Tougher targets take their toll on environmental and operational performance

(by Karma Loveday)

Environment secretary Dame Angela Eagle promised to go door-knocking to Category 1 polluters and to beef up the executive bonus ban in response to the latest water industry performance data. As part of work towards integrated regulation, the watchdogs in England and Wales combined forces to publish their first joint Water Industry Performance Insights report last week. This brought together previously published data, such as the Drinking Water Inspectorate’s annual reports for England and Wales, with new data from other individual regulators that was published in parallel – notably the Environmental Performance Assessment (EPA) and Ofwat’s scrutiny of water company operational performance.

The intention was to provide a “clearer and more complete picture,” a statement said, in the name of better accountability and transparency. Water minister Emma Hardy told Parliament the approach leaves “companies with nowhere to hide poor performance… Joined up scrutiny means companies can no longer point to progress in one area to distract from failures in another”.

However, there may be unintended consequences. The Insights report itself is very high level, providing only a fleeting snapshot (a page per company) covering drinking water, environmental and service delivery performance. (Financial performance remains excluded and was published separately by Ofwat in its Monitoring Financial Resilience report a few weeks ago).

Meanwhile, the simultaneous publication of multiple data sets is something of a deluge, with only the most committed readers likely to plough through the whole package. As such, most media coverage has centred on the EPA.

The unified reporting does, however, lay bare the disparity between the industry’s sterling drinking water quality performance and its struggles on the environmental side.

Six chief executives – all of those with either a Category 1 pollution incident or a one-star EPA rating attributed to their company – will see their bonuses blocked automatically by Water Special Measures Act provisions which took effect last year. Eagle’s reference to strengthening the ban relates to public anger about other-branded rewards that have continued to be paid in spite of tighter bonus rules.

A Defra statement also said the environment secretary will "set out a clear set of improvement actions for each water company. These will include tackling leakage from pipes, delivering sustained reductions in pollution incidents, and improving customer satisfaction scores”. It also reminded us that: “The Government has made clear that nothing is off the table when it comes to holding underperforming companies to account.”

Headlines from the two main new datasets published last week is summarised below.

EPA: fewer than half of stars achieved, but Severn Trent shines

Tightening standards contributed to the water industry securing fewer than half of the total stars available from the Environment Agency’s Environmental Performance Assessment (EPA)  for 2025. It achieved 16 stars overall of a possible 36, down from 19 in 2024 and the smallest number since the EPA began in 2011.

Severn Trent was the standout performer, with the top ranking (industry leading) four stars. All other English companies secured either one (poor) or two (requires improvement) stars. Across all six metrics and all nine companies, only 46% of metric ratings (25 out of 54) achieved target (green).

There were 74 serious pollutions (Category 1 and 2), 61 of which came from four firms: Thames Water (24), Yorkshire Water (13), Southern Water (12), and Anglian Water (12). At sector level, this was a slight improvement on 2024 (75), but a deterioration on longer term performance (47 in 2023, 45 in 2022 and 62 in 2021). Five firms were responsible for six Category 1 incidents: Severn Trent (two), Anglian (one), Southern (one), South West (one) and Thames (one). No company achieved zero serious pollutions.

Total pollutions (Category 1-3) were down slightly to 2,666 incidents, but still considered too high. 2025 numbers were 40% higher than in 2016. Thames Water had the most incidents (464), followed by Anglian Water (433), United Utilities (388), Yorkshire Water (335) and Southern Water (301). Normalised to incidents per 10,000km of sewer, Southern Water performed the worst, with 64 incidents per 10,000km sewer.

97.4% of sewage and water treatment works were compliant with numeric permit conditions for discharging treated wastewater – a sector decline, with only two companies achieving green.

Only 80.2% of planned Water Industry National Environment Programme schemes were completed, the lowest percentage since the metric was introduced in 2011.

More positively, 99.99% of sewage sludge produced met the requirements and all firms were rated green. And pollution self-reporting reached its highest level at 87%, with only South West Water not achieving green.

For 2025, the total pollution incident metric thresholds and serious pollution incidents metric thresholds have been tightened as part of a five-year glide path. The Supply Demand Balance Index metric was suspended for 2025 as a new measure is being developed.

The EA said an updated EPA methodology will be implemented for 2026-30 with “new metrics providing a more holistic picture and new targets reflecting our environmental expectations”.

Welsh Water was rated separately by Natural Resources Wales, but also scored two stars. Hafren Dyfrdwy’s smaller size means it is not subject to a full EPA. It performed well, with no serious pollutions, 100% compliance with discharge permit conditions, and just one water supply incident. However, there were two sewerage pollutions, the same as in 2024; and compliance with water discharge permit conditions was just 35% as 39 sites sent in data submissions late.

Operational performance: 40% of the industry off-track in first year of AMP8

Seven out of 17 companies were ‘off-track’ on core operational performance in 2025-26, according to Ofwat’s Water Company Operational Performance report – the new name for the previous Water Company Performance Report, to emphasise its operational content.

As the table shows, Wessex Water, Severn Trent and Hafren Dyfrdwy secured ‘good ratings’ putting them at the top of the pack. Affinity, Anglian, Northumbrian, Portsmouth, SES, South Staffs and United Utilities were deemed on track. The others are concluded to be underperforming.

Unlike in previous years where categorisation was based solely on performance against targets, this year Ofwat took a broader view to also wrap in: relative performance (proportion of performance commitments at or better than sector median); relative performance in key areas (C-MeX, water supply interruptions, compliance risk index, leakage, internal sewer flooding and serious pollution incidents); and performance trends over time (proportion of performance commitments with an improving trend over time).

At a sector level, only 49% of 2025-26 targets were met. Some key findings were: 

• Drinking water quality – remained super high at 99.97%

• Customer satisfaction (C-MeX) – continued to decline. Seven companies met the 2025-26 target of 67.85 and the gap between the best and worst performers widened substantially.

• Water supply interruptions – improved across the sector. Seven firms met their annual target.

• Internal sewer flooding – improved, and targets were met by nearly all companies (9 out of 11).

• Total pollutions – performance improved from 45.49 incidents per 10,000km of sewer in 2024 to 40.30 in 2025, but remained above 2019 levels, and only two companies met their 2025 target. 

• Serious pollutions – little improvement. There was one fewer incident last year (84) than in 2024-25 (85). 

• Leakage – fell for the third consecutive year and is now 43% lower than at privatisation in 1989. However, only five companies met their leakage targets in 2025-26. 

• Per capita consumption – little improvement. Six companies met their annual target.

  
  

Trends over time are positive. Ofwat tracked 19 performance commitments between 2019-20 and 2025-26; sector performance improved or remained stable for 15 and fell for just four (discharge permit compliance, greenhouse gas emissions, repairs to burst mains and total pollutions).