Anger over water prices

OFWAT, the industry watchdog, has ordered water companies to restrict price increases to an average of 1 per cent a year plus inflation for 10 years.

Ian Byatt, director general of Ofwat, said that price controls announced yesterday will keep the total increase in the average bill over the next decade to pounds 23 - about pounds 2 a year - rather than pounds 47. He said companies would have to meet their obligations on the environment and water quality and pay for the difference by cutting costs and accepting lower profits.

Heavy criticism of the new controls came from the Labour Party and environmental groups. Labour said the regulator had failed to hit the companies hard enough. Nigel Griffiths, spokesman for consumer affairs, said the ability to increase prices further was 'scandalous' and Mr Byatt should resign.

Friends of the Earth said the Ofwat regime, which envisages smaller spending by the companies on the environment, condemns the public to many more years of polluted beaches and rivers. Mr Byatt had failed to stop the 'water industry gravy train'.

The National Consumer Council, which said that the average bill has increased by 67 per cent over the past five years, praised the regulator but challenged ministers to help those who will still have trouble paying water bills.

The long-awaited price structure brings to an end months of consultation and nervousness among consumers and water companies alike.

The controls were welcomed in the City as good news for most of the 30-odd companies in England and Wales. Share prices of the 10 large privatised water and sewage companies rose, except that of South West Water, which said its new cap was unacceptable and it would take its case to the Monopolies and Mergers Commission.

Most of the companies are prepared to accept the changes, although others may yet go to the MMC. One senior executive said that Mr Byatt had cut the companies to the bone and thrown down a challenge to their management.

Some said the need to cut costs would force job losses. The water industry, which employs about 40,000 people, has done less than most industries to trim fat in recent years.

Mr Byatt said he had tried to balance the interests of the companies and their customers. The permitted price increases would vary from region to region and depend on environmental obligations imposed on individual companies. Prices will rise slightly in coastal areas and will be more stable inland, he said. He refused to criticise the companies for granting massive pay awards to top executives at a time when water bills have been soaring. He said that his job is to set price limits.

(Photograph omitted)