Water bills: Ofwat sets out price restrictions

Household water bills in England and Wales will fall by an average of 5% - not including inflation - by 2020, the regulator Ofwat has ruled.

This would see average bills fall in real terms by about £20 from £396 to £376.

However, consumers will still pay more, as the companies are allowed to add on inflation, as measured by RPI.

RPI is typically higher than CPI inflation, and is currently running at 2.3% a year.

Nevertheless the Consumer Council for Water (CCW) said it was good news for consumers.

"Most water companies and the regulator have listened to customers and delivered a deal which reflects the services they want, at a price most find acceptable," said Tony Smith, the chief executive of the CCW.

Customers 'get more'

After two years of deliberations, Ofwat has now determined the levels at which all 18 water and sewerage companies can set their prices for the five-year period beginning in April 2015.

Thames has been told it will have to cut charges by 5% in real terms, United Utilities must cut by 3%, and Bristol Water - a water-only company - must cut charges by 21%.

Ofwat said the ruling will allow water companies to invest £44bn over the next five years, or £2,000 per household.

"With bills held down by 5% and service driven up over the next five years, customers will get more and pay less," said Cathryn Ross, Ofwat chief executive.

For water and sewage charges, Anglian customers will see the greatest percentage drop in yearly bills, down 10% to an average of £390 by 2019-20.

Northumbrian customers will see the smallest change in their bills, dropping 1% to £382.

The main factor behind Ofwat ordering a drop in bills has been the sustained period in low interest rates.

This has allowed water companies to borrow much more cheaply for infrastructure projects, which are among their main costs.

Companies have two months to accept Ofwat's decision, or seek a referral to the Competition and Markets Authority.

Both Thames Water and United Utilities said they would look at the ruling carefully before coming to a decision.