Ofwat announces cut in water bills

The 4% fall was announced in Ofwat's "draft determination" on price limits for water and sewerage costs in England and Wales for the 2010-15 period.

But the regulator's initial decision is likely to spark protests from water companies, which called for an average £28 above-inflation hike in their business plans.

Ofwat chief executive Regina Finn said: "We understand times are hard and we have listened to what customers have told us. They want a safe, reliable water supply at a reasonable cost. People can shop around for the best deal on many things, but not water."

The regulator said its draft determination would still allow water companies to "invest extensively" in the network and spend almost £21 billion over the five-year period.

More than £4 billion will be invested in improving drinking water and protecting the environment, Ofwat said.

Spending plans will also reduce the risk of extreme weather - such as 2007's floods - disrupting supply for around 10 million people, it added.

The regulator will make its final decision on prices in November before the new regime comes into force next April.

Before then it faces talks with water firms which had called for a more generous deal to reflect tougher conditions - such as rising bad debts in the recession - and higher financing costs following the credit crunch.

But Ms Finn added: "Our decisions allow efficient, well-run companies to invest in the right place at the right time for the right price."