Lord.
Lord John of Southwark (Lab)
My Lords, it has been notable, since he took office, how clear the Prime Minister has been in his commitment to reforming the water sector, which he described as “a leaking monument” to a system that prioritises private companies over the public interest. When might we expect to see real change come forward to make this sector work for people and places again?
Baroness Hayman of Ullock (Lab)
We made some changes very quickly as soon as we came into government with the Water (Special Measures) Act, which I know this House welcomed. As I mentioned, the White Paper has been published. We are working on the Bill that we will be bringing forward, and we will want to make the changes as quickly as possible. As my noble friend points out, this is a prime ministerial and government priority.
Lord Evans of Rainow (Con)
My Lords, when we consider that China, with its long-term strategic endeavour to undermine our economy, owns critical national infrastructure such as water and our manufacturing industry—this has been evidenced in the motor manufacturing industry—could we utilise pension funds, whether homegrown or international, to invest specifically in the water industry?
Baroness Hayman of Ullock (Lab)
I suggest, given the huge challenge the water industry faces and the huge amount of investment that we need, that the Government will be open to looking at any suggestions on how we can plug that gap, as there is so much work to do.
Source: UK Parliament Hansard API. Debate ID: 5408138.