Ian Byatt, the head of Ofwat, the water regulator will also tell companies that charges to their 26 million domestic customers must remain lower in real terms in 2005 than they are now. Overall, water charges will fall by 2.7 per cent over the next five years.
The big one-off cut in charges means that the average water and sewage bill will fall by pounds 34 from pounds 246 this year to around pounds 212 next April. Some companies will then be able to increase charges in subsequent years to pay for the industry's pounds 8.5bn programme of environmental improvements.
But bills must still be lower at the end of the period than they are now.
The biggest cut will be enjoyed by customers of North-umbrian Water, who will see their average bill of pounds 241 fall by 25 per cent - a reduction of pounds 61.
Households in the Anglian region - the driest area of the country - will see the smallest cut in charges with the average pounds 272 bill falling by 11.3 per cent or pounds 31. Customers of Thames, the biggest water company in the country, will see their bills fall by an average of pounds 24 from pounds 206 now.
Ofwat calculates that the average saving in real terms over the five- year period will be pounds 38 per customer. Companies will also have to return a further pounds 24 per customer in efficiency gains, increasing the total benefit for each customer to pounds 62.
The one-off reduction next year is less than the 15-20 per cent cut that Mr Byatt recommended in his initial price proposals last October. But the price curbs in subsequent years are tougher, meaning that no domestic customers will see higher bills at the end of the five years.
A number of water companies, led by Hyder, the owner of Welsh Water, have indicated they could appeal to the Competition Commission if the price curbs are too harsh. But Mr Byatt will argue that his new controls leave the industry with enough resources to carry out environmental improvements at the same time as cutting bills.