Watchdog turns down the tap on water bills

Households will see a £3 fall in average water bills to £340 before inflation over the next five years, industry regulator Ofwat said today.

The watchdog's final decision on prices for 2010-15 is less generous to consumers than the £14 before inflation cut first proposed in July.

But Ofwat said its decision would see prices around £34 or 10 per cent lower than under the plans submitted to the regulator by water companies earlier this year.

The regulator's chief executive Regina Finn said: "Customers have told us that they want us to keep water and sewage charges flat while maintaining a safe, reliable supply of water. That's what we've delivered.

"There's more to this than just low bills, it's about what customers get for their money. We've scrutinised every pound in the companies' plans to make sure they deliver what customers want."

Ofwat's decision to keep bills broadly flat comes as the regulator unveiled a record £22 billion programme of investment in the network - around £935 for every property in England and Wales.

Of this the bulk of the money - £12.9 billion - will be pumped in to maintain and replace assets from pipes to water treatment works. There will also be £1.1 billion earmarked to help prevent sewer flooding.

"We will now make sure the companies deliver on their promises. If they don't we'll take action to protect customers," Ms Finn added.

Since Ofwat's initial decision in July, water companies have had a chance to plead their own cases with the regulator for an easier settlement.

The industry argues that it should be allowed to make a fair return to encourage the outside funds needed to spend on the network.

If the usually safe sector is forced to cut dividend returns - or even raise cash through rights issues - investors could be scared away and improvements to the network threatened, water companies have warned.

Thames Water said its plans were based on its customers' top priorities following extensive consultation on their willingness to pay for work to maintain and improve services.

Chief executive David Owens said: "We will be examining Ofwat's final determination carefully over the coming weeks in order to fully understand its implications for our customers and our business.

"Our operational performance is better than ever right now. We want to maintain this level of excellence for our customers. That's why our proposed investment programme for the next five years is so important.

"Under Ofwat's price review process, we have two months to consider the final determination."

Mick Rix, national officer of the GMB union, warned of job losses and further "turmoil" in the water industry, saying: "Even before Ofwat's final determinations, some water companies had announced their intention to cut hundreds of jobs and outsource activities in order to protect their profits, and we now expect other water companies to try and follow suit.

"As well as the inevitable impact on job security for our members working in the industry, these cuts could impact detrimentally upon consumers, threatening the security of water supply and quality of clean water and service levels."

Pamela Taylor, chief executive of Water UK which represents water companies, warned they could be forced to cut work such as fixing leaks if the funding proved inadequate.

"It is quite possible that companies will have to adjust or stop their leakage programmes. That is what they will be looking at.

"They will need to look at a whole raft of things, not just that. The quality of drinking water, their legal obligations. They will need to make sure they can fulfil those legal obligations.

"They have challenges ahead such as climate change, with increased drought and flooding, a growing population with more homes - in particular in water-stressed areas.

"Companies will need to look at the detail and say: has Ofwat understood; have they allowed us what we need?

"On top of that, they have got to think: can we actually attract the long-term sensible investors we need? Because if all the customers, all the time, paid their bills, it's still not enough money."

Steve Bloomfield of Unison said the freezing of water prices was welcome, but added: "Ofwat could have gone further by offering help to vulnerable people, who are already struggling to pay their bills.

"There is still a lot of local variation in charging. For example, in the south west region, which already has the highest charges in the country, those who don't have a meter could end up facing increases of about 30 per cent.

"We are concerned that companies may look elsewhere to increase their profits. We don't want to see them making job and service cuts just to do that.

"We need to see stronger regulation by Ofwat of profits, companies' commitment to helping the environment, and investment in training of staff."