Ofwat has today launched a new consultation seeking feedback on a new rule that will prevent water companies from awarding bonuses to water bosses in certain circumstances.

A detailed 31 page consultation document contains the proposed rule setting out four areas which if the company triggers would prohibit any performance related pay being paid to directors who sit on the regulated company board.

Ofwat has acquired new powers under the Water Special Measures Act 2025 to set rules about remuneration and governance, including a rule specifically relating to prohibition of performance related pay.

Launching the consultation, Ofwat said:

“We know that public trust in the water sector is at an all-time low, and believe it is in the public interest to apply the rule as soon as possible.”

The proposals are based on feedback from an earlier consultation launched in October 2024, which set out Ofwat’s initial thinking on three remuneration and governance rules required by the Act. This consultation only focuses on the rule to prohibit PRP, with the other two rules due to be consulted on later this year.

Ofwat’s proposed rule (the PRP Prohibition Rule) will require companies to prohibit the payment of PRP for the relevant year when a water company has failed to meet any of the following four key standards:

• Consumer matters – When Ofwat makes a decision that a breach of a principal statutory duty (as defined in the Water Industry Act 1991) warrants a financial penalty.
• Environment – if the company has received a 1-star (“poor performing”) rating in the Environmental Performance Assessment (EPA) for the calendar year preceding the end of the PRP payment year.
• Financial resilience – if the company breaches its licence requirement to hold a sufficient credit rating and/or subsequently fails to comply with a enforcement order or undertaking.
• Criminal liability – if the company is convicted of any offences (with some exceptions allowed).

Subject to the consultation, the PRP Prohibition Rule will apply to the largest companies holding an appointment as a water and/or sewerage undertaker under the Water Industry Act 1991 collectively referred to as ‘undertakers’, ‘water companies’ or ‘companies’ in this document.

The rule will not apply to new appointees (known as NAVs) for the time being, although the regulator intends to consider bespoke standards that will apply to them in the future.

Ofwat is encouraging all interested stakeholders to respond to the consultation, which will close on 29 April 2025. It is expected that the rule will come into force later this year.

Subject to the responses the regulator receives to the consultation, Ofwat intends to implement the PRP Prohibition Rule for PRP paid from 1 April 2024 and onwards. It also plans to conduct a review of how this rule has operated and what outcomes it has delivered in 2027.

The consultation document contains:

• the proposed wording of the PRP Prohibition Rule
• the associated non-mandatory guidance for companies to help them comply with the rule
• the rationale behind what Ofwat has proposed

Ofwat said:

“We welcome responses to the consultation on the proposed rule and ask stakeholders to make us aware of any considerations or challenges with implementation that we may encounter as well as any other alternative ways to achieve the same outcome we set out in the consultation.”

Consultation responses should be emailed to: This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

The regulator intends to publish responses to the consultation on its website at www.ofwat.gov.uk. Subject to the information outlined in the consultation document, by providing a response to the consultation respondents are deemed to consent to its publication.

Click here to download the consultation document