Water Companies Ordered to Return £260 Million to Customers Over Poor Performance
England and Wales’ water companies have been instructed to return over £260 million to customers following poor performance results, according to the industry regulator Ofwat.
Ofwat confirmed that around 40% of these refunds have already been applied to this year’s water bills, with the remainder to be deducted next year. However, despite the refunds, household bills are still set to rise sharply through 2030 to support major upgrades across the water infrastructure.
Worst Environmental Performance on Record
Earlier this week, the Environment Agency (EA) delivered its lowest-ever collective rating for water companies in England, citing a notable increase in serious pollution incidents during 2024.
The industry group Water UK admitted that “some companies have not met expectations” but emphasized that investment has accelerated since last year to improve performance.
Among all operators, Thames Water — the UK’s largest water provider — received the heaviest financial penalty, losing £75.2 million for underperformance in the 2024/25 year. The EA also gave Thames Water a one-star environmental rating, the lowest possible score.
A spokesperson for Thames Water said:
“Transforming Thames is a long-term effort. The scale of change required will take at least a decade to fully achieve.”
Government and Regulator Response
Environment Secretary Emma Reynolds acknowledged that the current state of the water system is unacceptable.
“Our infrastructure is deteriorating, and sewage spills have become far too common,” she said. “We are taking firm steps to fix this, including powers to block unfair bonuses and impose faster penalties for environmental violations.”
When companies fall short of agreed targets for issues such as pollution control or leakage reduction, they must make “underperformance payments,” which lower customer bills. Companies that exceed targets receive “overperformance payments” and may charge slightly higher rates.
In the most recent assessment, only United Utilities and Severn Trent Water qualified for overperformance bonuses. All other firms faced financial penalties.
Rising Bills Despite Refunds
Even with these refunds in place, customer bills continue to climb.
In April 2024, average water bills in England and Wales rose by around 26%, after Ofwat approved significant investment plans designed to modernize the country’s aging water networks and reduce sewage discharges.
Ofwat described industry performance for 2024/25 as “mixed” — noting progress in certain areas like internal sewer flooding but stressing that pollution and service interruptions remain serious concerns.
Environmental Agency’s Findings
The EA’s 2024 report showed that the overall environmental performance of water and sewerage companies had fallen to its lowest level since 2011, when ratings were first introduced.
EA Chair Alan Lovell commented:
“Many companies talk about their environmental commitments, but the data doesn’t reflect real progress. This year’s results should serve as an urgent call for change.”
The combined total of 19 stars across all nine major companies was down from 25 stars in 2023 — marking the first time the collective score has ever dropped below 22.
The EA clarified that while its assessment standards have become stricter, the 2024 results still indicate “a poor year” for environmental management.
Out of the nine companies:
Seven were rated two stars (“requiring improvement”)
Thames Water was rated one star (“poor”)
Only Severn Trent achieved the top four-star rating
Map of Performance Ratings
A map of England and Wales shows Severn Trent marked in blue for its four-star (industry-leading) performance.
Thames Water appears in red for one star (poor performance).
Other providers — including Northumbrian Water, Yorkshire Water, United Utilities, Anglian Water, Southern Water, South West Water, and Wessex Water — are marked in yellow, showing they require improvement.
The ratings take into account factors such as pollution events, permit compliance, and incident self-reporting.
Thames Water’s Financial Struggles
The announcement adds to Thames Water’s ongoing financial difficulties. The company recently reported a £1.65 billion loss for the year ending March 2024, with its total debt now reaching £16.8 billion.
In a statement, the company said:
“We recognize the need for further improvement and are investing in the largest upgrade of our network in 150 years.”
Surge in Pollution Incidents
The EA revealed in July that serious pollution events increased by 60% in 2024 compared to the previous year.
It attributed the rise to a mix of heavy rainfall, aging infrastructure, and enhanced monitoring that has exposed more incidents than before.
James Wallace, CEO of River Action UK, commented:
“Water companies across England and Wales continue to fall short, particularly in addressing major pollution events. This highlights the failure of the privatized water model. We urgently need structural reform to ensure fair service and environmental protection.”
New Rating System Coming in 2027
Starting in 2027, the EA plans to replace its current star system with a new five-tier scale, ranging from “failing” to “excellent.”
The government said this model will provide a clearer picture of performance, and companies will only reach the highest category if they meet top standards across all areas.
