Severn Trent in line for payments as Ofwat penalises other water firms

Water customers in England and Wales are set to get a net £240m off their bills by 2029-30 after the regulator, Ofwat, proposed penalties for companies that missed their performance targets. But Severn Trent, which supplies Birmingham, is among the companies set to receive the largest rewards for doing well.

How the system works

Each year, water companies are measured against targets known as outcome delivery incentives. They cover everything from customer service and leaks to pollution and the environment. Companies that miss targets pay money back to customers through lower bills, while those that beat them can recover extra money through higher bills.

Ofwat's draft decisions cover performance in 2025-26. Of the net £240m reduction, £107m would be returned through bills in 2027-28.

Yorkshire Water and Thames Water face the largest penalties, which will be applied in April 2027.

Severn Trent's payments

Severn Trent reported £51.41m of outperformance payments for 2025-26. To avoid a sharp rise in bills in a single year, it proposed spreading some of the money over later years, and Ofwat has accepted that approach in its draft decision, targeting £44m of wastewater outperformance payments this year.

"We agree that deferring some of the outperformance payments will help to partially manage bill volatility," Ofwat said.

What happens next

Final decisions are due by 15 December 2026, and will affect bills from 1 April 2027. They will also take account of separate decisions on changes to the amount companies are allowed to recover to cover rising costs.

Why rewards are controversial

Rewards for water companies are contentious at a time when many households are angry about rising bills and sewage spills into rivers. Bills across England and Wales have risen sharply under the latest price review, covering 2025 to 2030, which allowed companies to fund a major programme of investment in pipes, treatment works and reservoirs.

Supporters of the incentive system say it is the main way the regulator can push companies to improve, and that it is fair for customers of better-performing companies to pay a little more while those served by worse ones get money back. Critics argue that companies should not be rewarded for meeting basic standards.

The government has promised a major overhaul of how the water industry is regulated, including replacing Ofwat with a new single regulator.

Drought pressure

The decisions come as Severn Trent's region remains in drought after a very dry year. The company has asked customers to use water wisely to protect supplies through the winter and into next year, and the Environment Agency says sustained rainfall is needed before reservoir and river levels can recover.

Customers struggling to pay their water bills can ask Severn Trent about social tariffs and payment plans, which can reduce what they pay.