Thames Water has been hit with a £56.8 million penalty as it fails to hit key targets on reducing pollution - and it could mean reduced bills for customers thanks to action from the water watchdog. 

Water companies will have to pay a £157.6 million penalty after missing key targets on reducing pollution, leaks and supply interruptions while customer satisfaction continues to fall, water company regulator Ofwat has said.

Thames Water moved up a category from “lagging” to “average” as it met some performance targets on leakage and supply interruptions.

But the heavily indebted water provider will have to pay £56.8 million, the biggest fine for the fourth straight year.

Thames Water was the firm hit with the largest penalty over under-performance on a range of issues, including pollution. Thames Water was the firm hit with the largest penalty over under-performance on a range of issues, including pollution. (Image: PA) Despite water companies committing to reduce pollution incidents by 30%, there has only been a 2% reduction, according to Ofwat. 

This summer, Thames Water announced plans to hike customers' bills, causing outrage among Berkshire communities that have had to suffer years of overflowing sewers and sewage dumped in scenic water ways.

James Wallace, CEO of campaign group River Action, said the fines were "a drop in the ocean" in comparison to the amounts water companies have issued in dividends and interest payments to investors.

The water pollution activist said: “Clean and abundant water and healthy ecosystems are fundamental to human life and our economy.

“Yet, water companies continue to pollute the nation’s waterways without facing the full force of the law or sufficient penalties.”

Ofwat judges the performance of water companies in England and Wales each year against the “stretching” targets they set in 2019 for a five-year period until 2025.

If they fail to meet these, Ofwat restricts the amount of money they can take from customers. Ofwat said the figures are provisional until it completes a review process.

In an annual performance report on water firms, Ofwat said customer bills will be slashed in 2025-26 to reflect the penalties, with the total rebates calculated in December.

David Black, chief executive of Ofwat, said: “This year’s performance report is stark evidence that money alone will not bring the sustained improvements that customers rightly expect.

“It is clear that companies need to change and that has to start with addressing issues of culture and leadership. Too often we hear that weather, third parties or external factors are blamed for shortcomings.

“Companies must implement actions now to improve performance, be more dynamic, agile and on the front foot of issues. And not wait until the Government or regulators tell them to act."

A Thames Water spokesperson said the size of the penalty reflects that Thames Water has three to four times more customers than other water companies.

They added: “We have achieved the largest reduction in financial penalties across the industry and are one of only three companies to improve their ODI performance over the year."