Water bills are to rise. but by less than water firms wanted

BBC News Online explains why the price rises are taking place.

How much do we pay for our water now and why is it going up?

Over the past five years, households have been paying an average of �249 a year in water and sewerage charges.

Charges vary regionally, with customers in the south-west of England historically paying more than customers in Yorkshire and the north-west.

Ofwat reviews water prices every five years to ensure that firms can continue to deliver their services effectively and meet new obligations.

This is the fourth price review since privatisation of the industry in 1989. Previous reviews took place in 1990, 1994 and 1999.

How far will water bills go up?

It all depends on where you live.

Ofwat has published draft proposals which would see annual bills rise by an average of �33 to �282.

Under the proposals, prices rises will vary considerably around the country, depending on the needs of individual regions and existing price levels there.

At one end of the scale, Wessex Water customers would see their bills rise by an average of 20% while Anglian Water customers would only see a 3% rise.

The differences are intended to take account of factors such as how much modernisation needs doing, past price rises and local weather conditions which affect flood risks.

The new charges won't come in all at once. Companies can phase them in, but they are likely impose the biggest price rise in April 2005.

The new pricing levels take effect in April 2005, and last until March 2010.

But there is still room for tweaking as Ofwat will publish its final determinations in December, after a consultation period.

How will water firms spend the extra money?

Just under �16bn will go on maintaining infrastructure such as renewing water pipes and treatment plants.

The industry says huge expenditure is needed to make up for serious under-investment in infrastructure prior to privatisation.

Money must also be used to improve the quality of drinking water, treating wastewater and improving customer service.

Our consumption of water is rising and companies say funding is need to maintain existing sources of supply and find new reservoirs.

Another major priority will be modernising the country's antiquated sewer system

Severe flash flooding in the south of England on Tuesday caused chaos, resulting in a huge amount of raw sewage being washed into the Thames.

Is the water industry happy with Ofwat's proposals?

Water companies have expressed disappointment that their case for a 30% rise in bills, which they said would yield capital investment of �22bn, has been rejected.

The companies have described Ofwat's price assumptions as challenging, but are committed to further consultation.

They say investors need big enough financial rewards to encourage them to provide the funds needed.

They also point to rises in their own operating costs as a result of higher taxes, business rates and other costs.

Should consumers be satisfied?

Consumer lobby groups are pleased, but not ecstatic.

WaterVoice had branded the industry's desire for a 30% rise in bills as unacceptable and unaffordable.

It has welcomed the more modest price rises proposed by the regulator.

However, it is still wants the government to do more to help poorer households to pay their bills, potentially through a system of tax credits.

WaterVoice is also calling for a major crackdown on industrial and agricultural pollution, saying water companies are having to pick up the bill.