United Utilities pledges to raise water bills only by RPI inflation

The water company United Utilities has offered some respite on bills for hard-pressed households, announcing a £20m "special discount" on next year's planned price rise.

The group, which serves around 7 million people in the north-west of England, will limit its 2014/15 price rise to no more than the retail prices index (RPI) inflation, scaling back a planned 1.2% rise on top of RPI.

The move follows pressure from the regulator Ofwat to consider reducing price increases amid the squeeze on family finances. Ofwat determines how much water firms can spend and raise prices within five-year "price control" periods.

The watchdog is taking a tough line on tariffs, having refused a price increase requested by Thames Water.

Ofwat's chairman, Jonson Cox, recently wrote to all water companies asking them to consider whether they needed to increase their bills for 2014/15 by the full amount set out in the last price review, given the squeeze on household incomes.

Warrington-based United said it would use part of a £75m net tax rebate to offer the £20m discount. The rebate was gained after a longrunning corporation tax dispute with HM Revenue and Customs.

The remainder of the tax windfall will also be used to benefit customers, with £17m earmarked for those struggling to pay their bills and £38m for "future sharing with customers". Another £90m in tax savings is also expected between 2015 and 2020, which it said would be used to help customers.

United's announcement comes as the company seeks to calm mounting public anger over rising household bills and supplier profits. The group revealed a 14% rise in underlying pre-tax profits to £215.7m in the six months to 30 September, while earnings increased by 9% to £343.2m thanks to cost-cutting.

It hit customers with a 4% price rise in April – inflation plus 1% – which pushed half-year revenues up by £30m to £853m. But it said it was proposing price rises of below inflation under its business plan for 2015 through to 2020, which will be submitted to Ofwat before Monday's deadline.

Steve Mogford, United's chief executive, said on average the group's prices will rise by less than inflation across the entire decade to 2020 and that the group was investing at least £800m this year in its network and on improving services.

United revealed that shareholders will benefit from a 5% increase in their dividend payout, to 12p a share.

Meanwhile, Severn Trent Water has reported a 0.4% increase in half-year underlying earnings to £266.9m and confirmed a 6% increase in its shareholder payout. It also said prices would rise by less than inflation in the next financial year, but is still finalising its new five-year business plan.