Water companies ordered to slash bills by 5% over next 5 years

South West Water told to cut bills by 7%, Severn Trent by 5%, and northern-focused United Utilities by 3%

Britain's water companies have been forced to cut prices by an average of 5 per cent over the next five years and spend an extra £44 billion to improve services.

Regulator Ofwat’s demand that water giants cut bills follows pressure from politicians and consumer groups who claim the utilities, most of which are owned by foreign firms, have profited unfairly from cheap financing during the present five-year bills settlement.

Only three of Britain’s water firms, Pennon, Severn Trent, and United Utilities, are still listed on the London stock market, with the rest mostly owned by complex foreign investment consortiums.

Of those three, Pennon’s South West Water was told to cut bills by 7 per cent, Severn Trent by 5 per cent, and northern-focused United Utilities by 3 per cent.

The City — braced for even tougher cuts — breathed a sigh of relief, however, sending Trent’s share price up 44p to 1959p, and United Utilities’ up 26.5p to 898.5p.

Pennon was off 8.5p at 865.5p though Ofwat’s determination for South West Water did not change since a provisional ruling in April.

In London, customers of Thames Water — owned by Australia’s Macquarie Bank — will see bills fall by an average 5 per cent in the next five years.

The firm, which serves 15 million households and firms in the capital, had originally asked to push up Londoners’ bills by 8 per cent to help pay for its £4.2 billion “super sewer”.

For now, Ofwat has ruled that its customers should see annual bills fall by almost £20 to £353 by 2020, stripping out the impact of inflation.

But that could change: the new pricing includes the cost of the preparatory works for the 25km Thames Tideway sewer, but not the construction of the tunnel.

The regulator has already battled hard with Thames on the costs of its tunnel. In August the utility claimed its preparatory works — such as buying land — would add up to £660 million, but after being challenged by Ofwat, Thames has now cut that estimated bill by £250 million.

Today it said it was “reviewing the report in detail [while] work on the Thames Tideway Tunnel continues as normal.”

Customers of the other London supplier, Affinity Water, will see prices fall by 7 per cent over the next five years to an average of £163 a year.

Tony Smith, chief executive of the Consumer Council for Water, said it was “good news” that bills would fall, but warned: “Ofwat has been generous to the sector over several previous reviews.”

That’s one reason the water sector has been a bubble of takeover rumours, with Severn Trent last year rejecting £5.3 billion approach. Companies have two months to accept Ofwat’s decision, or seek a referral to the Competition and Markets Authority.