Customers protest as Ofwat agrees 18% rise in water bills

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Domestic water bills are to rise by an average of £46, or 18 per cent, to help fund a £17bn investment programme over the next five years, the industry regulator Ofwat announced yesterday.

Domestic water bills are to rise by an average of £46, or 18 per cent, to help fund a £17bn investment programme over the next five years, the industry regulator Ofwat announced yesterday.

The increase is bigger than expected and will result in households in some parts of the country, such as the South-west, paying an extra £87 for water and sewage by 2009-10 - a rise of 25 per cent on their current bills.

Philip Fletcher, the Director General of Water Services, said the new price limits had "struck the right balance", enabling water companies to meet the needs of customers and finance big environmental schemes while continuing to deliver safe and reliable supplies.

But the consumer watchdog WaterVoice described the announcement as an "unwelcome Christmas present", adding that it was bad news for the country's 22 million households. Millions of customers would find the increases "neither affordable nor acceptable" the group's chairman, Maurice Terry, said.

Water UK, the trade body for the industry, described it as a "tough settlement". However, the organisation's chief executive, Pamela Taylor, added that Ofwat had recognised it had gone too far in its draft price controls announced in August which would have limited the increase in bills to 13 per cent. Originally, the industry asked for price rises of 29 per cent.

The increases announced yesterday will lift the average water bill from £249 now to £270 next year - a rise of 8.5 per cent - and to £295 by 2009-10. But in some areas the increases will be considerably higher. Customers of South West Water in Devon and Cornwall, who already face the highest water prices in the country, will see the average bill rise from £357 now to £386 next year and £444 in five years' time. Customers of Welsh Water will see average bills increase from £286 to £352 over the five-year period and households served by Wessex Water will face an increase of £70 to £347.

Referring to those customers facing above-average price rises, Mr Fletcher said: "I am very conscious of their position and would ask smaller households to think very carefully about switching to a meter."

The increases are designed to help the country's 22 water companies finance a £16.9bn capital programme - £5.5bn of which will be devoted to environmental and quality enhancement schemes. In previous price controls, Ofwat has been able to finance expenditure plans of a similar size but hold bills down or even cut them by demanding increased efficiency savings from the industry.

However, Mr Fletcher said this was no longer possible because many of the cost savings had now been achieved.

Over the next five years, water companies will only be expected to cut their operating costs by 1.4 per cent - half the level required of them over the past five years.

Included in the enhancement schemes is £1bn of spending to tackle the scourge of sewer flooding. The aim is to cut the number of households at risk from 8,800 at present to 3,100. There are also schemes to clean up rivers and beaches and improve the quality of drinking water.

Mr Fletcher held out the prospect of a decade of rising water bills, saying that a spending programme of a similar magnitude would be needed from 2010 onwards to meet the European Union's water framework directive.

The amount the regulator is allowing water companies to earn on their investment is 5.1 per cent. This compares with a limit of 4.8 per cent for the electricity distribution companies announced earlier this week by its energy counterpart Ofgem.