Directors’ remuneration report

Non-executive directors’ fees

The Company’s remuneration policy is that the Chairman and the non-executive directors should receive a fixed fee for their normal duties. Reflecting the added responsibilities and time commitment, chairing the Remuneration and Audit Committees attracts an additional fee over the non-executive directors’ standard base fee.

Fees payable during 2008/09 and the Company’s policy from 1 April 2009 (in line with the approach taken in respect of the salaries of the NWG executive directors) are:

The Chairman and the non-executive directors do not receive benefits in kind and do not participate in bonus, pension or share schemes operated by the Company. Further details of non-executive directors’ remuneration are set out in Table 1.

Directors’ interests in LTIP awards

The directors’ conditional interests in the ordinary 10 pence shares of the Company, awarded in accordance with the terms of the LTIP as at 31 March 2009, are set out in Table 3.

Ordinary 10 pence shares required to fulfil LTIP awards which have vested may be provided by the Northumbrian Water Group plc Employee Trust, through Northumbrian Water Share Scheme Trustees Limited. The Trustees are Sir Patrick Brown, Martin Nègre and Anita Frew (a non-executive director of NWL). At 31 March 2009, the Trust held a total of 1,038,252 ordinary 10 pence shares. This represents 0.2% of the Company’s total issued share capital, so is materially less than the 5% limit on shares that can be held in trust. In line with the ABI Guidelines, dividends are waived on these shares and the voting rights attached to these shares will not be exercised at the AGM.

Share dilution

The Company’s share plans contain dilution limits that comply with the ABI Guidelines. Shares for both the LTIP and SIP schemes are provided by purchase on the market. There has, therefore, been no dilution to date and there is no commitment to issue new shares in relation to either scheme.

Performance graph

The graph below shows a comparison between the TSR for the Company’s shares for the five year period to 31 March 2009, and the TSR for the companies comprising the FTSE 250 Index (excluding investment trusts) over the same period. This index has been selected as the Company is a constituent of the FTSE 250.

Note:

This graph shows the value, by 31 March 2009, of £100 invested in Northumbrian Water Group plc on 1 April 2004 compared with the value of £100 invested in the FTSE 250 Index (excluding investment trusts) over the same period.

Service contracts

All non-executive directors are appointed for a term of 12 months with a six month notice period for the Company and the director. The executive directors have service contracts with 12 months’ notice periods and which expire when the directors reach normal retirement age. Details of the contracts of the executive and non-executive directors who served during the year are shown in Table 4.

Terms and conditions of appointment of non-executive directors are available for inspection at the Company’s registered office during normal business hours and at the AGM. The terms of appointment set out the expected time commitment for each non-executive director.

External appointments of executive directors

The Board’s position on external appointments is described in the corporate governance report. To date, no fees for external appointments have been retained by executive directors.

Directors’ interests in shares

The directors’ beneficial interests in the ordinary 10 pence shares of the Company, as at 31 March 2009, are set out in Table 6.

Directors’ interests in shares under the SIP

The Company SIP is open to UK employees with more than three months service. Further details of the SIP are set out in the directors’ report and business review. During the year, the executive directors had the opportunity to participate in the SIP and their interests in the ordinary 10 pence shares of the Company, purchased and held in accordance with the terms of the SIP, are set out in Table 7.

This directors’ remuneration report, which has been produced in accordance with Schedule 7A of the Companies Act 1985, as introduced by the Directors’ Remuneration Report Regulations 2002, was approved by the Board and signed on its behalf by the Chairman of the Remuneration Committee. It will be put to the shareholders for approval at the Company’s AGM.

Martin Nègre

Chairman of Remuneration Committee

2 June 2009