The one-off reduction called for by the Ofwat National Consumer Council would mean a saving of around pounds 25 per household in 2000 when the average domestic bill is likely to have reached pounds 250.
It would be paid for by efficiency savings achieved over the previous five years under the existing price control formula. In the following five years, price rises should be kept below the rate of inflation, the council added.
Michael Meacher, the Environment Minister, was urged to support the reduction in bills when he addressed the consumer council's national conference in Birmingham yesterday afternoon. After his speech, Jim Garner, chairman of the council, said he had been reasonably heartened by the minister's response. "Mr Meacher said we have a strong case and he recognised the strength of that case but that he had other pressures to take into account," said Mr Gardner.
The Environment Agency is mounting a campaign for any efficiency savings to be redirected into environmental clean-up measures not into customers' pockets and claims consumer research shows overwhelming support for such a move.
But in a letter to Mr Meacher, the consumer council said: "We are concerned that the water companies, the Environment Agency and other environmental groups appear to be forming an alliance in an attempt to appropriate for the environment money that should properly be returned to customers."
A new drinking water directive from Brussels is expected to cost the industry up to pounds 3bn alone to implement. There are also directives planned on cleaning up rivers and bathing water.
The agency argues that these should take precedence over reductions in customer bills. However, the consumer council said while it supported further improvements in water quality and environmental standards, it expected these to be funded out of future efficiency savings or taxation.
The dispute between the environmental and consumer lobbies over water charges is just one of a number of awkward dilemmas facing ministers over whether to put the environment ahead of jobs and price cuts.
Eastern, the country's biggest electricity company, has warned that government attempts to protect the British coal industry risk being thwarted by the demands of the Environment Agency for lower sulphur emissions, which could prevent it buying a single tonne of British coal.
Meanwhile, the Energy Saving Trust yesterday issued a government-funded survey showing that eight out of 10 motorists expected to be driving environmentally friendly gas or electric-powered cars by 2010. The Trust said conversion to clean-fuel vehicles on this scale could cut the UK's total emissions of carbon dioxide by 5.5 per cent - taking it a quarter of the way towards its target of reducing CO2 emissions by 20 per cent.
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