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It will see customers receive double the amount of compensation they would currently receive when key standards are not met by water companies.
Households and businesses will also be entitled to higher rates in a wider range of circumstances when basic water services are hit.
The proposals will double payments for all existing standards and will more than double the payments for highly disruptive incidents, such as failing to provide notice of supply interruptions and missing arranged appointments with customers.
The government will also expand the list of circumstances that can trigger compensation, including automatic payments for boil notices – which is when water companies notify you that you must boil your water before you drink it, cook with it, or brush your teeth.
The changes mean that customers in South Devon and Surrey, who had to boil their water before using after a cryptosporidium outbreak earlier this year, would have automatically received compensation where there was no entitlement before.
Automatic payments will also be issued when water companies fail to conduct meter readings or installations as promised.
The proposals, which the government said reflect the need to increase payments in line with inflation as well as recognise the significant impacts of recent water supply disruptions on communities, are subject to an eight-week consultation.
Secretary of state for environment, food and rural affairs, Steve Reed said: “Our water industry is broken. After years of failure, households and businesses have been let down by water companies time and time again.
“The new government will clean up the water industry and turn the tide on the destruction of our waterways ensuring water companies protect the interests of their customers and the environment.”
Jenny Suggate, director of policy, research and campaigns at CCW, said: “We’re delighted the government is fast-tracking efforts to improve the Guaranteed Standards Scheme, with the potential to boost compensation and support for hundreds of thousands of people each year when they are let down by their water company.
“Given that there has been little change to the standards since they were first introduced, an overhaul is long overdue, and we know it is a pressing priority for household and business customers.
“Demanding higher standards of service and improving levels of compensation when things go wrong will incentivise water companies to get things right the first time for all customers.”
