Mr Byatt also warned that while companies have spent pounds 15bn on capital investment over the last five years, spending is now in a trough. "I am concerned les companies may lose their momentum ... the drought has shown the need to provide a more reliable service; this should be done without any increase in prices," he said.
The statement increases the pressure on the industry, which has been widely attacked for failing to invest enough in measures to stop leakage from the water pipes - in some cases as much as 25 per cent.
Mr Byatt's comments come in Ofwat's latest report on the financial performance and investment in the sector. It shows that over the five years to 1994/95, the sector borrowed pounds 3.5bn but that, at present, they are generating enough cash to meet investment needs.
Mr Byatt said that the new price controls which came into effect in April aim to ensure that future profits grow at a "modest rate". Since privatisation, profits have increased by almost 41 per cent in real terms.