Thames Water told to return '£2.87 per customer' by 2030

Serving 16 million customers, this would be the equivalent to £2.87 per household by 2030, less than the price of a meal deal.

The water watchdog said it was proposing to hit a raft of firms across the sector with penalties for not meeting targets on environmental and customer service in the 2025/26 financial year, which will be returned to households and businesses through their bills.

The total net bill reduction nationally under the draft plans is £240m by 2029/30, with £107m being returned through customer bills in 2027/28.

But the cuts to bills are likely to be offset for many customers by recent plans announced by Ofwat to allow water companies to hike annual tariffs by an extra £3.4 billion, on top of the 36 per cent average rise agreed over the five years to 2030.

(Image: Thames Water)

A Thames Water spokesman said: “To help smooth customer bills, Ofwat has agreed to defer the timing of some ODI penalties by one year.

"This does not remove or reduce the penalties. Customers still receive the full benefit, and Thames Water does not gain financially.

"We recognise these penalties reflect areas where our performance fell short. The deferral will prevent sharp year-on-year bill movements, which research shows our customers want us to avoid.”

Ofwat stressed that changes to bills are “affected by a range of factors and the effect will vary by company and customer type”.

It will make its final decision on so-called outcome delivery incentive payments by December 15, which will take effect on bills from April 1 next year.

The regulator sets performance commitments for each water company, with service levels that companies are expected to achieve over the five years to 2030.

Each commitment on performance has an outcome delivery incentive that has financial impacts for companies if they outperform or underperform against those targets.

Prime Minister Andy Burnham unveiled plans late last month for new laws to pave the way for public ownership of failing water firms, and vowed a 10-year path to a “very different water system” in the UK.

In his speech at the Labour Party conference, Mr Burnham said Environment Secretary Dame Angela Eagle would present a “strengthened Water Bill to Parliament”.

It raised the spectre of a possible temporary nationalisation of debt-laden Thames Water as the Government looks to decide on a £10 billion rescue takeover put forward by lenders for the UK’s biggest water supplier.

The announcement came after Mr Burnham said customers “cannot be treated as a blank cheque” after Ofwat announced plans in August to allow yet more bill increases on top of those already agreed.

The "blank cheque" relates to a permitted mechanism to support investment in vital infrastructure.

Thames Water was allowed to increase prices to fund investment in strategic water resource options, including the White Horse Reservoir.

Thames Water's spokesman added: “This funding will allow us to continue to develop vital water security projects, which will keep the taps flowing for millions of customers across London and the South East.

"We welcome the regulator's recognition of the urgent need for new sources of water. This summer has shown the increasing importance of delivering long-term water security for Britain.”