The two crews in Saturday’s traditional Oxford v Cambridge boat race were warned about dangerous levels of E coli in the Thames. Any celebrations, or worse a capsize, were to be avoided. Yet more rain in March disappearing down the capital’s drains has mixed with untreated sewage – human waste, sanitary products and wet wipes – in London’s ageing sewers to overflow as more untreated, poisonous gunge into the capital’s river. It was an all too visible metaphor for Britain’s decline.

For the same has been happening throughout Britain, whoever owns the system – privately owned, as in England, or publicly owned, as in Scotland and Northern Ireland. Our predecessors did not want to invest in expensive separate sewerage and drainage systems, but as the climate changes and our population grows we pay a heavy price. Last week, the Environment Agency disclosed that in 2023 discharges of untreated sewage into England’s rivers and seas by England’s water companies had more than doubled, with above average rainfall offered as the explanation. But the mounting protests in England are echoed in Scotland and Northern Ireland: do not swim in Lough Neagh, for example, or off the Antrim coast after heavy rain – you will swim in untreated sewage.

At the heart of the crisis is a massive shortfall in investment in our water and drainage systems that dates back more than a century, which the Thatcherite ultras thought privatisation would solve at a stroke. Privatise the English water companies, careless of who owned them as long as it wasn’t the state, relieve them of debts and, via light-touch regulation, the underinvestment problem would be solved. Go-getting private managers, incentivised by bonuses and profit, would engineer efficiency savings and innovation that nationalised bureaucrats would not. Any borrowing would be off the government’s balance sheet. Some in Thatcher’s cabinet, such as then deputy prime minister Willie Whitelaw, thought it was a privatisation too far. Others, like Nigel Lawson, lionised by Rishi Sunak as a “transformational” chancellor whose portrait he hung over his Treasury desk as his own first act as cchancellor, dismissed Whitelaw’s concerns. But Sunak, like almost every Tory, is in thrall to a policy framework that has been proved massively wrong.

Last week, the privatised Thames Water disclosed that it had reached a financial impasse, overwhelmed by legacy debts of £18bn as it was pitilessly looted for excessive dividends when owned by a private consortium led by the Australian investment bank Macquarie, a byword for the unacceptable face of capitalism. Its shareholders refuse to help service the debt unless Thames is permitted to put up water bills by 40% by 2030. The regulator, Ofwat, has refused without cast-iron guarantees of ongoing shareholder commitment to support Thames as it raises its investment levels. It’s a promise shareholders will not give.

But Thames Water cannot be allowed to fail. It is indispensable – 16 million people depend on it. Neither Labour nor the Tories are suggesting its nationalisation nor, given the record in Northern Ireland and Scotland, can that be seen as a long-term solution. Yet the reluctance to develop viable structures for private ownership that the public will trust, together with mechanisms to ensure much higher investment, means the worst of all worlds. Aversion to nationalisation will force Thames into short-term special administration eking out a hand-to-mouth existence based on minimising costs rather than investment. Private shareholders are unlikely to come forward to buy it back without the assurances Ofwat has failed to offer existing shareholders. But the government will want to ensure the same does not happen again. Thames will be in stasis.

Yet there are solutions at hand. To build the new “super sewer” that will dramatically cut untreated sewage discharges, Thames was required to create a stand-alone public benefit company, Tideway, to do the job. It wholly complies with Ofwat’s public value principles, is funded by private shareholders and its sole purpose is the construction and maintenance of the sewer. During construction, the government has offered guarantees to Tideway against unforeseen contingencies. Thames customers will pay an annual £25 surcharge on their bills for at least 20 years to pay back the construction costs and service the debts. There is no Macquarie-style profiteering through offshore tax havens, excess dividends or vast bonuses – just the public and private sectors working together to create public value as their sole purpose. The tunnel is due to open in 2025.

This should be the model for the entire sector, and presents an opportunity for Labour, if it has the chutzpah to seize it. Every water company should be required by law to constitute itself as a public benefit company whose sole purpose is the provision of cheap, clean water and the accompanying infrastructure. The UK Infrastructure Bank will provide contingent guarantees on debts taken out to finance the necessary investment. Ofwat and independent directors of the water companies will ensure that the proceeds of any price increases are devoted to delivering the companies’ sole purpose. Employees should be represented at board level, and customers through statutorily established consumer challenge boards. At least a quarter of all shares should be publicly quoted on the London Stock Exchange to ensure transparency and accountability.

Will shareholders come forward? The returns would be similar to those on index-linked government securities: the days of aiming for a bonanza will be over. Some pension funds, insurance companies and specialist infrastructure funds would welcome the opportunity. Thames’ plight is the chance for Britain to create a new asset class of purpose-led, publicly quoted, public benefit utilities combining the private and public. Sunak may blanch – but that is only proof of the idea’s worth. Time to act.