Page last updated at 15:40 GMT, Monday, 30 November 2009

Thames Water warns of funding gap

Thames Water said the hike in bills is needed to fund planned works

Thames Water has warned of a potential funding gap as the recession poses "significant challenges" to the business.

The company said rising bad debts and the more expensive cost of financing will make it more difficult to fund essential investment in the network.

Thames Water had planned to invest £5.5bn in the 2010-2015 period funded by a 17% rise in bills.

But Ofwat limited the firm to a 3% rise.

Thames Water, which provides water to 8.5 million people in London and the Thames Valley, has two months to decide whether to appeal against the decision.

It said the regulator had funded it only enough to keep leakage level - rather than reducing it - over the next five years.

The company's spending plans for the next five years include the construction of one tunnel and the design of another which will reduce overflows from London's sewerage system to cut pollution in the Thames and the River Lee.

Thames Water's profits rose by 15% last year to £225.5m.

Investors in Australian firm Macquarie, which took over Thames Water in 2006, received a £131m dividend from the utility.

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