The Government has granted Ofwat new powers to block water companies from paying bonuses to CEOs and CFOs – the new rule will come into force tomorrow to ban unjustified executive bonuses in the water sector.

Bonuses for the most senior directors will be banned for serious breaches and other failures in performance. The ban will immediately affect six water companies – Anglian Water, Southern Water, Thames Water, United Utilities, Yorkshire Water & Wessex Water.

The rule is part of a set of new powers for Ofwat under the Water (Special Measures) Act 2025 which will come into force from tomorrow to ban executive performance bonuses when water companies fail to meet certain standards set out in the Water (Special Measurers) Act.

The new powers will see water company executives banned from receiving a bonus if they trigger standards relating to consumer and environmental matters, criminal liability and financial resilience.

Ofwat will be able to take tougher and quicker action on water companies that fail to protect the environment and customers and hold executives to account by blocking their bonuses completely.

This builds on Ofwat’s previous powers on the issue, which stopped companies from recovering the cost of unjustified bonuses from customers. This policy, which came into full effect last year, saw three companies blocked from making customers foot the bill for executive bonuses totalling £1.5 million in the 2023/24 financial year.

There are four requirements that Ofwat will be measuring and monitoring companies against under the strengthened powers, to ensure any executives who do not deserve a bonus will not receive one.

1. 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 and/or subsequently fails to comply with an associated enforcement order of undertaking.

2. Environment – if a company has had a category 1 pollution incident as recorded by the environmental regulators' Environmental Performance Assessment (EPA) for the calendar year finishing in the PRP year or has received a 1-star ("poor performing") rating in the EPA.

3. Financial resilience – if a company breaches its licence requirement to hold a sufficient credit rating and/or subsequently fails to comply with an associated enforcement order or undertaking.

4. Criminal liability – if a company is convicted of an offence (with some exceptions outlined in Ofwat's guidance).

Public trust in the water sector is at an all-time low and it is in the public interest for Ofwat to apply the new rule to bonuses paid in relation to the 2024/25 financial year. Ofwat will be reviewing all performance related bonuses paid in relation to the financial year starting 1 April 2024 onwards and will announce any action it decides to take for non-compliance with the rule later in the year.

Where a water company does not comply with the rule, Ofwat may issue a direction to the company which may include requiring the bonuses to be stopped or clawed back. If the company does not comply with a direction, Ofwat will take enforcement action.

Helen Campbell, Senior Director for Sector Performance at Ofwat, said:

“Water company bosses have a clear duty to safeguard our precious natural environment.

“That’s why we welcome these new powers from government – they strengthen our ability to hold water companies accountable to their customers by stopping their most senior directors from taking bonuses when there have been serious environmental or other failings.

“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.

“We will use this new rule to drive lasting change in the culture and behaviour of leadership in water companies. This is essential to delivering our vision of a secure and sustainable water sector that acts in the best interests of customers, communities, and the environment."