English and Welsh water firms could be forced to return £107m via lower bills

Thames Water, Yorkshire Water and other providers could be forced to cut tens of millions of pounds from household bills after the regulator said they had missed performance targets.

Customer bills at Yorkshire Water could fall by £27 on average, while those at Thames could decrease by £7, according to estimates by Ofwat, the regulator of the privatised industry in England and Wales.

The water industry has faced growing criticism in recent years amid rising bills, scrutiny over sewage pollution, high levels of debt and underinvestment in ageing infrastructure.

As water customers cannot switch away from their provider if it underperforms, Ofwat instead has an “outcome delivery incentives” system of automatic payments or penalties based on agreed targets.

Yorkshire and Thames will have to return £75.1m and £45.8m respectively after missing targets in 2025-26, Ofwat said. The payments will add to the financial pressures on the companies.

Yorkshire is among the 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 a years-long negotiations to reduce its crippling debts.

The other companies that must return money to customers include: Dŵr Cymru (or Welsh Water), at £16.7m; South West Water, at £16m; and United Utilities in north-west England, at £13.4m.

However, some companies will receive a reward payment because they met their targets – covered by higher bills.

Severn Trent, which serves the Midlands, south-west England and parts of Wales, 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, the regulator said. 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. Of this, £107m is expected to be returned to customers via lower bills in 2027-28.

Ofwat said at this stage the figures were still at the draft stage and not every household would receive the same change. Bills are “affected by a range of factors and the effect will vary by company and customer type”, the regulator said.

It will make its final decision on the payments by 15 December, which will take effect on bills from 1 April 2027.

Ofwat recently announced that water companies could increase annual tariffs by an extra £3.4bn, on top of the 36% average rise agreed over five years to 2030. Customer bills are rising to pay for long-overdue investments to fix leaking pipes and treatment works, as well as to pay for new assets like reservoirs.

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”.