Water industry investment falls short by £700m

The water regulator declared yesterday that it was not satisfied with the customer service levels at five companies, and revealed that the sector had spent £700m less than promised in the last financial year.

Ofwat said capital expenditure for the 12 months ended 31 March, the first year of a new price regime for the water industry, came in at £2.7bn. This was less than the previous year and significantly below the £3.4bn projected under the new pricing regime.

Water companies have protested that the new prices determined by the regulator, requiring an initial price reduction of more than 12 per cent, endangered capital expenditure programmes and undermined the industry's business model.

Philip Fletcher, director general of Ofwat, said: "I am concerned that capital expenditure is so far below expectations and plans have not been fully delivered... A certain amount of gaming takes place."

Ofwat said it had questioned Anglian over interruptions to supply and had asked Severn Trent, Southern and Thames Water to explain their poor performance on flooding from sewers. United Utilities, Severn Trent and Thames are to be investigated over reports of poor service on telephone helplines.