Thames Water has been fined a record £122.7 million after it was found to have broken rules over sewage treatment and paying out dividends.

An investigation into Thames’ sewage treatment works found “a series of failures by the company to build, maintain and operate adequate infrastructure,” said water regulator Ofwat.

The money must be paid by Thames and its investors, not by customers, the watchdog added.

Ofwat chief executive David Black said: “This is a clear-cut case where Thames Water has let down its customers and failed to protect the environment.”

Water companies have faced public outrage over the extent of pollution, rising bills, high dividends, and executive pay and bonuses.

Thames hiked consumer water bills for its 16 million customers by an average of 31% in April, but it is also in about £19 billion of debt and is trying to restructure its finances via a sale to US investment firm KKR.

Ofwat, meanwhile, is under pressure to show it is holding firms to account amid a Government review into how the industry is regulated.

Environment Secretary Steve Reed said: “The era of profiting from failure is over. The Government is cleaning up our rivers, lakes and seas for good.”

The utility giant will pay £104.5 million for the sewage probe, plus £18.2 million for breaking rules over dividend payments, the industry’s first dividend-related fine.

Ofwat pointed to nearly £170 million-worth of dividend payments by Thames in October 2023 and March 2024, which the watchdog said were not justified.

The wastewater fine was first proposed last year and confirmed on Wednesday.

These failures amount to a serious betrayal of customers and the environment by Thames Water and come at a time when our research shows it is already the least trusted water company in England and Wales

Mike Keil, Consumer Council for Water

A Thames spokesman said it takes its environmental responsibilities “very seriously” and said it was making progress addressing the issues.

Earlier in May, chief executive Chris Weston told MPs that if the company faced fines that were too high, it would struggle to get new investment.

The fines come at a time when Thames is already under extreme financial stress.

MPs heard earlier this month that at one point this year it had about five weeks’ worth of cash left before going bust.

That was before it secured an extra £3 billion loan deal, which effectively stopped it from being renationalised and falling under Government control.

Of the two penalties, the £104.5 million sewage fine amounts to 9% of Thames’s annual turnover, just below the 10% maximum that Ofwat could have applied.

The company has been in talks with regulators to try to reduce the amount it gets fined in the coming years to allow it to spend the money instead on improving its services.

But the extra £18.2 million penalty over dividends adds to criticism that Thames has prioritised paying out cash to investors rather than putting money into upgrading its pipes, drains and sewers.

Thames is now in a “cash lock-up” period and no more dividends can be paid without approval from the regulator.

Mr Black added: “We will not stand by when companies pay undeserved dividends to their shareholders.”

Mike Keil, chief executive of the Consumer Council for Water, said it was a “serious betrayal of customers and the environment”.

Others, including the Liberal Democrats and campaign group River Action, called for Thames to be nationalised.

Tim Farron, the Lib Dems’ environment spokesperson, said Thames “needs to be turned into a public benefit company and Ofwat needs to be scrapped and replaced with a real regulator with teeth”.