Cost of average annual water bill set to rise to over £400 By Jon Rees, Financial Mail On Sunday The price of water is set to become the next battleground over the cost of living, with some companies likely to raise prices by an inflation-busting near 5 per cent early next year - pushing the average annual household bill over £400. Arguments over water pricing heated up last week as industry regulator Ofwat blocked plans by Thames Water to impose an 8 per cent price rise. Prices for 2014 will be announced in January and water companies are already in early talks with the regulator. At the same time a five-year pricing plan for 2015 onwards is being negotiated, with water companies outlining their final proposals to the regulator in three weeks" time. Bursting point: Ofwat chairman Jonson Cox has warned water firms of 'harsh pressure' on consumers Sharp rises in energy bills have put the power companies under scrutiny from politicians and the public, forcing the chief executive of British Gas owner Centrica to say he would take no bonus this year. However, both the Labour and Conservative parties have highlighted water prices as the next trigger for public anger. Under an already agreed regime, water firms in England and Wales are allowed to raise prices next year by the November inflation rate plus an agreed amount. Barclays Bank expects the Retail Prices Index to rise 3.1 per cent this month. This means that some water bills could go up by nearly 5 per cent, with householders set to be notified of new rates in January. The average water and sewerage bill is £388 and price rises at these levels would push it over £400 at a time when average earnings rose by just 0.8 per cent a year, according to the latest official figures. Ofwat chairman Jonson Cox, who took up the post this time last year, appears to have got the message on prices loud and clear. In a letter to water company chairmen he warns them to remember "the harsh pressure on customers and the generous returns to water company shareholders from macro-economic factors over recent years." He says it is up to each firm to decide whether or not to introduce price rises next year and notes that Thames's behaviour has not helped sentiment towards the sector. Wessex Water has already taken the hint and said it will not be increasing prices next year. Others have yet to follow suit. Price hikes: Householders will be notified of new rates in January The water firms have until December 2 to submit plans for prices from 2015 to 2019 and Cox has urged them to ensure prices fall then. He says "it will be for companies to explain why they can't reduce prices" if they do not submit a plan to do so. His message was reinforced by Environment Secretary Owen Paterson, who this week also wrote to water companies to ensure customers received the best deal from them. Paterson said: "We know that household budgets are under pressure and keeping water bills affordable is a crucial way we can help hard-working people." His political opponents were unimpressed. Labour's Thomas Docherty, shadow Minister for water, called the letter "weak" and water "another failed market." Cox, a former boss of Anglian Water, has attacked the industry, criticising "opaque" private equity owners who use holding companies to avoid tax and give "poor disclosure" of executive pay schemes. He has also raised concerns about the huge debts loaded on to water firms "purely for shareholder gain without advantage to customers." Cox's critics say he left Anglian with a £9.5million payoff in salary, pensions and bonuses. However, it is his comments about the effect of costly water bills on ordinary people which have been most striking. The industry has boasted that consumers pay less than £1 a day for water, excluding sewerage. Cox has little truck with that, suggesting retailers, for instance, would have worked hard to reduce that further. He has also noted that water companies like to talk about prices in "real terms" - taking account of inflation - when justifying price rises. Cox said there had been a 7 per cent "real" rise in water bills since 2005 but the headline figure rose 35 per cent. His stance has won him friends at the Consumer Council for Water, which represents the public. The council's chief executive, Tony Smith, said: "Water companies have been performing very well financially, due to high inflation and low borrowing costs. If they don't share excess profits voluntarily with their customers there could be a case for making this mandatory. In response, water firms say average water and sewerage bills remain at 2009 levels after inflation. And a spokesman for United Utilities, the biggest stock market-listed supplier, which serves the North-West, said: "We are aware of the pressures on our customers. We have measures in place to help those struggling. And our bills are a fraction of those of energy companies. Maybe, but the first salvoes in the cost-of-living war have only just been fired.