The average household water and sewerage bill in England and Wales will rise by 3.5 per cent over the next year, the regulator said today.
Households will pay an average of £388 from April this year to March 2014, 0.5 per cent above the rate of inflation.
The higher rates will come into effect on April 1 and apply until March 31, 2014.
The cost to consumers will vary depending on the water company that supplies them and whether they have a water meter.
Regina Finn, chief executive of Ofwat, said that any increase was unwelcome when household incomes were under acute pressure but that the rise would help to pay for £25 billion of investment between 2010 and 2015.
“This will deliver real benefits, from continuing to improve the reliability of supplies to dealing with the misery of sewer flooding for thousands of customers,” she said.
Ofwat would take action if water companies did not deliver on investment, Ms Finn added.
Last year, Ofwat tried to shake up the water customer pricing regime by announcing proposals to make price-setting more flexible.
However, the supply companies rejected the regulator’s attempt to break a “plus inflation” pricing regime.
Ofwat was forced to back down just before Christmas and said that its reforms remained goals, but that it did not plan to implement them as soon as possible.
Heidi Mottram, the chief executive of Northumbrian Water, told Ofwat last year: “We feel there may have been a better way to underline the commitment to a constructive working relationship.”
Richard Wellings, deputy editorial director at the Institute of Economic Affairs, said: “Over-regulation is the main factor driving up prices. Ever-increasing environmental and water quality standards, many resulting from EU directives, have forced companies to invest tens of billions in new infrastructure and pass on the cost to consumers.
“The Government should take a new approach to the water sector that focuses on keeping bills down. It should end the obsession with ever-increasing water quality and environmental standards and exert pressure on EU policymakers to do likewise. Removing barriers to competition in the water industry would also help consumers.”
Last week MPs called on the Government to break up regional water monopolies in an attempt to fast-track competition.
The call came in a report from the House of Commons Environment Select Committee, which urges Defra to be far bolder in the draft Water Bill going through Parliament.
The MPs have called on the department to drive through the biggest shake-up in water since privatisation more than 20 years ago by re-engineering its structures more in line with the energy industry.
In a key recommendation, they say that the water companies should be forced to separate their wholesale operations — sourcing water, treating it and distributing it through the pipes — from their retail divisions dealing with customer bills and metering.
In the energy industry, power generation was separated from the mains network, which was separated from the regional household suppliers.
The committee further states that incumbent regional water companies should be allowed to decide whether they wish to exit from retail operations altogether and concentrate on being an upstream infrastructure utility.
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