The cuts are slightly less than Ian Byatt, of Ofwat, had planned to introduce because of increased environmental clean-up programmes ordered by the Government.
But they will still wipe almost pounds 1bn from water company profits while the industry will also have to find pounds 8.5bn to fund a massive programme of improvements in drinking water quality and the cleanliness of beaches.
The biggest cut in bills will be enjoyed by customers of Northumbrian Water, who will see the average annual charge fall by pounds 46 to pounds 198 - a reduction of 19 per cent.
The smallest reduction will be for households in the Thames area, where bills will fall by pounds 26 from next April to pounds 182, equivalent to a cut of 11.7 per cent.
Although the cuts are not as deep as those initially proposed by Mr Byatt in July, they are almost certain to force most water companies to reduce drastically dividend payments to shareholders. City estimates suggest the cuts in dividend payments at some companies could be as high as 50 per cent.
In July, Mr Byatt proposed a 14 per cent reduction in prices next year. Since then, however, the Environment minister Michael Meacher has decided that the environmental programme to be funded by the industry will be slightly bigger than Mr Byatt had calculated.
The biggest beneficiaries will be Welsh Water, Southern and Northumbrian, where bills next year will fall by significantly less than planned.
Bills will also come down less than planned for customers of the smaller statutory water-only companies. In July, Mr Byatt recommended an average reduction of 16.2 per cent. The new figure is 12.4 per cent.
The water industry claims that the price curbs could force it to scrap 9,000 jobs - one in four of the workforce. But unions argue that lower bills can be financed out of their excessive profit margins and not by cutting staff.
Byatt's olive branch, Business, page 20