Water firms blocked from using billpayer cash for ‘unjustifiable’ bonuses

Troubled Thames Water is among nine water companies prevented from using billpayer money to fund £6.8 million of “unjustifiable” bonuses under new powers handed to the regulator.

Ofwat said owners and shareholders of the water firms will instead have to pick up the tab for the payouts after it found they were not linked closely enough to company performance.

Debt-laden Thames Water is one of three firms – also including Yorkshire Water, and Dwr Cymru Welsh Water – which were directly blocked from allowing customers to pay £1.55 million of bonuses.

The watchdog said a further six companies had voluntarily decided not to push the cost of executive bonuses worth a combined £5.2 million onto customers, with shareholders instead paying.

Environment Secretary Steve Reed said the bonus payouts were “unjustifiable”.

It comes at a time of growing public and political pressure on the sector to address a dire recent performance on sewage pollution and leaks while customer bills are soaring.

Ofwat revealed that Thames Water – more than £16 billion in debt and in the throes of trying to secure £3 billion in emergency funding – was planning to use customer cash to pay £770,000 in bonuses for its chief executive and chief financial officer.

Thames Water’s chief executive Chris Weston – who took on the job in January – was awarded a £195,000 bonus for his first three months at the firm, according to its annual report.

Ofwat also took action against £616,000 worth of payouts for top bosses at Yorkshire Water and £163,000 of bonuses at Dwr Cymru Welsh Water.

Water firms paid out a total of £9.3 million in executive bonuses over the last financial year, Ofwat revealed.

In a separate report from the regulator, it also said that £1 billion was paid out in dividends to shareholders in water firms over 2023-24, while 10 companies were placed onto its financial watch list.

But Ofwat said the dividend payouts were £400 million less than in 2022-23 as it insisted new rules were “beginning to bite” in their first full year since being introduced.

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.”

Ofwat said it would be able to block bonus payouts entirely under the new water Bill being brought by the Government.

Mr 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.”

He also recently commissioned a review of the sector by former Bank of England deputy governor Sir John Cunliffe.

In Ofwat’s latest financial resilience report also out on Thursday, 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 must seek approval before paying out dividends.

A further seven companies have been declared as having an “elevated concern” over their financial resilience.

Water firms have asked Ofwat to grant steep hikes in customer bills for the five years to 2030 despite performance issues.

Ofwat is expected to confirm in December how much it will allow them to increase their bills by over the period.

River Action chief executive James Wallace said moves to block the bonus payouts were “long overdue”.

He said: “It is about time Ofwat put an end to water company chief executives enriching themselves at the expense of hard-pressed bill payers.”