Water bills 'must rise to avert Railtrack-style repairs crisis'

The water industry is facing a "Railtrack-style" crisis unless prices are raised to pay for a massive investment programme, companies have warned.

Consumers face a price rise of up to 10 per cent a year from 2005, under the submissions made by water companies to Ofwat, the regulator, on Friday. The companies were giving their views on the next five-year period that the watchdog will oversee.

Although the 26 plans were individually written by the companies, the industry body, Water UK, said that the common message from the documents was that the "patch and mend" practices seen since privatisation have to end.

Water UK said that a "new approach" is needed to the country's water and sewage infrastructure. It will mean reversing the 12.5 per cent fall seen in the price of bills over the current regulatory period, which began in April 2000.

Bob Armstrong, chairman of Water UK, which represents the private companies in England and Wales, said: "Look at the problems with the maintenance of the rail infrastructure, which was caused because the assets were time-expired.

"In water we have a classic case of time-expired infrastructure; in some cases this is up to a third of a companies' assets. The problem needs addressing in this price review or eventually we'll get to a Railtrack-style issue."

The industry says that, while we have come a long way since Britain was known as the "dirty man of Europe", work has been done on an essentially ad hoc basis. A properly planned approach, with the necessary funding via greater revenues allowed to water companies, is required. Rather than tackling problems as they arise, the industry must set about replacing whole sections of infrastructure.

Mr Armstrong, who is also managing director of customer sales for United Utilities, one of the biggest players, told The Independent on Sunday: "This time customers are going to have to take more of the costs. This will not be insignificant and it will attract attention from the consumer groups."

In the 15 years since privatisation in 1989, the water industry will have invested £50bn in maintaining and improving infrastructure. At the time of the last review, it had been expected that the rate of investment could ease by 2005 but the industry and the regulator have made clear that this is no longer feasible, primarily because of the need to meet upcoming new European rules on water purity and waste water.

Philip Fletcher, the director-general of Ofwat, appears to agree with companies that the prices must rise. The average bill is currently £236 a year. He said at a press briefing last month that the scale of efficiency gains achieved in the past, which had financed price falls, was no longer available.

Mr Fletcher said: "The big message is that there is no pot of gold this time. The additional pressures that are now evident exceed the efficiency gains available."

The views of Ofwat and the water industry are likely to place them on a collision course with consumer groups. Water Voice, the official body that represents water users, has already suggested that some of the investment schemes intended for 2005-10 should be deferred until the following five-year period.