Water companies in England and Wales have been ordered to return £114m to customers through lower bills next year because progress on leakage and sewage spills has been “too slow”. In its annual water company performance report, the regulator, Ofwat, said the majority of water and wastewater companies were underperforming on targets set for 2020-25 to deliver better outcomes, for customers and the environment. As a result, some companies will have to return funds to customers, while others will be able to increase bills. Thames Water must return £101m to its customers, with Southern Water paying £43m and Dŵr Cymru (Welsh Water) £24m. By contrast, Severn Trent is able to increase bills by £88m and United Utilities, which serves the north-west of England, by £25m after hitting targets. Companies are judged against metrics including pollution incidents, customer service and leakage. This year, no company has been ranked in the “leading” category, 10 companies are in the “average” category, while seven are “lagging” – Anglian Water, Dŵr Cymru, Southern Water, Thames Water, Yorkshire Water, Bristol Water and South East Water. Critics have blamed the government and Ofwat for not acting sooner to tackle the crisis in the water industry. Gary Carter, GMB national officer, said: “The water sector operating model is broken. It has failed both customers and workers in the industry … The government and regulator have sat idly by and allowed big dividends to be paid out while our water industry crumbles.” Since 2020, water companies have shown some improvement in areas including leakage and internal sewer flooding and all but one achieved the performance level for unplanned water outages last year. However, progress has been too slow, Ofwat said. Over the past year, fewer than half of companies achieved their performance target on reducing pollution incidents and most companies reported an increase in annual leakage over the past year. There has also been an overall decline in customer satisfaction. Most companies have not fully invested their 2020-23 allowed funding to improve their performance. Water companies such as Thames Water and Southern Water have been fined repeatedly for discharging raw sewage into rivers and seas. Ofwat said it was “disappointed that companies have not made more progress in reducing pollution incidents”, especially the most serious sewage discharges. Steve Reed, the shadow environment secretary, said: “This devastating report demonstrates the complete failure of water companies to act on the sewage scandal … In government, Labour will force the water companies to clean up their filth through automatic, severe and instant fines and make bosses responsible for their negligence.” Ofwat said it was concerned about the “limited levels of detail” some companies provided on improving river water quality and reducing storm overflows. The two poorest performing companies in 2020 – South West Water and Southern Water – have made “sustained progress” in driving improvements, but more is required. Despite their poor performance, the companies paid out £65.9bn in dividends to shareholders in the years up to 2022, and took on £54bn in debt since they were privatised. Three water company bosses – at Yorkshire Water, Thames Water and South West Water – gave up their bonuses this year amid public anger over companies’ dumping of sewage in rivers. Overall, the 22 water bosses were paid nearly £25m in 2021-22. Firms have been criticised for failing to invest in ageing infrastructure, while high interest rates have raised the cost of servicing their billions of pounds of debt, raising concerns over their financial stability. David Black, the Ofwat chief executive, said: “The targets we set for companies were designed to be stretching – to drive improvements for customers and the environment. However, our latest report shows they are falling short, leading to £114m being returned to customers through bill reductions. While that may be welcome to billpayers, it is very disappointing news for all who want to see the sector do better. “It is not going to be easy for companies to regain public trust, but they have to start with better service for customers and the environment.” Ofwat is investigating all 11 water and wastewater companies and there are live enforcement cases for six companies for potential failures on sewage discharges into the environment – Anglian Water, Northumbrian Water, South West Water, Thames Water, Wessex Water and Yorkshire Water. There are live enforcement cases into Dŵr Cymru and South West Water in relation to the accuracy of reporting of leakage and per capita consumption performance. Despite the £114m deduction, most customers’ water bills will rise because of high inflation. Next Monday the water companies are due to submit their five-year business plans, covering 2025 to 2030, to the regulator. Some firms are likely to ask for significant rises of up to 50% in bills to pay for investment in infrastructure. Water companies in England apologised to customers in May and announced £10bn in infrastructure upgrades to fix the sewage issues, which will ultimately be paid for by customers.