Following Ofwat's announcement that Thames Water will pay a reduced fine of £9.7 million, down from £12.5 million, for misreporting information to the regulator and failing to provide some customers with compensation payments, the Consumer Council for Water is surprised that Ofwat has decided to reduce the fine, and disappointed that the money will go to the Treasury, rather than to benefit consumers.

Any water company that breaks the rules must be penalised and dealt with in the strongest way possible, but there is another way to do this and benefit consumers at the same time. The regulator can instead negotiate an extra investment package at a cost to shareholders which is much larger than a traditional fine.

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Alternatives to fines have been used before. For example, in 2006, Thames Water reported missing its leakage target, but instead of a fine going to Treasury, it was agreed that a more suitable punishment would be for the company to invest an extra £150 million of company shareholders' money to replace ageing pipes. This cost shareholders twice as much as the maximum fine Ofwat could have imposed on the company, and the extra investment is directly benefiting consumers, not the Treasury.

This latest fine against Thames Water added to other confirmed fines against Southern Water (£20.3 million), United Utilities (£8.5 million) and the intended fine against Severn Trent (£35.8 million), means that over £74 million could end up with Treasury, instead of being used to benefit consumers.

(CD/JM)