Severn Trent told to cut bills by five per cent

Ofwat said the decision would see national average bills for water and sewerage services in England and Wales fall from £396 to £376.

When the process for setting bills began last year, water companies submitted plans that would on average have cut bills by two per cent in real terms.

All 18 companies have been told to cut bills in real terms. Severn Trent has been given a five per cent target.

Severn Trent, which supplies water and sewage services to 4.2 million homes and business across the Midlands and mid-Wales, said that it had received the final determination on its business plan for the next five years from the regulator, Ofwat.

The plan was prepared over two years of consultation with customers and stakeholders.

"We will take the time necessary to review its content and conclusions thoroughly before responding to Ofwat and our stakeholders in February," the company said in a statement.

"As Ofwat has highlighted today, customers will benefit from improved services over the next five years, whilst bills will actually be falling in real terms. We are proud that Severn Trent customers have the lowest average combined bills in the land, and with bills falling in real terms over the next five years, this is set to be the case until 2020."

The company decently boasted that it has "the lowest combined bills in the land", after delivering a below-inflation increase for customers for five consecutive years.

It had previously said it aimed at continuing to pin back prices below inflation until 2020.

It also provides sewage services to homes in Walsall, Sandwell, Dudley and Staffordshire supplied by South Staffs Water.

Severn Trent plans to cut 500 jobs which are mainly expected to go from its head office in Coventry.

Ofwat rejected a request by Britain's biggest water company, Thames Water, to increase household charges by three per cent over 2015-2020 to help pay for the £4.2 billion Thames Tideway Tunnel.

It also said utility firms must improve efforts to tackle water leakage, supply interruptions, sewerage water flooding of properties and see cleaner water at beaches.

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

"Where companies stepped up to do the best they could for their customers we did not need to intervene, but where companies fell short we stepped in to make sure customers get a good deal.

"Now the hard work begins. Companies will only build trust and confidence with their customers if they deliver.

"Those who do can look forward to fair returns, while those that don't will be hit in the pocket and face a tough five years ahead."

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.

The regulator also said the plans would see improved levels of service with companies set to spend more than £44 billion or around £2,000 for every household in England and Wales over the next five years.

It said improvements would include more than 370 million litres a day saved by tackling leakage and promoting water efficiency - enough water to serve all the homes in Birmingham, Manchester and Leeds.

Ofwat also said there would be a reduction in the time lost to supply interruptions of 32 per cent on average, while 4,700 fewer properties would be flooded by sewer water and there would be cleaner water at more than 50 beaches.