Ofwat, the water industry watchdog, faces calls for it to be overhauled amid accusations that it is not doing enough to remedy leaking drinking water while privatised water companies enjoy soaring profits and consumers face high bills.
Analysis by The Independent on Sunday shows that more water is being lost through leakage now than 10 years ago – despite £7.5bn invested in infrastructure since then.
Every day more than 3.3 billion litres of treated water – 20 per cent of the nation's supply and 234 million litres a day more than a decade ago – are lost through leaking pipes in England and Wales. The water lost would meet the daily needs of 21.5 million people.
Continuing dry weather this year has highlighted the need for action. In north-west England more than seven million people are subject to a hosepipe ban introduced by United Utilities earlier this month. Welsh Water has written to 50,000 customers asking for help in conserving supplies. Thames Water has launched a campaign aimed at persuading Swindon residents to use less water.
Environment Agency predictions show that water levels could drop by between 10 and 15 per cent over the next few decades due to climate change and population growth. In Abindgon, Oxfordshire, residents are battling plans by Thames Water to build a reservoir the size of Heathrow airport. South East Water is also facing a fight to build a new reservoir. Norman Baker, the Lib Dem MP for Lewes, argues the company should concentrate on stemming its loss of 63 million litres a day.
Industry experts say the problem lies with Ofwat, which dictates how much the companies can spend fixing leaks. Ofwat's leakage targets for the next five years will reduce the rate only marginally. Some companies say they want to bring leaks down by more than Ofwat's targets but they are not allowed to spend more than the regulator decrees on leaks. Thames, Britain's biggest water company and one of the worst offenders, is in this category.
Last November Ofwat capped water bills, telling water companies to reduce average bills to consumers to £340 over the next five years.
As a result, Severn Water warned that the £96bn projected investment across the industry over the next 20 years was in danger. And critics argue that trying to keep bills low ignores environmental consequences.
South West Water saw its profits rise by 8.7 per cent to £133m last year, while the smaller Dee Valley Water doubled profits from £3m to £6m. Thames Water's profits jumped from £605m in 2009 to £671m this year, and Northumbrian Water's profits leapt 11.5 per cent from £153m to £170m. Overall, the water companies made more than £4.5bn in the last financial year – double their profits of 10 years ago.
"It's time we reviewed the whole regime," Jacob Tompkins, head of the campaign group Waterwise, said. "We need to consider what we would be willing to pay and reconsider the regulatory regime."
Water UK, the trade body for the companies, is also calling for reform. Last month it published a wide-ranging "blueprint" for the next two years. It said that the way price controls work mean that companies have little motivation to innovate.
Barrie Clarke, a spokesman, said: "To reduce leakage to zero would be unrealistic. The objective is to make sure it is controlled in a downward trajectory."
Trevor Bishop, the Environment Agency's head of water resources, argued that a leakage level of 10 per cent should be aimed for. "Zero leakage is not a possibility," he said. "Recently some water companies have started to raise the question on how far leakage reductions could go with the right incentives, investment and innovation, and looked at possibilities for reducing leakage by as much as half today's values. That would bring leakage down to 10 per cent, which is what you see in some European countries."
A spokeswoman for Ofwat said that the water companies had invested £85bn in fixing leaks since privatisation in 1989, reducing leakage by 35 per cent since its mid-1990s peak.
"Fixing leaks can be costly. Customers have told us they don't want large rises in bills to reduce leakage. We also have to consider the serious disruption and carbon impacts caused by digging-up city streets to fix leaks," she said.
Water bosses' pay
Martin Baggs, Chief executive
His predecessor, David Owens, 58, who left the company in December 2009, received £1.52m in pay and bonuses in the previous two years and £938,000 on leaving.
Tony Wray, Chief executive
Tony Wray, 45, earned £440,000 basic plus £333,700 in bonuses last year. Other expenses came to £147,600, giving a £921,300 total. He joined Severn Trent in 2005 and became CEO in 2007.
Philip Green, Chief executive
Green, 57, earned £798,000 and received approximately £484,386 (60.7 per cent of salary) in bonuses, to total £1,282,386. He became chief executive of United Utilities in 2006.
Richard Flint, Chief executive
The "highest paid director" at Yorkshire Water earns £287,000. Flint, 42, has spent his career with the company, joining as a graduate trainee in 1992. He took over as chief executive in January this year.
Heidi Mottram, OBE, Chief executive
Her predecessor, John Cuthbert, earned £295,000 and received bonuses of £51,625 to total £346,625. Mottram, 45, appointed in March, began her career as a graduate trainee with British Rail.
Peter Simpson, Managing director
Simpson earned £692,000 up to March. He joined Anglian as a trainee after completing a chemistry masters at East Anglia University. Starting as a supply superintendent, he rose through the ranks.
Frederic Devos, Chief executive
French-owned Veolia's "highest paid director" earns £381,000 a year. Devos became head of Veolia Water UK, Ireland and Northern Europe in 2007. He joined in 1990 after a stint as an entrepreneur.