The national water regulator Ofwat has imposed a record £122.7 million penalty on Thames Water following two separate investigations into the company’s operations and dividend practices.
The fine, which is the largest ever issued by the regulator, includes £104.5 million for serious failings in the company’s wastewater management and a further £18.2 million for breaching rules around dividend payments.
Ofwat said the penalties were a response to “unacceptable” damage caused to the environment and customers, marking the first time it has fined a company over paying dividends regardless of performance.
Thames Water found guilty of failures in wastewater ops, and improper dividend payouts
The most serious penalty, amounting to £104.5 million, relates to multiple breaches connected to Thames Water’s wastewater operations.
The regulator found the company failed to properly build, maintain, and operate essential infrastructure, which led to repeated pollution incidents and service failures.
In addition, Ofwat imposed an £18.2 million fine for improper dividend payments made in October 2023 and March 2024.
The watchdog ruled that £37.5 million in interim dividends and a further £131.3 million paid to Thames Water Utilities Holdings Limited were in violation of regulatory guidelines.
The regulator highlighted that these payments were made despite the company being in significant financial difficulty, with Ofwat now placing Thames Water in a “cash lock up,” prohibiting further dividends without regulatory approval.
Significance of the penalty
Ofwat’s chief executive, David Black, strongly criticised the company’s conduct. “This is a clear-cut case where Thames Water has let down its customers and failed to protect the environment,” he said.
Our investigation has uncovered a series of failures by the company to build, maintain and operate adequate infrastructure to meet its obligations.
Black added that Thames Water failed to propose any adequate redress package to address the environmental harm caused, leaving Ofwat no option but to impose significant financial penalties.
In response, a spokesperson for Thames Water stated the company “takes its responsibility towards the environment very seriously,” and noted that efforts are already underway to address storm overflow issues highlighted in the investigations.
They also defended the dividend payments, citing a review of the firm’s legal and regulatory obligations.
Environment secretary Steve Reed the government has launched the toughest crackdown on water companies in history.
“Last week we announced a record 81 criminal investigations have been launched into water companies. Today Ofwat announce the largest fine ever handed to a water company in history,” he said.
The era of profiting from failure is over. The Government is cleaning up our rivers, lakes and seas for good.
Mounting debt and risk of nationalisation continue to loom
The fines come as Thames Water struggles to remain solvent amid soaring debt, operational issues, and growing public scrutiny.
The company, which serves 16 million people across London and southern England, narrowly avoided de facto nationalisation earlier this year after securing a £3 billion emergency loan in February.
That deal allowed the company to continue operating for at least another year, giving it time to restructure its nearly £20 billion in debt.
However, the newly announced fines were not included in its financial planning for the next regulatory period, casting fresh doubt on its financial future.
The firm, which employs around 8,000 people and is responsible for supplying water to about a quarter of the UK’s population, had been forecast to run out of funds by March.
The emergency loan staved off immediate collapse, but some lenders opposed its terms, while critics, including Liberal Democrat MP Charlie Maynard, argued the loan was not in the public interest.
Customers are set to face a 31% rise in water bills from April.
Ofwat has clarified that the penalties announced this week will not impact customer bills.
As pressure mounts to clean up its operations and win back public trust, Thames Water must now balance financial survival with an urgent need to fix long-standing infrastructure issues and avoid further environmental damage.
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