The regulator found the company had breached key obligations relating to its wastewater operations and had unlawfully issued dividends despite poor environmental and customer performance.
Ofwat confirmed this morning that £104.5 million of the fine relates to serious failings in the company’s wastewater infrastructure — the largest financial penalty the regulator has ever imposed. A further £18.2 million has been levied for breaches connected to dividend payments, marking the first time Ofwat has penalised a water company over dividend decisions that failed to reflect its performance.
The regulator took aim at interim dividends totalling £37.5 million issued in October 2023 and a further £131.3 million paid out in March 2024. As a result of the enforcement action, Thames Water is now prohibited from issuing further dividends without Ofwat’s explicit approval.
David Black, chief executive of Ofwat, said: “Our investigation has uncovered a series of failures by the company to build, maintain and operate adequate infrastructure to meet its obligations. The company also failed to come up with an acceptable redress package that would have benefited the environment, so we have imposed a significant financial penalty.”
The move comes amid growing public and political pressure over the environmental performance of water companies, particularly regarding pollution and sewage spills. Environment secretary Steve Reed said: “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 announced the largest fine ever handed to a water company in history. The era of profiting from failure is over.”
The fine will be borne by the company and its shareholders, not customers.
Thames Water, which provides drinking water to 10 million people and wastewater services to 15 million across London and the Thames Valley, has been teetering on the edge of financial collapse for more than a year. Its current shareholders — including Omers, the Canadian pension fund, and sovereign wealth interests from China and Abu Dhabi — declared it “uninvestable” last year and wrote off their holdings.
In a last-ditch effort to stabilise the company, Thames’s board selected global investment firm KKR as its preferred bidder. KKR has offered a £4 billion cash injection in exchange for control, but the deal depends on complex negotiations with Ofwat over fines and future performance targets. Thames Water’s gross debt stands near £20 billion, and creditors are expected to take heavy writedowns under the current rescue plan.
Appearing before the Commons environment select committee earlier this month, Thames Water chairman Sir Adrian Montague and CEO Chris Weston said the company’s future now hinges on the outcome of talks with KKR and the regulator. Without a deal, they warned, penalties for continued failure — which could total more than £1 billion over five years — risk driving away investors entirely.
Ofwat’s current targets include improvements in pollution incidents, mains leakage, and customer service, all areas where Thames Water has consistently underperformed. Failure to renegotiate these targets could leave Thames unable to attract new funding or improve its credit rating from junk status, experts warn.
Should investment stall and the company remain unable to refinance, ministers and regulators may be forced to intervene directly, placing Thames Water into special administration — effectively returning the utility to public control.
