Severn braced for rise in bad debts

Severn Trent warned yesterday that Britons would find it increasingly hard to pay their water bills as the credit crunch heaps pressure on consumers.

The Midlands-based water company said that the state of the economy had driven it to monitor "our customer debt and cash collection performance". It added: "While we have not experienced any material deterioration over the period to date, this remains a risk to our outlook over the remainder of the year."

A spokesman said the company had been "running to stand still" to keep the level of bad debts down, after it wrote off £22.7m in the year to March.

"In 2007, we introduced flexible payments and other schemes to make sure we kept the level down. However the underlying trend is up," he said, adding that conditions would likely get worse.

The spokesman said that the state of the market meant "utility bills will be increasing across the board." While Severn Trent's bills have risen above inflation – up almost 5.1 per cent this year – other energy providers have been worse, he said.

Non-payment is more significant for water companies as it is illegal for them to disconnect their customers.

The concerns over consumer debts were raised as the group published an interim management statement. It said trading had been in line with expectations over the previous three months.

Severn Trent said it was on track to outperform Ofwat's targets for operating costs over the financial year by 3 per cent, despite rising energy, chemical and commodity costs. It admitted consumption had fallen, which would hit revenues by up to £14m this year and accepted the £2m handed down by the Central Criminal Court this month for misreporting leaks in 2001 and 2002. Blaming the previous management, it would not appeal.