Water companies defy Byatt with plans for price rises

BRITAIN'S 27 water companies have defied the Government and Ian Byatt, the water regulator, by seeking inflation-busting price rises in the business plans they have submitted for the next five years to Ofwat.

The refusal to cut prices is likely to lead to a clash between the companies and Ofwat, which last year said it expected cuts in prices of between 15 and 20 per cent. The outcome could hit share prices in the privatised water utilities.

The Independent has learned Thames is one of the few to offer a price cut of pounds 10 (about 5 per cent) next year on the average bill of pounds 205, but it too will be seeking rises of 2.5 per cent above inflation in subsequent years to pay for higher investment, taking the average bill to pounds 215.

The water companies saythey cannot afford to make big price cuts, having been ordered to invest a massive pounds 8bn in environmental improvements and cleaner water schemes.

Ministers, who have been angered by "fat cat" salaries for some utility directors, last night made it clear they were in no mood to back down, and 11 Labour MPs tabled a Commons motion calling on the Government and Ofwat to stick to their targets for cuts in water bills.

Don Norris, the Labour MP for Wansdyke, who tabled the motion, accused the water companies of mounting an orchestrated campaign to avoid cutting their prices to protect their shareholders. "I think they are doing their best to protect their generous profit margins in a risk-free business where they have monopoly power," he said.

A spokeswoman for John Prescott's Department of Environment, Transport and the Regions said the Government was still demanding a cut in prices of 10 per cent across the country. "We think an across-the-board reduction in prices is justified and still achievable with the pounds 8bn environmental programmes," she said.

Thames has seen its share price slide from a high of pounds 12 to pounds 8.88. Its chief executive, Bill Alexander, who will earn pounds 260,000 in salary this year, believes he has struck the right balance between his shareholders and the demands of Ofwat and Mr Prescott. Thames is planning to spend pounds 2.5bn in its region in the next five years on improvements to water quality, cutting down leaks, reducing lead in pipes and replacing some systems.

The big threat to profits is more competition. Already there are two big French companies in the British market and the British companies fear "cherry picking" by competitors entering the market, including the gas and electricity utilities.

Thames, which has established a wetlands at Barnes in south-west London as part of its "green" credentials, has had to diversify into parks and gardens services in London's Royal Parks and in Birmingham to grow in the UK, and it could launch its own takeover bids.