The reaction from the water firms was mixed. Most have become resigned to the tougher regime, but at least one, South West Water, has said it will go to the Monopolies and Mergers Commission rather than accept the price cap.
Water bills, which have risen by 5 per cent above inflation for the last five years, will be capped to an average of inflation plus 1 per cent between 1995 and 2005. The effect will be to increase the average household bill by pounds 23 over the 10 years, or about pounds 2 a year averaged over 10 years. Ofwat said the companies must accept lower profits in the interests of customers.
The Consumers' Association said: 'The companies' easiest option has always been to dip into consumers' pockets. That licence has now been curtailed. It is hardly surprising some water companies are wriggling.'
The National Consumer Council said it believed the regulator had done what he could to stop spiralling bills, although it would have preferred to see some real price cuts.
It added that the Government must act to help those on lower incomes who would still see real price increases, albeit at a lower rate than in recent years.
The NCC attacked the decision by South West Water to go the Monopolies and Mergers Commission, on the grounds that the company's customers have suffered some of the highest price increases since the industry was privatised. Because of environmental requirements, South West Water has been able to increase prices by 11 per cent above inflation for the last three years.
An NCC spokesman said: 'South West want to use the MMC to get even more money from their customers. This is the last company that should be going to the Monopolies and Mergers Commission.' He said it would be prepared to give evidence to that effect.
Nigel Griffiths, Labour's spokesman for consumer affairs, said that many consumers would still see staggering price increases. He said that Mr Byatt should have forced a real price cut on the companies and he called for the regulator to resign. 'He has presided over obscene salary increases to water industry executives and massive handouts to shareholders. This statement on prices should be his last,' he said. Chris Smith, Labour's environment spokesman, said Mr Byatt had been too soft and had 'ducked the issue'.
Ian Byatt, the director general of Ofwat, said that water quality would continue to improve and that companies would have to maintain their standards of service. He said that companies must in future absorb large amounts of their costs by accepting a lower return on their investments and by increasing efficiency.
Mr Byatt estimated that without the new regime, the average household bill would increase by pounds 47 rather than pounds 23 over the period.
'The companies' profitability and the returns to their shareholders will depend on their ability to reduce costs,' he said.