Water companies in England have been warned to clean up their act after the environment watchdog described their performance last year as “simply unacceptable”.

Southern Water and Yorkshire Water were singled out for high levels of serious pollution incidents, where sewage is discharged into bathing water.

Both companies and South West Water only achieved a two-star rating from the Environment Agency (EA), which it said reflected an “unacceptable level of performance”.

The EA assessment of the nine privatised water and sewerage companies in England said only one – Northumbrian Water – was performing at the level required.

Emma Howard Boyd, the EA chair, said: “Performance in 2018 was simply unacceptable … rather than improving, the performance of most companies has deteriorated, reversing the trend of gradual improvement since we introduced the environmental performance assessment in 2011.

“Serious pollution incidents which damage the local environment, threaten wildlife and in the worst cases put the public at risk have increased.”

Although the report assessed performance last year, Howard Boyd said nothing she had seen so far this year suggested any of the companies were making dramatic improvements.

She said the agency was toughening its inspections and increasing its audits of water firms as a result of their poor performance.

On Tuesday the water regulator Ofwat announced measures that could restrict shareholder payouts if the companies were found not to be financially resilient.

Four companies – Severn Trent, Southern Water, Wessex Water and Yorkshire Water – had increased numbers of serious pollution incidents compared with 2017.

“There needs to be a significant improvement by the sector to meet our expectations for both serious and total pollution incidents,” the report said.

Southern has been heavily criticised for its performance in the past and is at the centre of a criminal investigation by the EA over failures at a sewage treatment plant that polluted rivers and beaches in southern England.

The company was fined £126m last month by Ofwat over the failures, which the watchdog described as “shocking.”

Last week the campaign group Surfers Against Sewage released data that showed Southern had polluted some of Britain’s most visited beaches with raw sewage and storm water more than 150 times in six weeks.

The EA report also criticised South West Water for poor performance, giving it a red rating for pollution incidents.

The report said: “We expect companies to prevent serious pollution incidents … [which] lead to the release of harmful substances into air, land or water, and some can cause significant harm to the environment.”

Category one incidents have a serious extensive or persistent impact on the environment, people or property and may, for example, result in a large number of fish deaths. Category two incidents have a lesser but significant impact. In 2018, the number of serious pollution incidents (categories one and two) increased to 56 from 52, with 48 of them involving the companies’ sewage networks and sewage treatment works.

The water companies are unlikely to meet targets to move towards reducing serious pollution incidents to zero by next year. Dr Toby Willison, the executive director of operations at the EA, said: “Water companies need to clean up their act. People expect water companies to improve the environment, not pollute rivers.

“We will continue to challenge CEOs to improve company performance and we will take strong and appropriate enforcement action.”

Yorkshire Water said the increase in its serious pollution incidents was “absolutely not reflective of the company’s ambition to protect the environment” and fell “far short of the standards required to meet our aim to be recognised as an industry leader”.

The company said it had taken measures to turn around its performance.

Southern said: “There has been a complete step change in our pollutions team over the past two years and this is reflected in the far higher level of self-reporting as new systems and processes kick in.

“We know we have more to do. More awareness training for staff means we are now finding and fixing issues sooner and an improvement programme at all of our high-impact sites is making good progress.”