The average UK water bill will fall from £396 to £376 in real terms in the next five years, Ofwat said today as it announced the final tariffs that companies can charge from April 2015 until April 2020.
However, since companies are allowed to increase their tariffs each year in line with retail price inflation, households are likely to see their water bills rise. Experts at money.co.uk calculate that including the effect of inflation, based on the current 2.3 per cent rate of RPI, a typical bill will rise by £5 to £401 next year and by £26 to £422 by 2020.
Tony Smith, chief executive of CCWater, hailed Ofwat's final decision to force all 10 water companies to cut bills as 'good news' and 'a victory for most water customers'.
But added: 'Customers need to be aware that water companies are allowed to add inflation to bills each year which means charges are still likely to rise from what they are now. That will hurt some households.'
Ofwat's real-terms cut mean Anglian customers will experience the biggest drop, with water bills down 10 per cent from £431 to £390 by 2020. But if inflation is counted in, Anglian customers will actually see bills rise by £6 in five years.
South West will remain the most expensive supplier despite one of the larger cuts - a 7 per cent drop in its annual charge from £545 to £506. Counting in inflation, however, annual bills are expected to rise to £569.
Severn Trent, which will be forced to lower its bills by 5 per cent from £333, will still have the cheapest annual tariff at £316, according to Ofwat. But annual bills could rise to £354 by 2020 if rising in line with inflation.
The smallest cut will come from Northumbrian, which is to lower its water bills by just 1 per cent to £382 a year.
Thames Water, the UK's biggest water firm with 15million customers, was told to cut bills by 5 per cent – but the figure is not definitive and customers could end up benefiting from smaller cuts after details about the costs of building the Thames Tideway Tunnel are confirmed.
Thames Water had asked Ofwat to raise bills by 3 per cent, or about £8 each year, over the next five years to help pay for the £4.2billion Thames’ 25km sewer to deal with the problem of too much sewage overflowing into the River Thames.
Ofwat rejected its request and told it instead to raise bills.
Thames Water was one of three companies told in August that its plans for bills over the period fell well short of Ofwat's provisional expectations. The others were Bristol Water and United Utilities, which serves households in North West England.
