More compensation, possible refunds and new customer panels have been announced as part of the government’s “initial steps” towards ending what it describes as the crisis in the water sector.

Steve Reed, the environment secretary, said he is to meet water bosses and communicate a tougher stance on customer performance and sewage leaks that have plagued the industry, in an announcement confirming Sky News reporting.

Four reform announcements

A programme of reforms will be presented to the assembled firms:

• Water companies will have to pay out more money more often. Compensation will be paid in expanded circumstances such as when boil water notices are issued. Consultation on upping remuneration in the event of failures will take place with Mr Reed seeking a more than doubling of compensation.

• For the first time in UK history customers will be granted new powers to hold companies to account via “customer panels” – groups that can summon board members and hold utility executives to account.

• Companies are expected to change the rules that govern them – their articles of association – to make customers and the environment their primary objective.

• Mr Reed has asked water regulator Ofwat to ringfence funding for infrastructure to make sure it’s only spent on upgrades for customers and the environment. If any of these funds aren’t spent, customers should be refunded, Mr Reed said, and such money should never be part of bonuses, shareholder payments or salary increases.

Mr Reed will also tell industry figures he plans to work with the sector and its investors – which include the UK’s biggest pension fund – to attract more investment, stop pollution and create jobs.

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What’s gone wrong?

Despite company efforts to limit pollution, persistent sewage leaks across the industry have polluted waterways throughout the UK, harming some bathing areas, causing sickness and killing fish.

Financial difficulties at the UK’s largest provider Thames Water meant the government was drawing up contingency plans for its collapse last summer. On Tuesday, Thames Water said it would run out of cash by May 2025 if it didn’t source new investment.

Also short on cash is South East Water, which supplies roughly 2.3 million customers and said on Wednesday it needed more investor money to stay afloat.

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What next?

Ofwat will announce its assessment of the water industry’s proposed fundraising and spending plans on Thursday.

The government is also expected to outline further measures to reform the sector.

Mr Reed said “this unacceptable destruction” should never have been allowed and “can never happen again”.

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Labour’s manifesto said the party would put failing water companies under so-called special measures, a form of government control, to clean up seas, lakes and rivers.

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