Water firms must cut annual water bills by 5 per cent in real terms over the next five years, regulator Ofwat ruled yesterday.

The decision means average annual charges for water and sewerage services for England and Wales will see a real-terms fall from £396 to £376 in current prices.

But with RPI inflation currently at 2.3 per cent and wage “growth” at just 1 per cent many households may still find it an increasing struggle to make ends meet.

Ofwat also said utility firms must spend £44 billion on improvements, including tackling water leakage, supply interruptions, sewerage water flooding of properties and cleaning up water at beaches.

The regulator rejected a request by Thames Water to increase household charges by 3 per cent over 2015-2020 to help pay for the £4.2 billion Thames Tideway Tunnel.

However, the firm has been given leeway to add to bills once more is known about the costs of the project next year.

Environment Secretary Elizabeth Truss said: “We are committed to seeing a fair deal for customers. This decision will see people’s average water bills fall by around 5 per cent in today’s money over the next five years, helping to keep bills affordable.”

But Labour’s Maria Eagle said: “For many people prices are still going to be rising faster than wages and that’s why one in five people are struggling with their water bills.”