Water companies in England and Wales will have to return nearly £158m to customers through lower bills next year after falling further behind on key targets including sewage spills and leaks.
The regulator, Ofwat, announced the penalties as part of its annual review of companies’ performance.
The report showed that companies reduced sewage spills by just 2% between 2020 and 2024, way behind a target of 30% for the 2020-25 period.
On leaks, companies have only achieved a reduction of 6% so far, against a target of 16% by 2025. Customer satisfaction has worsened further, to the lowest level since Ofwat started measuring it in 2020.
“This year’s performance report is stark evidence that money alone will not bring the sustained improvements that customers rightly expect,” said the Ofwat chief executive, David Black.
“It is clear that companies need to change and that has to start with addressing issues of culture and leadership. Too often we hear that weather, third parties or external factors are blamed for shortcomings.”
Performance penalties have totalled more than £430m since 2020, and this year’s penalties were higher than the £114m companies were ordered to repay last year.
Thames Water has to repay the most this year, £56.8m, followed by Anglian Water at £38.1m, Yorkshire Water at £36m and Southern Water at £31.9m. At the other end of the scale, United Utilities, Severn Trent and Northumbrian Water were the top performers, with outperformance payments of £33.2m, £27.9m and £7.8m respectively.
Steve Reed, the environment secretary, said: “Our waterways should be a source of national pride, but years of pollution and underinvestment have left them in a perilous state. The public deserves better.”
He said the government was placing water companies under special measures through the water bill, which “will strengthen regulation including new powers to ban the payment of bonuses for polluting water bosses and bring criminal charges against persistent law-breakers”.
Reed said the government would carry out a full review of the water industry to shape further legislation that will “fundamentally transform how our entire water system works and clean up our rivers, lakes and seas for good”.
Sewage spills increased at nine of the 11 water and wastewater companies in 2023, and only one firm met the performance commitment level. In 2022, almost half of companies met the target, and four outperformed it by more than 10%, demonstrating that better performance is achievable, Ofwat said.
The regulator placed the 17 water companies of England and Wales into three categories – “leading”, “average” and “lagging behind”. No companies were found to be “leading”. Three – Anglian Water, Dŵr Cymru and Southern Water – were found to be lagging behind.
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Thames Water, which is facing a potential collapse after building up more than £15bn of debts, was one of four companies to move from “lagging behind” to “average”. However, Ofwat said: “We have serious concerns about Thames Water’s performance despite this single-year improvement in position.”
Thames and Southern were the worst performers for the fourth year in a row on customer satisfaction.
Black said there were signs that some companies were beginning to change their culture. He pointed to Severn Trent taking action to cut sewage overflows with 617 improvements at 467 sites. “We need to see more firms showing the same sense of urgency and action,” he added.
Greenpeace UK called on Ofwat to bring in a full ban on shareholder dividends as well as bonuses to allocate more money to monitoring and improving “our knackered water system”. The charity’s chief scientist, Doug Parr, said fines would do little to fix the underlying problems, adding: “Paying fines seems to be built into the business model of this rogue industry.”
“The government should give regulators its full backing and give them the power and resources to properly police pollution,” he said.
Mike Keil, the chief executive of the Consumer Council for Water, said: “Poor performance on pollution incidents and a failure to protect thousands of households from the misery of sewer flooding will do little to reverse the unprecedented decline in people’s satisfaction and trust in water companies, which is reflected in our research.”
Separately, Ofwat said in August it would fine Thames, Yorkshire and Northumbrian a record £168m between them for a “catalogue of failure” over illegal sewage discharges into rivers and the sea after the industry regulator’s biggest investigation to date.