If you’re a UK stock market investor holding water shares, it’s understandable you may be feeling worried right now. Prime Minister Andy Burnham recently put forward a proposal to remove restrictions on government ownership of major water companies in England.

Severn Trent, Pennon and United Utilities (LSE:UU.) all slipped after the announcement.

However, the proposal is simply part of a strengthened Water Bill, not an announcement that the government plans to buy these businesses.

So is this a reason to panic sell water shares? I don’t think so. It may however, be a good time to consider what you’re actually holding.

Why the concern’s real

The planned change would remove limits that currently keep government stakes in major water companies below 3%. It could also give ministers more options regarding environmental impacts and customer service.

That’s a material shift for shareholders, even if nobody knows how it will be used.

Valuing a utility company already means assessing debt, regulated returns, and the cost of infrastructure maintenance. When you add uncertainty about future ownership, the assessment becomes harder.

A valuation can look attractive until the rules change. At the same time, stronger public control appeals to people frustrated by pollution and poor service. Afterall, UK citizens deserve clean rivers and reliable water services.

The question for investors is whether tougher oversight will help these companies improve, or squeeze the cash available to shareholders.

As of now, there’s insufficient clarity to answer those questions

A closer look at United Utilities

So far, the proposal hasn’t changed United Utilities’ latest guidance. In its 25 September trading update, the company said operational performance was in line with expectations. It still targets regulatory returns of 10%-11% over the current five-year investment period, known as AMP8.

The plans include about £2bn of capital investment in 2026/27 and about £11.5bn across the full period. Spending on infrastructure can support growth in its regulated asset base, but it also needs financing.

That could pose a risk to future dividends. United’s policy is to grow its dividend in line with CPIH inflation. For the year to 31 March, the dividend was 53.66p per share, with a yield around 3.8%. That’s useful income, but the policy’s a target, not a guarantee.

Total debt‘s already above £11m, more than five times shareholder equity. So it’s easy to see why higher borrowing costs or tougher regulations could put future payouts at risk.

What I’d watch next

At present, I see no reason for shareholders to consider panic-selling just because of one political announcement. Yes, it adds some political uncertainty – but the government will also need to take into account how any action impacts the UK market.

Clearly, some intervention’s possible but until the full details of the Water Bill are released, I wouldn’t make any rash decisions.

However, for investors targeting passive income, it makes sense to consider broader diversification. National Grid, for example, operates the electricity and gas network – another regulated utility worth looking into.

The UK property sector’s another popular choice by income investors due to the typically high yields. It recently got a boost from another of Burnham’s proposals, and we’ve identified one stock in particular that could benefit.

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Mark Hartley owns shares in National Grid.