Environment Secretary Steve Reed has suggested that water companies would be “extremely foolish” to increase salaries to try and get around a bonus ban.
Six firms have been banned from paying bonuses to senior bosses under new rules that came into force on Friday.
Thames Water, Yorkshire Water, Anglian Water, Wessex Water, United Utilities and Southern Water have been told that they cannot issue bonuses for the financial year 2024/25, which concluded in April.
Mr Reed said that customers need to have “confidence” in what water firms are doing, but also said it would not be “right” for the Government or regulator to be “capping” salaries in private sector businesses.
Asked if he was going to make sure that firms cannot raise base salaries to compensate for any bonus ban, Mr Reed told Times Radio: “I think they would be extremely foolish to do anything of the sort that you’re describing, because (…) these companies need to rebuild their broken relationship with their customers.
“Their customers need to have confidence in what they’re doing, their customers are furious at the fact that they’re seeing local waterways being polluted, but bosses taking multimillion-pound bonuses.”
He later told the BBC that it would not be “right” for the Government or regulator to be setting salaries.
He told Radio 4’s Today programme: ““I don’t think it’s right that government or regulators should be capping the salaries in private sector businesses.
“But those businesses need to have an eye on how their customers are feeling about what they are doing, and there are steps that you can take that are appropriate within regulation.”
The firms have all been banned under new rules which prevent bonuses from being paid if a water company does not meet environmental or consumer standards, does not meet financial resilience requirements, or is convicted of a criminal offence.
The six companies are not under an indefinite ban, and those firms may be able to offer rewards for the 2025/26 year, provided they stick within the Ofwat rules, under the Water (Special Measures) Act which comes into force on Friday.
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If a company pays a bonus while it is under a ban, the water regulator Ofwat has the power to get the money back.
Under the new rules, Yorkshire Water, United Utilities, Thames Water, and Southern Water will all be unable to pay bonuses to the chief executive or chief financial officer, for the 24/25 financial year.
Anglian Water will be banned from paying its chief executive a bonus, but the chief financial officer will not be banned.
Wessex Water will be banned from paying its chief financial officer any extra, but the chief executive will be exempt.
The exemptions are because people were not in post when the incident that broke Ofwat’s rules happened.