A number of water companies have been banned from paying “unfair” bonuses to some of their senior executives under new rules, the government has announced.
The measures apply to water companies that do not meet environmental and consumer standards, are not financially resilient or have been convicted of a criminal offence.
There has been growing public concern about sewage spills and rising bills for years while water companies have paid out £112m in rewards to executives over the past decade.
Under the new Water Act, six firms are banned from paying some bonuses this year including Anglian Water, Southern Water, Thames Water, United Utilities, Wessex Water and Yorkshire Water.
The ban, which is backdated to April 2024, means regulator Ofwat can force firms to claw back bonuses that have been paid or face enforcement action. It applies to share awards as well as cash.
It is part of new measures in the Water Act which came into force on Friday.
Environment Secretary Steve Reed said the public had been “furious” over bonuses for water firm bosses “despite overseeing record levels of sewage pouring into our rivers, lakes and seas”.
“With this government, the era of profiting from pollution is over,” he told the BBC’s Today programme.
When challenged on the question of whether companies would try to get around the ban by raising executives’ base salaries, as happened with banking bonuses, he said water firms “would be foolish if they didn’t realise they need to rebuild trust with their own customers”.
“They need to rebuild that broken relationship,” he said. “I don’t think they will do that, but we’re keeping a watching eye, and there are opportunities to intervene if we needed to.”
But Liberal Democrat Environment spokesperson Tim Farron called the government’s announcement “half-baked”.
He added that it “doesn’t touch the sides in enacting fundamental reform – especially if water companies can still workaround bonuses and wriggle off the hook”.
In the last year alone, £7.6m in bonuses were paid to water bosses in England, the government said.
Water UK, which represents companies in the industry, said that firms’ independent committees, which decide on performance-related pay, will abide by the laws set by government.
It added: “Water companies are focused on investing a record £104bn over the next five years to secure our water supplies, end sewage entering our rivers and seas and support economic growth.”
This week, a review found that the water industry in England and Wales is failing.
The independent Water Commission, led by former Bank of England deputy governor Sir Jon Cunliffe, said in its interim findings that public trust had been shaken by “pollution, financial difficulties, mismanagement [and] infrastructure failures”.
Customers have seen bills rocket as water firms try to raise funds to invest in crumbling infrastructure.
The commission said that the UK’s water system has suffered “deep-rooted, systemic and interlocking failures over the years”.
This included a “failure in government’s strategy and planning for the future”.
Last month, Thames Water was fined £122.7m for breaching rules over sewage spills and shareholder payouts, the largest ever fine issued by Ofwat.
The highly-indebted company serves about a quarter of the UK’s population, mostly across London and parts of southern England, and employs 8,000 people.
Earlier this week, Thames suffered a major blow in an attempt to secure its future after US private equity giant KKR pulled out of a £4bn rescue deal for the company.
In April, campaigners found that the number pollution incidents in England was at a 10-year high.