Water firms to return £240m to households for underperformance

The water regulator has pledged to take money off water bills as it fines firms for missing their targets, but bills are still set to rise.  

Collectively, households are set to see £240million taken off their water bills by 2030 because of poor supplier performance. 

The water watchdog is proposing a raft of penalties for businesses failing to meet environmental and customer service targets in the 2025/26 financial year, which will be returned to households and businesses through their bills. 

Thames Water and Yorkshire Water have been given the largest penalties, at £46million and £75million, respectively, which will be taken off bills in April 2027. Other firms, including Severn Trent and Northumbrian Water, will be rewarded with outperformance payments. 

While the total net bill reduction under the draft plans is £240million by 2029/30, £107million is expected to be returned through customer bills in 2027/28.

But the cuts to bills are unlikely to offset recent plans announced by Ofwat to allow water companies to increase annual tariffs by an extra £3.4billion, on top of the 36 per cent average rise agreed over the five years to 2030.

Ofwat said that customer bills were 'affected by a range of factors and the effect will vary by company and customer type'.

The regulator said it would make its final decision on so-called outcome delivery incentive payments by December 15, which will take effect on bills from April 1, 2027.

Ofwat sets performance commitments for each water company, with service levels that firms are expected to achieve over the five years to 2030. 

A sector in turmoil

The water industry continues to come under fire amid sewage spills, supply failures and executive pay, with calls from some for firms to be brought back into public ownership.

Last month Andy Burnham unveiled plans for new laws to pave the way for public ownership of failing water firms, and vowed a 10-year path to a 'very different water system'. 

In his speech at the Labour Party conference, Burnham said Environment Secretary Dame Angela Eagle would present a 'strengthened Water Bill to Parliament'.

It raised the spectre of a possible temporary nationalisation of debt-laden Thames Water as Labour looks to decide on a £10billion rescue takeover put forward by lenders for the water supplier.

The announcement came after Burnham said water customers 'cannot be treated as a blank cheque' after Ofwat announced plans in August to permit more bill increases on top of those already agreed.

This week a team has been appointed to oversee turnaround plans at South East Water after three investigations found persistent failures at the company.

Consultants Grant Thornton will track South East Water's enforced investment after Ofwat found issues with the water firm's governance, operations and financial resilience in July.

South East Water was ordered to spend £30.5million on a range of improvements after supply issues hit thousands of homes in Kent and Sussex.

In September, a cross-party committee of MPs urged Labour to reject a £10billion takeover proposal from Thames Water's creditors.

Thames Water owes around £20billion and has been working with creditors and government officials. 

A Thames Water spokesperson said the company needed to be 'recapitalised and put on a firm financial footing'. 

Fears that Thames Water, which serves 16million customers, could collapse first emerged three years ago.

Water bills rising 

In August 2026, Ofwat gave water firms the green light to hike bills for customers by an extra £3.4billion in coming years to meet increased pressures on infrastructure and the environment. 

The new increases will vary between companies. 

Customers of five water businesses, Severn Trent Water, Southern Water, Thames Water, Wessex Water, and South East Water, face additional bill rises over the next two years, on top of increases that were already announced in 2024. 

Southern will charge £43 extra next year, while South East Water will only charge £1 more in 2029. The increases will only come into effect if they are given final approval later this year.

The other eight water firms identified, Anglian Water, Dwr Cymru Welsh Water, Hafren Dyfrdwy, Northumbrian Water, South West Water, United Utilities, Yorkshire Water, SES Water, would recover their additional spending through customer bills after 2030.

Many water firms argue that problems in Britain's water systems can only be resolved by increasing spending to replace pipes, build treatment plants and create new reservoirs.