Update: Anglian Water to cut bills by 10pc – but inflation will push prices higher
Anglian Water will make the biggest cut to household bills in the country in the wake of a nationwide review by the industry regulator.
The public utility company – which supplies water to the east of England including Norfolk and Suffolk – has been told to cut annual bills by 10pc over the next five years, compared to a national average of 5pc.
The impact from Ofwat's ruling will lead to a cost saving of £41 on the average yearly bill, from £431 in 2014/15 to £390 in 2019/20.
However, the actual bills dropping through customers' letterboxes in five years' time will be £30 higher, because they will add in the rate of Retail Price Index (RPI) inflation.
This currently stands at 2.3pc, higher than the benchmark Consumer Price Index (CPI) measure and well above pay growth at 1pc - fuelling fears that, despite being held back, water bill rises could still see customers struggling to pay.
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Industry experts calculate that based on the current rate of RPI over five years, a typical bill would rise by 8pc or £32 over the 2015-2020 period.
As well as outlining a need to drive down costs to the consumer, the watchdog also instructed Anglian Water to reduce the time lost to supply interruptions by almost 40pc, to make a 27pc reduction in pollution incidents, and increase the proportion of beaches achieving 'excellent' status from 58pc to 67pc.
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Anglian Water said the ruling was broadly in line with its plans and would not affect its decision to invest £5bn in the region's water network over the next five years.
Peter Simpson, Anglian Water's chief executive, said: 'We've been able to agree this reduction because we've become an increasingly efficient company. We are passing these savings on to our customers in the form of lower bills – and this is consistent with the promises we've been making all along.
'We're still going to be spending around £5bn running the business, looking after essential equipment, protecting communities from extremes of weather including flooding, and helping to underpin economic growth. We'll also be making more funds available to help customers who fall into debt, and establishing a special tariff for the most hard-pressed customers.
He added: 'The outcome is broadly similar to what we've been proposing all along, based on the very extensive consultation we carried out with our customers over the last year.'
The watchdog said utility firms must spend £44bn on improvements, including tackling water leakage, supply interruptions, and sewerage water flooding of properties and cleaning up water at beaches.
Ofwat chief executive Cathryn Ross said: 'With bills held down by 5pc and service driven up over the next five years, customers will get more and pay less.'
But shares in some water firms rose as the decision ended uncertainty. Investec analyst Roshan Patel said the final determination by Ofwat gave a 'balanced outcome' for shareholders.
New charges will come into effect in April 2015. Ofwat said companies have two months in which to accept its final determination or seek a referral to the Competition and Markets Authority.
Environment Secretary Elizabeth Truss said: 'We are committed to seeing a fair deal for customers. This decision will see people's average water bills fall by around 5pc in today's money over the next five years, helping to keep bills affordable.'
But Labour's Maria Eagle said: 'For many people prices are still going to be rising faster than wages and that's why one in five people are struggling with their water bills.'
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