English and Welsh water firms could be forced to return £107m to customers through lower bills after the regulator said they had missed performance targets. Yorkshire Water customers could see bills fall by £27 on average, while Thames Water bills could decrease by £7, according to Ofwat estimates.
Penalties for missed targets
Ofwat, the regulator for the privatised water industry in England and Wales, operates an “outcome delivery incentives” system of automatic payments or penalties based on agreed targets, as customers cannot switch providers. Yorkshire and Thames will have to return £75.1m and £45.8m respectively after missing targets in 2025-26, Ofwat said, adding to financial pressures on the companies.
Yorkshire is among companies subject to enhanced monitoring by Ofwat over its financial resilience, while the government is considering whether to bring Thames Water under public control after years-long negotiations to reduce its debts. Other companies that must return money include Dŵr Cymru (Welsh Water) at £16.7m, South West Water at £16m, and United Utilities at £13.4m.
Rewards for meeting targets
Some companies will receive reward payments for meeting targets, covered by higher bills. Severn Trent and Northumbrian Water are in line to receive an extra £41.8m and £35.9m respectively, Ofwat said. Northumbrian customers’ bills could rise by an average of £21, while Severn Trent customers could pay £8 more per year.
Overall, the industry is expected to cut its bills by a net £240m for failures during 2025-26, with £107m returned to customers via lower bills in 2027-28. Ofwat said the figures are still at the draft stage, and not every household will receive the same change, as bills are “affected by a range of factors and the effect will vary by company and customer type”.
Next steps and impact
Ofwat will make its final decision on payments by 15 December, taking effect on bills from 1 April 2027. The announcement follows Ofwat’s recent decision to allow water companies to increase annual tariffs by an extra £3.4bn, on top of the 36% average rise agreed over five years to 2030, to fund investments in infrastructure.
Andy Burnham last month said the government would pave the way for public ownership of water firms and promised a 10-year path to a “very different water system in the UK”. A government spokesperson said: “This government won’t allow customers to be treated as a blank cheque, and we are committed to protecting households from cost-of-living pressures. We will always challenge water companies where they seek to pass unnecessary costs on to households.”
A Yorkshire Water spokesperson said: “We recognise that our performance last year fell short of the standards we and our customers expect in some areas, and we remain focused on improving. We are already delivering Yorkshire’s largest ever environmental investment programme and with the help of over 1,000 new colleagues, we’ve completed improvements at almost 300 locations across the county.”
