What are the latest penalties for water firms, and will they reduce bills?

Water companies were yet again in the spotlight on Tuesday after Ofwat forced them to hand a collective £157.6 million back to customers for underperformance.

The regulator said firms were missing their targets on pollution, leaks and customer satisfaction – and vowed to “challenge” companies to improve their records.

Here the PA news agency looks at what the latest raft of penalties mean – and whether it will change anything for the embattled sector.

– What happened?

Every year, Ofwat rates water companies’ performance against a set of targets laid out in 2019 for the five-year period until 2025.

Those include reducing the amount of sewage they allow to overflow into rivers, cutting the number of leaks and improving customer satisfaction.

If they fail to meet these, it makes them hand money back to customers in the form of lower bills in the following years.

Companies that hit their targets are allowed to make customers pay slightly more as an incentive.

– How did the water companies do?

Not very well.

Companies have only reduced leaks by 6% since 2019, despite promising a 16% reduction.

Pollution incidents were only 2% lower than in 2019, despite firms promising a 30% drop over the five year period.

And customer satisfaction scores across the sector have hit the lowest level since Ofwat started measuring it in 2020.

There are many more metrics, but the regulator groups the firms into three handy categories called “lagging”, “average” and “leading”.

For the second year running, not a single firm made the latter.

– So will my bills go down?

No.

Even the biggest penalty, of £56.8 million for Thames Water, will only equate to a couple of pounds off each customers’ bill.

Meanwhile, Ofwat has separately proposed letting firms hike bills by £94 on average per customer over the next five years, subject to a final decision in December.

In Thames Water’s case, the regulator has suggested a £99 increase over five years – less than half of what the company has asked the regulator for.

That means despite the missed targets, any discounts from Tuesday’s penalties will be more than cancelled out by the yearly growth in the price of water.

– Is anything being done to improve matters?

Labour has suggested sweeping new laws which could see bosses face up to two years in jail if they obstruct regulators – but so far nothing has come into force.

Ofwat, meanwhile, is investigating each firm individually over sewage spills, in what it says is a totally separate action to the annual performance review.

Helen Campbell, Ofwat’s senior director for sector performance, vowed to “challenge” firms, adding that they must spend money from bills hikes more “effectively” in future.

Ms Campbell suggested firms use telemetry to measure the performance of pipes and sewers, which could help them identify leaks faster.

– Will the penalties help?

It’s impossible to know.

But for context, the total £157.6 million penalty announced on Tuesday across the entire industry is less than one company – Thames Water – paid out to its shareholders in dividends last year.

James Wallace of campaign group River Action, called the penalties “a drop in the ocean” for companies.

Ofwat’s CEO, David Black, said the latest report is “stark evidence that money alone will not bring the sustained improvements that customers rightly expect”.

He added: “It is clear that companies need to change and that has to start with addressing issues of culture and leadership.”

Gary Carter, of the union GMB, said Government intervention is needed.: “If the private sector wants to run water companies then shareholders should be investing their own money not expecting bill payers to bail them out.

“Ofwat is calling for a change in culture in the water companies, but it’s a sector which is broken.

“Water companies are not going to change themselves. The Government needs to go further and faster and fundamentally reform the whole sector.”