Water and waste contractors are gearing up for “substantial challenges” after Ofwat’s final budget allowances for capital expenditure fell almost £2 billion short of what the largest clients claimed to need for the next five years.

The water regulator last week earmarked a total of £22.1bn for capital expenditure across the country’s 21 business water and sewerage and water-only firms under Asset Management Period 5.

A total of £20.7bn of the expenditure will come from the UK’s 10 largest water and sewerage groups – but the figure falls considerably short of the £22.4bn they told the regulator they would require for their 2010 to 2015 programmes.

The deficit had been much larger under the regulator and industry’s draft plans, with companies having originally claimed to need £27.4bn and Ofwat only promising £19.1bn. Contractors said the determinations were higher than they were expecting in the current climate, but were likely to mean the need for cost savings.

Black & Veatch managing director Chris Scott said: “Broadly speaking, the settlement is positive, but not without substantial challenges. “The increase in capital expenditure between the final determination and the draft determination is welcome.

However, it is important to remember that water companies are not a homogenous group; as a result, the determination will affect different companies in different ways.”

May Gurney chief executive Philip Fellowes-Prynne said it was most likely water firms would curtail their spending on the construction of new assets first, adding: “The likes of mains replacement and maintenance work will still be required, and obviously if you have water quality problems they need to be addressed.”

Costain’s group strategy and business development director Stephen Wells suggested that while water contractors had the right to negotiate deferrals for new projects, it was not the norm.

He said: “It would be wrong to say everything will go according to plan. The capital expenditure programmes will come under pressure but, under EU directives, the UK Plcs have an obligation to deliver assets.”

Mr Wells said contractors had expected the determinations to be tight. He added: “It is never ideal, but in our strategic planning we have taken account for these sort of eventualities.

“It is not about cutting margins, but clearly there are challenges for a lot of the Plcs to find efficiency savings, and it will be important to value engineer to help them get more asset for less cost.”

The water companies have two months to respond to Ofwat’s decision but some – including South West Water and Thames Water – have already highlighted funding deficits.

A mind boggling 3.3 billion litres of water was lost every day in 2007-8 from leaking pipes across Britain, figures out yesterday revealed. The amount is equivalent to more than 1,300 Olympic-sized swimming pools. The Liberal Democrats, who obtained the figures, want to give water regulator Ofwat the power to set stricter leakage targets and stiffer fines for water firms. Environment spokesman Tim Farron said: “Year after year, people have seen their water bills shoot up while a ridiculous amount of water is still being wasted.”

Swimming pool owners, those with large gardens and those in areas prone to droughts should be moved onto water meters as a matter of urgency, with companies using satellite images from Google Earth and aerial photographs to ascertain heavy water users. These are just some of the recommendations put forward by Anna Walker, a leading civil servant, in her 220-page interim report into domestic water bills, commissioned by the Department for the Environment. It warns that all families should brace themselves for “substantially higher” water bills over the coming decade, as Britain’s water supply steadily falls because of climate change. It suggests a raft of radical changes to both the water industry and consumers’ behaviour, including:

Households struggling to pay bills in areas where tariffs are high should receive a “water benefit” of up to £170. Every household in Britain should eventually be moved onto a water meter, at cost of £3 billion. Lavatories with large cisterns and large shower heads should be banned from being sold.

Domestic appliances should carry water efficiency labels, with the least efficient washing machines and dishwashers outlawed. A spokesman for Anna Walker said: “This should be seen as a wake up call. Water is going to become much more scarce in summer because of climate change, and the population is increasing.

“We either spend billions on desalination plants and building extra water storage, or we do something about saving water now.”

Water companies have the power to force swimming pool owners to move onto water meters, but according to the report most do not enforce their powers and the majority of the estimated 210,000 pool owners are on rates – paying no more for their water than neighbours without pools.

The Anna Walker team believe “as a matter of urgency” legislation should be passed to make it mandatory for companies to move high water user customers onto meters, using – if need be – Google Earth and garden inspectors to find out who is using sophisticated watering systems, pools and ponds.

The report also believes that everyone in the south east, south west and areas of low rainfall should be moved onto meters, potentially pushing up bills for large families substantially.

The report was warmly welcomed by environmental campaigners, but consumer groups cautioned that some customers – who wouldn’t qualify for water benefit – could be hit disproportionately hard.

Tony Smith, chief executive of the Consumer Council for Water, said: “There are already a large number of customers struggling to pay their water bills and we have concerns they could suffer significantly.”

Thames Water has asked a group of MPs working on new legislation for the industry to consider the use of water flow restrictors. Flow restrictors, also known as trickle flow meters, are used in parts of Australia to disrupt a home’s water supply with the aim of inconveniencing non-paying customers into paying their bills.

However, in the UK water companies are not legally allowed to do this and Thames Water wants Parliament to explore the possibility. The key issue for the firm, which announced a profit of £435.1M earlier this month, is that gas and electric companies have the power to cut supplies to customers who don’t pay.

The group, which provides drinking water for 8.5m customers, also beleive bad debt adds £11-a-year to honest customers’ bills. David Owens, Thames Water’s chief executive, said: “First things first, no one is going to get cut off. “We don’t want to cut anyone off, and we’re not allowed to anyway.

A law change would be required before water firms could use flow restrictors, so they’re not going to be in action any time soon – if at all. “Even if they were used, there would be no health implications. These devices would simply reduce flow, not cut it completely. “We’ve currently got £45m of ‘bad debt’ – in other words, outstanding bills. “That adds £11-a-year to the bills of honest customers who do pay, and that can’t be right. “That’s why we’ve asked a group of MPs who are drafting some new legislation to make chasing down non-payers easier for water firms – so it’s fairer for the rest of us. “One of the things we’ve asked them to consider is restrictors, which are used in some parts of Australia to lessen the flow of water to non-payers in order to inconvenience them into paying.

“We don’t even want to use flow restrictors – and right now we’re unsure how we would use them anyway – but we do think they need looking at as a last resort for customers who are perfectly able to pay but refuse to do so. “But we’ll leave the final call on this to the MPs whose job it is to decide. And finally, let’s be absolutely clear: we’re after the won’t pays – not the can’t pays. “If you genuinely can’t pay your bill, we can discuss a range of ways to help you, including financial assistance through our Charitable Trust, a £5m fund set up to help customers in need.”

As the Environment Agency calls for water meters in virtually all homes in England and Wales, we look at some of the issues for consumers. Most meters use a positive displacement chamber which has a fixed amount of water flowing through it that turns a dial to measure water usage for a household. Meters are usually installed in the most suitable location determined by the pipe layout, which may be in the road, garden or indoors. You local water company will then visit to check your water meter reading and calculate how much to charge, much like gas and electricity meters. All homes built since 1990 are fitted with water meters. It is estimated about a third of properties have them.

The argument in favour of a meter is straightforward: You pay for what you use. The Consumer Council for Water found customers considered metering to be the fairest billing method, but they still liked to have a choice. The Environment Agency makes the case that paying per volume is the fairest way to pay and that it gives people an incentive to use less water, benefiting the environment. To meter everybody regardless of their circumstances or how many children they have is absolutely a recipe for disaster

It is said homes with meters use on average 10% to 15% less water than those without. People who cut their water use often find other bills fall as well, as about 40% of energy bills go on heating water for washing dishes and clothes, bathing and showering. Another benefit is the meter allows you to see whether you have a leak. Domestic customers are entitled to a “leakage allowance”, so you do not have to pay for the water lost through a proven leak, according to the Consumer Council for Water. Water UK, which represents water companies, said metering also allowed the possibility to introduce more adapted tariff structures in the future. The disadvantages of meters are that your bills may rise.

The Campaign for Water Justice said the poorest and most lowly-paid households could end up facing higher bills. “To meter everybody regardless of their circumstances or how many children they have is absolutely a recipe for disaster,” said Neil Fishpool, from the campaign group.

The consumer backlash against expensive, bottled water is gathering momentum, according to two related studies this week which reveal that more of us are content with that plain old, dirt cheap stuff that comes straight out of a tap. First of all, the UK’s restaurant-goers overwhelmingly prefer to choose tap water over bottled, according to a brand new survey issued to tie in with UN World Water Day 2009, which fell on 22 March.

The research, commissioned by international charity, WaterAid reveals that tap water is the preferred choice for 63% of people when they dine out. Over 23.5 million people prefer to order tap water with their meals rather than bottled. Yet despite this, one in four people surveyed said they have felt pressured to order bottled water when dining out.

More and more UK restaurants are offering tap water to diners as standard, which is already the norm in the US. But you still often have to ask for it – with the associated embarrassment that can cause. WaterAid’s drinking water survey also shows that women are more likely to choose tap water, while men are more inclined to have bottled water with their meal. And where people live also seems to make a difference – people in Greater London and Scotland are the most likely to choose bottled water, whereas those dining out in the South East and East Anglia are happy with a good old jug of tap.

The popularity of bottled water soared in the 1990s and the early 2000s, but is now s-o-o-o yesterday, according to figures from market research company TNS. Last year the on-going year-on-year increase in sales was halted and sales actually fell by 9%. The Guardian has highlighted what an expensive and unnecessary adornment bottled water is, even singling out Bling H2O – in frosted glass bottles adorned with Swarowski crystals and a mere snip at $55 a bottle – as the ultimate eco-unfriendly product. Tap water costs around 0.1p a litre at home. Surely it’s a no-brainer?

Which do you drink – bottled or tap? Which restaurants would you single out for their refreshing attitude to offering tap water, and which are still swimming against the consumer current?

Commodity prices could be caught up in a storm as recent volatility continued yesterday. Hurricane Gustav is threatening oil production in the Gulf of Mexico, and the potential disruption is starting to put upward pressure on oil and gas prices after recent falls. Yesterday gas prices in Britain dived but oil rose. Low demand and healthy supply drove down gas prices to 49p per therm from Friday’s prompt price of 65p, which had been caused by a drop in flows into Scotland. However a rebound in flows into Scotland over the weekend, as well as low demand for gas in the UK and in continental Europe, caused the 25% fall in price. “Gas has come back and the Europeans don’t seem to want any,” said one trader. “It’s low demand more than anything.” The price of gas on the forward market for this winter fell yesterday by about 5p to 96.5p per therm and summer 2009 slipped to 81.5p, as oil prices fell below $114 a barrel. Oil fell as the dollar hit a six-month high against the euro after weak German data highlighted a flagging euro zone economy. Investors see oil, and other commodities, as less attractive as an inflation hedge when the dollar is strong. However Hurricane Gustav, a category one hurricane which is strengthening in the central Caribbean, is threatening to disrupt oil and gas output off the coast of America which caused an afternoon rise to $117 a barrel. “Short term trading on oil should now be dominated this week by tracking Gustav,” said Olivier Jakob, an oil analyst at Petromatrix in Switzerland. Forecasters are predicting the hurricane will enter the Gulf of Mexico as a major storm by the weekend. The Gulf is home to about 25% of American oil production and 15% of its natural gas output. One of the largest oil and gas producers in the region, Royal Dutch Shell, has said it would begin evacuating nonessential personnel from offshore facilities later today. The conflict in Georgia has so far had little influence on oil prices, despite some disruption to Azeri oil shipments through the country. Edward Meir, analyst at MF Global, said: “Energy markets have not yet focused on what this latest escalation could mean for a potential disruption in energy supplies. “Until we get better clarity on this latter issue, we expect the price reverberations from this situation to be relatively contained.” The former chief executive of BP, John Browne, yesterday predicted that oil prices would bottom out at $80-$100 a barrel. “It is difficult to see oil prices much below $100, so $80-$100,” Mr Browne said at the ONS oil and gas conference in Norway. “As a flow, predicting the ceiling is difficult.” Oil has fallen sharply from July’s record high of $147, on the back of falling demand, however it remains up 15% in 2008.