Water companies blocked from using customers' cash to pay for £6.8m in bonuses

Water firms have been blocked from using customers' money to fund millions of pounds in massive bonuses for top bosses. The regulator has stepped in to prevent the huge handouts from being recouped from household bills if they do not reflect "adequately reflect overall company performance."

This has stopped bonuses worth £6.8 million from being paid out in this way, equivalent to 73 per cent of the total executive awards proposed across the industry. Three firms - Thames Water, Yorkshire Water, and Dwr Cymru Welsh Water - were directly blocked from using customers' money to fund £1.55 million in bonuses.

Another six companies voluntarily said they would not pass on the cost of £5.2 million in bonuses to billpayers and shareholders will be paying instead. These are Anglian Water, Severn Trent Water, South West Water, Southern Water, United Utilities Water, and Wessex Water, with Ofwat saying it would otherwise have moved to halt these payouts. The largest is at Severn Trent Water where more than £2.6 million in bonuses is being paid to three executive directors.

Ofwat said new rules on water company bonuses and dividend payouts to shareholders were "beginning to bite" in their first full year since being introduced. In blocking the awards, it will adjust costs for the companies so they cannot recover them from people's bills.

The water watchdog posted on X: "Our new powers on bonuses mean that nine water companies won’t be using customers' money to fund them. This is because we believe these payouts don’t properly reflect company performance last year."

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Thames Water – more than £16 billion in debt and at the centre of growing public outrage over pollution and rising bills – had been planning to use customer cash to pay £770,000 in bonuses for its chief executive Chris Weston and chief financial officer Alastair Cochran. Action was also taken against £616,000 worth of payouts for top bosses at Yorkshire Water and £163,000 of bonuses at Dwr Cymru Welsh Water.

Secretary of State for Environment, Food and Rural Affairs Steve Reed said: "It is disgraceful that half of water companies have given out unjustifiable and unmerited bonuses. That is why this Government is introducing urgent legislation to ban the payment of unfair bonuses to polluting water bosses so payouts of this kind can never happen again.

"But there are deeper issues that need long-term solutions, which is why we have launched the largest review of the sector since privatisation."

Water firms paid out a total of £9.3 million in executive bonuses over the last financial year, Ofwat said it would be able to block bonus payouts entirely under the new water Bill being brought forward by the Government.

The regulator said the industry paid out £1 billion in shareholder dividends in 2023-24, though this was £400 million less than the previous year thanks to a "clearer link" to performance.

It named Thames Water, South East Water and Southern Water as being in need of action to address big holes in their finances. This means that the three firms are subject to high-priority monitoring and cash lock-up measures, which prevents them from paying dividends without approval from the regulator.

A further seven companies have been declared as having an "elevated concern" over their financial resilience, while six firms are deemed to be "standard", with no specific concerns over their financial health.

David Black, chief executive of Ofwat, said: "In stopping customers from paying for undeserved bonuses that do not properly reflect performance, we are looking to sharpen executive mindsets and push companies to improve their performance and culture of accountability. While we are starting to see companies take some positive steps, they need to do more to rebuild public trust.

"Our new rules on exec pay and dividends link both to company performance. Through these new rules, our enforcement action and our incentive regime, which has imposed £430 million in performance penalties since 2020, we are challenging companies to deliver improvements for both customers and the environment.”

Ofwat is expected to confirm in December how much it will allow water companies to increase their bills over the next five years.

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