Image description: Water flowing out of a tap into a bathroom sink. Photo by Timur Shakerzianov on Unsplash
Ofwat has published draft determinations for water companies’ outcome delivery incentives (ODIs) for 2025-26, proposing a net £240m reduction in customer bills. This figure includes £107m expected to be returned to customers via lower bills in 2027-28.
Outcome delivery incentive system
The water industry has faced growing criticism in recent years amid rising bills, scrutiny over sewage pollution, high levels of debt and underinvestment in ageing infrastructure. However, water customers cannot switch away from their provider if it underperforms. Ofwat instead has an “outcome delivery incentive” (ODI) system of automatic payments or penalties based on agreed targets.
At the 2024 price review, Ofwat approved an initial £104bn investment programme to improve water and wastewater services and clean up rivers, lakes and seas. The regulator said the funding reflects the investment required in sewage treatment capacity, reliable pipes and networks, and resilient infrastructure to meet the UK’s growing water needs, however water companies are now responsible for delivering the improvements.
The draft determinations consolidate water companies’ assessments of their performance against targets set at Ofwat’s 2024 price review. These performance commitments cover areas including leakage, customer service and business customer experience, with financial rewards and penalties linked to whether companies meet their targets.
Providers could be forced to cut tens of millions of pounds from household bills
Ofwat has confirmed Yorkshire Water and Thames Water will have to return £75.1m and £45.8m, respectively, after missing targets in 2025-26. The Guardian reports that the payments will add to existing financial pressures on the companies, although Thames has been allowed to delay some of the penalties by a year. Thames and Yorkshire’s responses have been included in the Guardian’s coverage.
The other companies that must return money to customers include: Dŵr Cymru (a.k.a. Welsh Water), at £16.7m; South West Water, at £16m; and United Utilities; at £13.4m.
Financial rewards through higher customer bills
Some water companies who met their targets are set to receive upward outperformance payments, which will be covered through higher bills. Severn Trent and Northumbrian Water are in line to receive an extra £41.8m and £35.9m respectively, Ofwat said. Northumbrian customers’ bills could rise by an average of £21, while Severn Trent customers could pay £8 more per year the regulator said.
What’s next?
Ofwat said at this stage the figures were still at the draft stage and not every household would receive the same change. Bills are “affected by a range of factors and the effect will vary by company and customer type”, the regulator stressed.
Ofwat’s full assessment of company performance against targets is due to be published in its Operational Performance Report, previously known as the Water Company Performance Report, later this month.
Final determinations are due by 15 December 2026 and will affect bills from 1 April 2027. They will take account of final decisions on allowed-revenue changes arising from both ODI payments and the price review cost change process.
Responding to the publication of Ofwat’s draft Outcome Delivery Incentive (ODI) determinations for 2025–26, a government spokesperson told Water Magazine:
“This Government won’t allow customers to be treated as a blank cheque, and we are committed to protecting households from cost-of-living pressures. We will always challenge water companies where they seek to pass unnecessary costs onto households.
“We will deliver a strengthened Water Bill that puts people first, ensuring affordable access to clean water, driving down pollution, and strengthening public control.”
Read more:
The consultation on the draft determination: See the Ofwat website.