Households will receive significantly higher payments from water companies for service failures, ministers have announced.

Automatic payments of up to £2,000 will be provided for supply outages, boil notices or sewer flooding.

Issues like low water pressure could see payments of up to £250, compared to just £25 currently available.

While payments for internal flooding from sewers could rise to £2,000 or more, compared to £1,000 under current rules.

Environment Secretary Steve Reed said: “Customers have too often been let down by water companies, with supply cut off, low water pressure and in some cases even contaminated tap water.

“We are clear that the public deserve better compensation when things go wrong, so I’m taking action to make sure that happens.

“This is another step forward in our plans to reform the water sector so it serves customers and the environment better.”

The fallout from parasite-contaminated water in Brixham, Devon, cost South West Water £16million.

But now a similar problem could cost water firms even more in future.

Residents impacted by the outbreak of cryptosporidium earlier this year were not entitled to statutory compensation.

But under new rules, they would have been entitled to at least £10 per 24 hours, potentially amounting to more than £500 for incidents over eight weeks such as that one.

Mike Keil, chief executive of the Consumer Council for Water (CCW), said: “The increased payment levels when things go wrong, alongside fewer reasons for companies to avoid making payments, means that there are far greater incentives for water companies to get things right first time.

“The overhaul of these standards marks a step forward in improving consumer protection and repairing fractured trust in the water sector.”

Meanwhile the previous Government and regulators breached the law by allowing water firms to discharge sewage outside of “exceptional circumstances”.

The Office for Environmental Protection (OEP) could take legal action against the Department for Environment, Food and Rural Affairs (Defra), the Environment Agency (EA) and water regulator Ofwat.

Helen Venn, the OEP’s chief regulatory officer, said: “During our investigation into the regulation of network Combied sewer overflows by the three public authorities and intensive engagement with those bodies, we have seen positive steps taken to address the issues identified.

“These steps build on the production of the Storm Overflow Discharge Reduction Plan (SODRP) and include Defra’s recent consultation on updated guidance for regulators and water companies, as well as the EA’s consultation on an updated Storm Overflow Assessment Framework (SOAF), which includes permit conditions relating to spills from CSOs. Additionally, Ofwat has issued draft enforcement orders to three water companies and continues its investigations into all other water companies.

“The core issue identified in our investigation is the circumstances in which the regulatory system allows untreated sewage discharges to take place. We interpret the law to mean that they should generally be permitted only in exceptional circumstances, such as during unusually heavy rainfall. This is unless an assessment of the CSO concludes that the costs to address the issue would be disproportionate to the benefits gained. While the public authorities are now taking steps to ensure their approaches are aligned and reflective of the law, we have found that this has not always been the case. The decision notices formally clarify what we have concluded is required.

“We will decide next steps when we have considered the responses to these decision notices. That could include court action.”