Ofwat gets new powers to fine water companies for poor customer service

Ofwat can now fine water companies up to 10% of their annual turnover if they provide poor customer service, and is ‘soon’ to launch a consultation on banning certain water boss bonuses.

View of the river Thames. Source - GettyImages, Mike Kemp

The new powers conferred onto Ofwat under the Environment Act, which come into effect today, come after a fall in customer satisfaction across most companies, according to the regulator’s latest annual water company performance report.

READ MORE: How Ofwat has graded water companies' performance

Each water company in England and Wales now has a duty under a newly added ‘customer-focus licence condition’ to ensure the households they supply are well well-informed, have confidence that if something goes wrong it will be fixed, and that the “full diversity of customers’ needs is identified, understood and met by companies”.

The condition sets out the following set of principles which each company must meet:

  • Communicating proactively with customers, particularly during incidents being easy to contact
  • Providing support for customers when things go wrong and help to put things right.
  • Learning from past experiences, sharing these with others, and demonstrating continual improvement to prevent foreseeable harm to its customers.
  • Understanding the needs of its customers and providing appropriate support, particularly for customers in vulnerable circumstances and during incidents
  • Providing support for customers who are struggling to pay and customers in debt.

To ensure these overarching objectives are achieved, water companies must have policies and approaches to meet these principles, and must consult with the Consumer Council for Water (CCW). Companies must also explain in an “effective, accessible and clear way” how they meet Ofwat’s principles.

If a water company fails to provide “appropriate support” to customers then Ofwat now has the power to take enforcement action, this can include fines of up to 10% of the company’s turnover.

Ofwat chief executive David Black said the regulator expects the new licence condition to “deliver real improvements in customer service across the sector” and said “it is in the companies' interests to put customers at the heart of their business and provide levels of service that increase customer satisfaction".

He also described the move as Ofwat “putting water companies on notice”, and said companies who fail to improve should expect “significant fines”.

Mike Keil, chief executive of CCW, welcomed the news and said: “A complete change in culture is needed in some companies if we’re to improve people's experiences and repair fractured trust and the new customer licence condition can help to focus minds.”

It has also been announced that Ofwat will be taking forward a consultation to define the criteria for a ban on water company bosses receiving bonuses if they have committed serious criminal breaches, as announced in the government’s Plan for Water last year.

The ban would apply to all executive board members and chief executives, according to a press release issued over the weekend by DEFRA.

The policy would be expected to apply to bonuses in the financial year of April 2024 to 2025, however the government has said companies should follow these proposed new criteria on a voluntary basis from this year.

Founder of Windrush Against Sewage Pollution, Ash Smith, questioned why this move has not already been taken and noted that other company directors – for example in the waste sector – are “being jailed and having profits confiscated” while just bonuses are being looked at for water company bosses.

“The 'capture' of the regulators and government cannot be more clearly demonstrated than by the deferential and preferential way they treat water company directors running illegally operating companies," he said.

Environment secretary Steve Barclay said: “No-one should profit from illegal behaviour and it’s time that water company bosses took responsibility for that.

“Tougher action is needed to address poor performance by water companies, which is why I am pleased Ofwat is going further today on bonus payments. In cases where companies have committed criminal breaches there is no justification whatsoever for paying out bonuses. It needs to stop now.”