Water UK, the body representing the water and sewerage companies of England and Wales, was responding to proposed price limits put forward by the industry regulator Ofwat's director general Ian Byatt.

The draft proposals were welcomed by the Government as good news for customers and the environment but Water UK said today that Ofwat had got it wrong and consumers would prefer stable water supplies and efficient maintenance rather than one-off price cuts and the prospect of job losses.

Under Ofwat's proposals every household in England and Wales would see their water bill fall by almost £40 a year by 2004-5.

But Graham Setterfield, Water UK's director of water services, said that if maintenance and environmental programmes were to be continued, prices would have to go up again in the long term and jobs would be lost.

He said customers wanted "good service, good environmental performance and stable prices" adding: "They've shown no great appetite for price cuts."

Water UK said that on capital and maintenance expenditure alone there was a £3.5 billion shortfall between what the water companies believed they have to spend and what Ofwat proposed.

Valerie Homer, Water UK's technical director, said: "If water pipes are not replaced or repaired at the right time, supplies could be interrupted and leakage, which has fallen dramatically in recent years, could start to rise again.

"With the waste water system, underfunding could also lead to sewer collapses, sewer blockages, more flooding of houses and environmental damage. A reversal of all we have achieved so far."

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