Question to the Department for Environment, Food and Rural Affairs:

To ask the Secretary of State for Environment, Food and Rural Affairs, what assessment he has made of the impact of financial penalties on water companies on the behaviour of those companies.

The Government believes that financial incentives reinforced by a strong regulatory framework does make a positive impact on water company behaviour. During the 2019 price review (PR19), Ofwat set specific performance commitments for water companies. These commitments set the minimum standards of service that companies are expected to attain. In November 2022, Ofwat announced financial penalties of almost £150 million applying to 11 water companies, as a result of underperformance in areas such as water supply interruptions, pollution incidents and internal sewer flooding. This money will rightly be returned to customers through water bills in the next financial year.

Additionally, where companies have failed to meet their statutory or licence obligations, regulators can take more formal enforcement action. For example, in 2019, Ofwat imposed a £126 million penalty package on Southern Water, following failures in the operation of their wastewater treatment works and misreporting performance information at these sites. This package included a rebate of £123m to customers through their bills and a £3 million fine. Following this, Ofwat has pushed Southern Water to improve financial resilience and outcomes for customers and the environment, which, in September 2021, resulted in a £1 billion injection of equity from Macquarie Asset Management. Macquarie have acknowledged the performance issues of Southern and have committed to delivering a turnaround showing how strong financial regulation can positively impact performance.

On Wednesday 30^th November we announced we will be channelling money from water company fines into schemes to improve the environment.