Government to Close Water Bonus Loopholes After Firms Exploit Legislation
The government is moving to close loopholes that have allowed bosses of failing water companies in England to continue receiving large bonuses, despite a ban enacted last year. This crackdown comes after revelations that executives at firms responsible for illegal sewage dumping and water shortages have still been paid millions, exploiting gaps in the Water (Special Measures) Act.
Loopholes in Bonus Ban Exposed
Last year, former environment secretary Steve Reed introduced legislation to ban failing water companies from paying bonuses to chief executives and chief financial officers. However, the ban only applied to performance-related bonuses from specific regulated companies. MPs have highlighted that this allowed firms to circumvent the ban by relabelling payments or using linked parent companies to distribute funds.
For instance, Thames Water, deemed a failing company, had its bonuses banned but still plans to pay top staff millions in retention payments from a controversial high-interest loan, classified as non-performance-related. Similarly, Yorkshire Water's chief executive, Nicola Shaw, received £1.3 million through an offshore parent company over two years, despite the ban. South East Water's boss, David Hinton, is on track for £400,000 in bonus pay by 2030, even after water cuts affected thousands in Tunbridge Wells for weeks.
Political Response and New Measures
As a result, Reed was accused of being outwitted by water companies. His successor, Emma Reynolds, is expected to bring forward tough measures to close the loophole during the transition from the current regulator, Ofwat, to a new super-regulator. This will be part of a new water bill anticipated in the king's speech in May.
A Department for Environment, Food and Rural Affairs source stated, We have warned the water companies to operate within the spirit as well as the letter of the law, but it appears they haven't, so we will need to look at a further crackdown. Under new plans, water CEOs will be prohibited from receiving bonuses via parent companies, and criteria for defining failing companies will be tightened to prevent relabelling of bonuses.
Campaigner and MP Criticisms
Feargal Sharkey, a water campaigner and former frontman of the Undertones, criticised the legislation, saying, The loophole was obvious from the beginning. The water companies were never going to operate within the spirit of the law. They have always tested the limits of the law. He added that warnings were issued before the act became law.
Mike Martin, the Liberal Democrat MP for Tunbridge Wells, where failures by South East Water left constituents without water, called the situation outrageous and argued that loopholes should have been closed already. He emphasised that Hinton should not receive his bonus given the company's performance.
Regulatory Actions and Future Steps
Ofwat has blocked £4 million in bonuses this financial year despite the loopholes and is consulting on changes to the ban. A spokesperson noted that the regulator expects companies to act within the spirit of the law and is considering forcing disclosure of all pay to bosses from related companies. Water minister Emma Hardy stated, It seems simple to me that bonuses should reflect performance, and if performance is not good enough, people should not get a bonus. It is not just about the letter of the law, but about the spirit of the law.
This move aims to enhance transparency and accountability in the water sector, addressing public concerns over pollution and service failures while ensuring executives are held responsible for their companies' actions.
