UK water regular Ofwat has gained new powers to ban unjustified executive bonuses at polluting and poorly performing water companies.
Bonus bans can be applied when water companies fail to meet certain standards set out in the Water (Special Measures) Act. These standards relate to consumer and environmental matters, criminal liability and financial resilience.
These new powers build on Ofwat’s existing authority to stop companies from recovering the cost of unjustified bonuses from customers. It has been used to stop payments and retrieve money from three companies, including Thames Water, that made customers pay for executive bonuses totalling £1.5 million in the 2023/24 financial year.
Now, the additional powers in the Water (Special Measures) Act 2025 enable the regulator to take tougher and quicker action against water companies in the form of bonus bans.
To assess whether exec bonuses should be blocked, Ofwat said it would review companies’ compliance with the Act when they announce their executive remuneration decisions. If the regulator believes any of these decisions might not comply, it will consider whether to issue a direction to the company to stop bonus pay outs. It may also include directions for the company to clawback any bonuses that have already been paid.
Helen Campbell, senior director for sector performance at Ofwat, said: “[Unjustified] Company bonuses continue to cause real concerns and understandably damage trust, so this new power significantly increases the pressure on water company executives to become better custodians of our rivers and seas. ”
The Water (Special Measures) Act also requires Ofwat to develop two further rules: to require water companies to appoint and have in place people in senior roles only if they meet specified standards on fitness and propriety; and to require companies to involve consumers in decisions that are likely to have a material impact on consumer matters.
The regulator plans to launch consultations for these two rules in the coming months with the aim of implementing them in the latter part of 2025.
Earlier this week (4 June, 2025), Northumbrian Water was hit with a £15.7m enforcement payment for wastewater failings. The company and their shareholders will cover the payment, not customers.
Ofwat said the enforcement package payment is greater than the penalty which would otherwise have been imposed on the company.
Last month, Thames Water was told to pay a record £122.7 million fine after Ofwat found failings in the company’s wastewater operations and shareholder dividend payouts.
Natalie Knight-Wickens, partner at law firm Spencer West LLP, said: “The use of the new powers offered to Ofwat and other regulators, show that they are indeed not scared to use them where necessary. A justified dividend is rooted in performance, distributable profits, and responsibility. An unjustified one? It’s when payouts are made despite poor service and financial manipulation. In Thames Water’s case, the regulator highlighted a mismatch: dividends paid despite environmental violations, financial engineering of the numbers and a lack of service improvements.
“You can’t fake performance and expect no one to notice. Capitalising costs, inflating reserves, and spinning the numbers might keep investors happy in the short term, but regulators are watching. And so are your customers.”
