They will draw up legislation - likely to be announced in next year's Queen's speech - aimed at revolutionising the attitudes of the industry to water supply. The Bill will compel the companies to conserve water rather than allowing them to go drawing increasing amounts from rivers and bore holes and building reservoirs.
Ministers have been angered by the way the companies have reacted to long-overdue improved environmental standards and the imposition of price cuts after years of booming profits and increasing executive salaries. Last week five companies announced more than 3,000 redundancies between them and there are fears that 10,000 jobs could be lost in all.
Michael Meacher, the environment minister, said on Friday that he did not believe that there was any justification for the cuts, given the companies' financial strength.
The new legislation, which will be published as a draft Bill in the spring, will cut to the heart of the wasteful culture of the industry which has traditionally continually exploited new water sources without adequately attacking waste or controlling demand. Matt Phillips, water campaigner for Friends of the Earth, said it will pose "a very significant challenge to the industry".
The Bill will set out for the first time to put a statutory duty on the industry to conserve water. Companies will have to show that they have done everything they can to save it and reduce demand before they are allowed to build reservoirs or exploit new supplies from rivers or underground aquifers.
When this has been done, as in Boston or San Francisco, demand has dropped dramatically, saving the need for new investment and supplies. Traditionally the British industry has always preferred to sell more water and to pass the costs of developing supplies on to the consumer. The new legislation should give a major boost to water metering.
The Bill will also remove the companies' automatic right to take vast quantities of water from rivers and aquifers - under licences granted decades ago - without taking any account of the effects on the environment, but it will only be able to scrap them after 12 years, for the curious reason that the companies' rights to the water are protected under the Human Rights Act and the European Convention.
The Bill will also make companies draw up proper plans for droughts and stop them imposing drought orders indiscriminately. An independent inquiry concluded in 1996 that Yorkshire Water and its publicly owned predecessor had used drought orders in four separate years in the 1980s and early 1990s when they were not justified by lack of rainfall.
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