Thames Water will return a total of £120 million to customers for failing to tackle leakage.

The company has today (7 June) agreed to pay £65 million back to customers on top of £55 million in automatic penalties incurred for not meeting its commitment to customers to cut leaks.

The news follows an investigation by Ofwat, which found Thames Water’s board did not have “sufficient oversight and control” of the company’s leakage performance.

Thames Water has welcomed the regulator’s investigation findings and apologised to customers.

The water company said it is on track to return to its leakage target by 2020. It has committed to a further 15 per cent reduction by 2025 and 50 per cent over the longer term compared to 2016-17 levels.

It said it will bring forward the payment of automatic penalties and the £120 million package will see each Thames customer get a total rebate of approximately £15 over the next two years.

Ofwat’s investigation found Thames Water breached two of its legal obligations through poor leakage management.

The regulator concluded Thames “underestimated the significance of its underperformance on leakage”.

Rachel Fletcher, chief executive of Ofwat, said: “Thames Water failed its customers in tackling leakage and the measures we’ve announced today illustrate the scale of the company’s shortcomings and how seriously we take them.”

Ofwat has challenged the water sector to reduce leakage by 15 per cent by 2025 and said it expects further reductions beyond this date.

Fletcher added: “Thames has assured us that they now have a grip on the leakage situation, but this should serve as a catalyst for the company to improve how it delivers on its wider commitments to customers.”

Thames Water said proactively identifying and tackling leakage is a “top priority” for the company. All its customers will benefit from a rebate in next year’s bill and further price reductions from 2020-25.

Steve Robertson, Thames Water chief executive, said: “Reducing leakage is really important to us and to our customers. We met our leakage targets for a decade but our recent performance has not been good enough. We let our customers down and for that we’re sorry.

“We have taken more control of how we manage the network and are investing significantly more in people and resources to tackle leakage, get back on track and then go beyond. Thanks to these changes already in place, our current leakage repair performance is our best ever at around 1,000 a week. Our focus is to restore customers’ trust and confidence in Thames Water.”

The Consumer Council for Water (CCWater) said it was disappointed it has taken this intervention from Ofwat for Thames to “finally confront” its poor performance on leakage.

Tony Redmond, London and South East chair for CCWater, said: “We reported in December that Thames Water had lost more than twice as much water per property each day when compared to the best performing water company.

“That sends completely the wrong message to consumers at a time when they are being asked to play their part in using water wisely to help protect the future of our water resources. We’ll continue to hold the company to account on its promise to improve its performance.”

Environment secretary Michael Gove welcomed the settlement news. He said: “Thames Water completely failed in their duty of care to their customers, leaving them to suffer leaks for far too long through poor management. But actions speak louder than words, and they must deliver on their commitment to provide compensation and much-needed improvements to customers.

“This is exactly the kind of decisive action Ofwat should be taking, and shows an ongoing commitment to ensuring customers receive the service they deserve. I fully support Jonson Cox [Ofwat chairman] and his team’s work to hold the water industry to account.”

Thames Water said senior managers will only be rewarded for reducing leakage when targets are hit.