Southern Water customers' bills will be cut next year as the company faces a multi-million pound pollution penalty.

Watchdog Ofwat said water companies will have to pay a £157.6 million penalty after missing key targets on reducing pollution, leaks and supply interruptions while customer satisfaction continues to fall.

In an annual performance report, the regulator said customer bills will be slashed in 2025-6 to reflect the penalties, with the total rebates calculated in December.

Ofwat said Southern Water's share of the penalty is £31.9 million. The company failed on its commitment to reduce pollution incidents by 30 per cent. Across the board, these were reduced by only two per cent.

Not one company achieved the regulator’s top category of “leading” while Anglian Water, Welsh Water and Southern Water were among those in the lowest category of "lagging". The remaining ten were rated average.

Ofwat judges the performance of water companies in England and Wales each year against the targets they set in 2019 for a five-year period until 2025. 

If they fail to meet these, Ofwat restricts the amount of money they can take from customers. 

David Black, chief executive of Ofwat, said: “This year’s performance report is stark evidence that money alone will not bring the sustained improvements that customers rightly expect.

“It is clear that companies need to change and that has to start with addressing issues of culture and leadership. Too often we hear that weather, third parties or external factors are blamed for shortcomings.

“Companies must implement actions now to improve performance, be more dynamic, agile and on the front foot of issues and not wait until the government or regulators tell them to act.

“As we look towards the next price control, the challenge for water companies is to match the investment with the changes in company culture and performance that are essential to deliver lasting change.”

It comes against a backdrop of mounting public and political fury at the privatised water sector which is under fire over sewage spills, proposed bill rises and executive bonuses.

Labour has said it wants the water sector to reduce spills and has even proposed sweeping new laws which could see bosses face up to two years in jail if they obstruct regulators.

Steve Reed, Secretary of State for the Environment, Food and Rural Affairs, said: “Our waterways should be a source of national pride but years of pollution and under-investment have left them in a perilous state.

“The public deserves better. That’s why we are placing water companies under special measures through the Water Bill, which will strengthen regulation including new powers to ban the payment of bonuses for polluting water bosses and bring criminal charges against persistent law breakers.

“We will be carrying out a full review of the water sector to shape further legislation that will fundamentally transform how our entire water system works and clean up our rivers, lakes and seas for good.”

On Monday, a report from the Environment Agency found that almost a fifth of water supplies is being lost through leaks before it reach customers’ taps.

James Wallace, CEO of campaign group River Action, said of the penalty: “This might sound like a lot of money but frankly it is a drop in the ocean for polluting water companies that have handed billions in dividends and interest payments to investors.

“Clean and abundant water and healthy ecosystems are fundamental to human life and our economy.

“Yet, water companies continue to pollute the nation’s waterways without facing the full force of the law or sufficient penalties.”