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Water companies urged to improve the environment

The Environment Agency is to press the privatised water companies to spend billions of pounds on additional environmental improvements, reducing the prospect of big cuts in customer bills.

The call will put further pressure on Ian Byatt, the industry regulator, as he begins work in earnest on the next industry price formula, for the five years from 2000. Mr Byatt has said he wants to see a substantial one-off drop in customer bills, with increases of no more than inflation in the following years after 2000, to compensate for the hefty dividend increases made by the companies during the current price cap.

In a consultation paper, to be published next month, the agency will suggest a shopping list of clean-up measures on top of the statutory improvements the water industry has to make to waste water treatment works. They include reducing discharges from sewage overflows, improving wetlands and boosting water quality.

The agency has stepped up its campaign, launching a new review of water resources which will focus on the amount of water extracted from rivers and streams during drought orders. Richard Streeter, who is leading the agency's response to Mr Byatt's price review, said consumers had missed out on greater environmental benefits in the current price control from 1995 to 2000.

"This time the agency is absolutely adamant about this. We're talking about billions of pounds over a five-year period," said Mr Streeter. The agency has asked the water companies to produce lists of possible schemes, which will be costed by next May.

Soon-to-be-released consumer research by the agency is expected to show households support the argument and would not necessarily prefer price cuts.

The competing arguments will be put next year to John Prescott, minister for the environment and transport.

- Chris Godsmark