Water bills could come down by £25 a year from 2020 under plans outlined by regulator Ofwat.
The watchdog said its upcoming price review would be tough on companies and ensure customers can look forward to “lower bills, improved services, reduced leakage and more help for the most vulnerable”.
The plans, which set limits on the prices that customers in England and Wales will pay for water between 2020 and 2025, will see the so-called cost of capital that has a direct bearing on bills set at a record low of 2.4%.
Ofwat said this could see customers save between £15 and £25 a year on average from 2020.
Water companies will have less room to charge customers based on the costs of raising debt or equity.
This comes after Ofwat drew harsh criticism from the Public Accounts Committee last year for consistently overestimating companies’ costs when setting price limits – leading to higher bills for customers.
Cathryn Ross, chief executive of Ofwat, said: “The next decade will see profound changes in customers’ expectations and we are pushing the water sector to be at the very forefront of that.”
She added: “We’ve said many times already that this will be a tough price review for companies.
“We will cut the financing costs they can recover from customers and, with this lower guaranteed return, they will need to more efficient and innovative than ever before.”
Ofwat said it will also for the first time see help for vulnerable customers included as an “explicit part” of the price review, with water companies required to draw up and deliver plans to identify and help those in need.
The regulator said it wants suppliers to “go the extra mile” and take firmer action on tackling leaks.
Companies will submit their business plans to Ofwat in September next year and Ofwat will publish its final decisions in December 2019.