Water meters could be made compulsory in all British homes

Ministers hope to cut use, but Tory MP admits that the vulnerable may see 'significant rises' in bills

Every home in the country could be forced to have a water meter under government plans to overhaul charges as water companies press to cut off supplies to families who do not pay their bills.

Caroline Spelman, the Secretary of State for Environment, Food and Rural Affairs, is understood to have accepted in principle that charges for water should in future be based on metering, with the aim of cutting water use. Those with high levels of discretionary water use will be worse off, such as keen gardeners who water wilting blooms and drivers who regularly hose down their cars. Concern has also been raised about the elderly, the disabled and large families who use more water than average.

One option being considered is setting an industry-wide target to dramatically increase the proportion of homes with a meter from the current 40 per cent. In theory, the main advantage of having a water meter is that you get charged only for the water that you use, rather than on the basis of your property's size.

An independent report by regulator Anna Walker highlighted "significant and growing concerns" about the differences in charges for those with and without meters. It called for legislation to enforce the installation of more meters, which could see 80 per cent of households in England paying for the actual amount of water they use by 2020.

The RSPB charity has recommended – to the cross-party environment, food and rural affairs (Efra) select committee – full compulsory metering in England and Wales by 2020, with tariffs protecting the poorest households. Ministers are also considering targeting metering in areas where water shortages are most severe, and doing more to persuade people to switch voluntarily to a meter. For low-income households, bills could be capped to the average in a water company's area or nationally.

However, some water firms have demanded the power to limit or cease supply to "those who are able but who deliberately choose not to pay". It is thought that bad debt racked up by non-payers costs each paying customer about £12 a year. Last year, Richard Benyon, a junior environment minister, conceded that he was undecided about giving companies the "ability to cut off supply".

Ms Spelman is due to launch a consultation on the proposals shortly, but Defra insiders claim Downing St unease over the prospect of more unhelpful headlines has led to the announcement being rescheduled. A Defra source said: "With the row over our consultation on selling off forests ongoing, there is some concern about how the public will react to being told to get a meter."

Labour will this week seek to exploit divisions over Defra's plans to dispose of the country's 258,000-hectare forest estate over the next decade with a Commons vote on the issue. Mary Creagh, Labour's environment spokeswoman, will reach out to traditional Tory MPs who see themselves as "custodians" of the nation and who want to protect woodlands for future generations.

The scale of the public backlash – fuelled by celebrities, church leaders and conservationists – has prompted the "pause" over the meter plan. The Consumer Council for Water has warned MPs that while 57 per cent of people think metering is the fairest way to charge, only 40 per cent support making it mandatory. Ministers are warned to avoid a "consumer backlash".

It remains difficult and costly for water firms to install meters in flats, though the industry is trying to develop more practical alternatives.

The Efra select committee, chaired by the Tory MP Anne McIntosh, admitted that a more widespread introduction of metering will mean there are "winners and losers... and some, including groups of vulnerable customers, could see significant rises in bills".

The coalition is also under pressure to fulfil pre-election promises to tackle the anomaly of customers in the South-west paying the highest bills in the country. Annual unmetered bills are £723 compared with £367 nationally.