Britain's biggest water supplier has moved a step closer to nationalisation after the Government objected to a £10billion bailout package.Environment Secretary Emma Reynolds has written to regulator Ofwat to say that a proposed rescue bid for Thames Water is 'not good enough'.She warned it would leave an 'unfair cost' to Thames Water's 16 million customers, while delaying vital investment in infrastructure and environmental improvements.Ofwat is said to have been close to accepting the offer from bidding consortium London & Valley Water, amid fears Thames Water will collapse within months if a deal is not forthcoming.They had proposed injecting £10billion into debt-laden Thames Water in return for any new fines over sewage leaks being waived for four years.The consortium said it was confident in its plan and insisted that 'all other routes offer significantly worse outcomes for customers and the environment'.But ministers' misgivings over the deal means Thames Water - which has nearly £20billion of debt - is facing the prospect of being placed in a special administration regime, a form of temporary nationalisation.The possibility of Keir Starmer soon being ousted as Prime Minister also casts uncertainty over the future of Thames Water. Thames Water, Britain's biggest water supplier, has moved a step closer to nationalisation after the Government rejected a £10billion bailout package Environment Secretary Emma Reynolds has written to regulator Ofwat to say that a proposed rescue bid for the debt-laden supplier is 'not good enough'Andy Burnham - who wants to replace Sir Keir if he wins the Makerfield by-election on Thursday - recently called for the crisis-stricken supplier to be taken into state ownership.As well as backing the nationalisation of Thames Water, the Greater Manchester mayor is also said to be planning a decade-long project to bring the wider water sector and energy sector into public control.The Government has estimated the cost of nationalising the entire water industry at around £100billion.Mr Burnham's enthusiasm for state ownership of utilities has caused jitters within financial markets, due to the parlous state of the UK's public finances.In a statement to the House of Commons on Tuesday, Ms Reynolds warned the 'long-term resilience' of water systems may not be adequately protected under the proposed rescue deal for Thames Water.'I have sent a letter to Iain Coucher, Ofwat's chair, outlining my early views on the proposal,' she told MPs.'These should not be taken as, nor do they constitute a direction from Government to Ofwat.'I do not believe that the current proposal goes far enough to protect customers and the environment.'I have three particular concerns about the proposal: the unfair cost to customers, delays to vital infrastructure investments, and delays to environmental improvements.'The 16 million Thames Water customers are front and centre of my consideration, and I am primarily worried about the impact on them.'There is an expectation in the proposal for customers to fund and therefore bear an undue cost for investment in the company.'In addition, I'm not convinced about the proposal's request to reduce performance standards and about the significant delay to vital infrastructure investments needed.'This would mean delays to environmental improvements, particularly those related to wastewater treatments linked to statutory requirements, as well as to projects that are important for drinking water safety and supply.'I am therefore concerned that the long-term resilience of the water and wastewater systems may not be adequately protected.'Senior Tory MP Victoria Atkins, the shadow environment secretary, said the Government should be wary of scaring off potential investors.'Whilst her Government is in chaos, paralysed by the Prime Minister's weakness and the Mayor of Manchester's leadership ambitions, Thames Water continues to fail,' she said.'If no deal is reached, Thames Water could collapse, again at enormous cost to taxpayers.'Ms Atkins said the cost of any potential nationalisation of Thames Water would be £20billion, which she noted would be around the same cost as the shortfall in Labour's long-delayed Defence Investment Plan.She added: 'This is an important moment for the Government, to show that it can balance financial stability with strong regulatory oversight and to put accountability and the interests of billpayers at the heart of water reform.'The Government must now deliver on the big promises they made during the election for the water sector.' Alongside its debt mountain, Thames Water has also had to deal with a series of hefty fines for its poor environmental performance in recent years.A rescue bid by creditors is seen as the final realistic option on the table to avoid being placed into the Government's so-called special administration regime, after a previous rescue deal with US private equity giant KKR collapsed in May last year.Administrators have already been lined up to step in if needed. But the Government has repeatedly said it prefers a 'market solution' over temporary nationalisation.A spokesman for London & Valley Water said it had 'worked hard for over 18 months' alongside Ofwat, the Department for Environment, Food and Rural Affairs (Defra) and Treasury officials to develop the plans and that it does 'not recognise how our solution… has been characterised in this preliminary feedback'.'We are confident that our plan is by far the fastest route to improve outcomes for customers and the environment, without any Government funding or any cost to taxpayers,' the spokesman said.'All other routes offer significantly worse outcomes for customers and the environment.'Our proposals do not anticipate any increase in customer bills beyond those set out by Ofwat.'The proposals also provide significant transparency and customer protections through a commitment not to take dividends before a stock market listing and to share upside from the turnaround with customers.'Creating further delay and transferring risk to the taxpayer with special administration is not the right answer.'It will only delay the process of fixing Thames Water, require billions of pounds of Government financial support, increase uncertainty for employees, put pensions at risk, destabilise the supply chain, and make it harder to deliver improvements for customers and the environment.'Defra officials reassured customers there would be no disruption to water supplies because of the financial position of Thames Water.London & Valley Water's proposed deal would see it inject £3.35billion of new equity into Thames Water and up to £6.55billion in new debt.But it is said that Thames Water would also have to pay nearly £750million to its creditors, lawyers and advisers as part of the restructuring.The supplier would reportedly be on the hook for £160million in fees, plus £285million in accrued interest owed to creditors, which include institutional investors such as US hedge funds Elliott Management and Silverpoint Capital.A Thames Water spokesperson said: 'It is positive that the Secretary of State has provided feedback to Ofwat in relation to the London & Valley Water plan.'We will continue working with all parties to reach an agreement that supports long-term financial stability and delivers better outcomes for customers and the environment.'