Water Industry Bonus Ban to Be Tightened as Ofwat Warns of Public Trust Damage

Ofwat is to accelerate a review of the water-sector bonus ban after warning that large payments to executives may be undermining the rules and damaging public trust. The regulator is concerned that retention payments and substantial base-pay increases could allow companies to reward bosses despite restrictions on performance bonuses.

The ban, introduced under the Water Special Measures Act, prevents water companies in England and Wales from paying executive bonuses where environmental or operational performance falls below required standards. For 2025-26, Ofwat blocked bonuses at nine water companies, including Thames Water, Yorkshire Water, Southern Water and South West Water.

The regulator said the ban has already stopped more than £10 million in potential bonuses over the past two years. In the last financial year alone, more than £6.5 million of potential bonuses were blocked across nine companies.

Ofwat warned that the current rules do not cover other forms of remuneration, such as retention payments or salary increases. It said companies using such payments in ways that appear to bypass the spirit of the ban risk eroding public confidence in the sector.

The review will examine whether retention payments and large, unexplained base-pay increases should be brought within the scope of the ban. It will also consider whether payments made by parent companies should be covered.

Environment Secretary Dame Angela Eagle said water bosses must not be allowed to avoid the ban by disguising bonuses as other forms of pay. She has asked that the review be wide-ranging and close loopholes that reward failure

The government said one-star environmental performance ratings automatically trigger a bonus ban for executives at Southern Water, Thames Water, South West Water and Yorkshire Water. Companies responsible for a Category 1 pollution incident are also subject to the ban.