Plans for nearly £8bn of investment and new social tariff to help struggling customers

This work to maintain and upgrade the existing network and services will be done with bills no higher, in today's prices, at the end of the period than they are now.

To deliver this investment, the company confirmed its average annual bill will need to increase by £2 above inflation in 2014, in line with previously set limits, and then decline between 2015 and 2020, remaining below inflation across that period.

The company also announced additional measures to help customers who struggle to pay their bills. These include adding a one-off tax refund of £10m to the Customer Assistance Fund and introducing a social tariff in 2014, a year earlier than planned.

In addition, the company's plans need to provide £2.8 billion for investment in the Thames Tideway Tunnel.  This will require increases of £8 above inflation for each of the five years from 2015. This exceptional project, six times larger than anything previously delivered by the UK's privatised water industry, will provide urgently needed additional capacity to a Victorian sewer network that London has comprehensively outgrown.

In total, these combined plans would mean that Thames Water’s average household bill, currently £50 per year below the average for England and Wales, would increase from £358 a year in 2013 to £398, plus inflation, in 2020.

The total investment package, amounting to nearly £8bn of upgrades to essential infrastructure between 2014 and 2020, is equivalent to £1,385 for each of the 5.7m households the company serves.

Over the past three years Thames Water has had extensive dialogue with its customers, and their views have helped to shape the company’s plans. When tested recently by a representative sample of customers, more than 70 %** said the company’s plans, including building the Thames Tideway Tunnel and the resulting bill impact, are acceptable.

Martin Baggs, chief executive of Thames Water, said: "We have spoken in depth to many thousands of our customers in developing this plan. It is encouraging that more than seven out of ten find it acceptable. It is clear that bill increases are only acceptable if they are absolutely essential, but customers have told us to avoid storing up problems for the future."

"Much of London's water and sewerage infrastructure dates from Victorian times. It has served us well, and allowed Thames Water's customers – both in London and in the Thames Valley - to benefit from some of the lowest bills in the country for decades. However, this infrastructure urgently needs upgrading which inevitably puts upward pressure on bills. We have been spending £1 billion every year on this work, but there is a lot more that needs to be done. So I am pleased that we have been able to develop a core plan that can be funded from bills that reduce, before inflation, between 2015 and 2020.

"Our plan will deliver value for money on the things our customers have told us matter most. They want to be able to turn on the tap and get high quality water every time and for all sewage to be recycled safely to the environment. The Thames Tideway Tunnel is a huge 'must-do' project to stop tens of millions of tonnes a year of sewage entering the tidal River Thames. The current situation is simply unacceptable, which is why this project – developed over many years - has cross-party support and forms part of the Government’s National Infrastructure Plan."

"We recognise that affordability is a significant problem. For customers genuinely struggling to pay their bills, we can and will do more to help. We are increasing the number of ways in which we will assist next year, bringing in important measures which were originally planned for 2015 and onwards."

Thames Water is introducing a series of new and improved measures to help customers, including:

• a social tariff to provide a 50 % discount on bills for qualifying customers
• free leak repairs on customer-owned pipes connecting properties to mains supplies
• a one-off tax credit of £10m, received last month, will be added to the company's Customer Assistance Fund, more than doubling the amount available over the next four years
• home visits will help metered customers who have difficulty in paying bills to save water and free water-saving gadgets will continue to be available to all customers

Mr Baggs added: "We will also continue to crack down hard on people who simply refuse to pay their bills. What we really need is Government to enact provisions in the 2010 Flood and Water Management Act, which would make landlords liable for their tenants' unpaid water bills until they pass on their tenants' contact details - a move that would reduce paying customers' annual bills by around £4 a year."

"We are installing hundreds of thousands of water meters, which give households control over their bills, and not just water bills either. Let’s not forget, heating water in the home costs more than the water itself. By being water-wise we can cut our energy bills too*."

The investment outlined in Thames Water’s 2015-to-2020 plans includes:

• Subject to planning consents, starting to build the Thames Tideway Tunnel
• Cutting the risk of internal sewer flooding at around 1,800 properties
• Reducing leakage from its 20,000-mile water mains network by a further 9 %
• Installing more than 900,000 smart water meters, encouraging water-efficient consumer behaviour and more accurate monitoring and reduction of leakage from the mains network
• Reducing the risk of odour for 6,600 homes

Ofwat will now study water companies’ five-year business plans. Final decisions will be made by the end of 2014.

* = The energy used to heat water in the home for baths, showers and washing-up adds up to more than £200 of the average annual combined energy bill. By replacing a showerhead with our free water-saving a customer could save 23,000 litres of water, making an annual saving of £45 on a metered water bill and £55 on a combined energy bill. [This saving is calculated on a 13 litre per minute power shower head being replaced with our 8 litre per minute showerhead and based on two people each taking five showers per week, for duration of 7.5 minutes per shower].

** = Customers told us that 65% of a representative sample of customers would need to find the plan acceptable in order for us to legitimately say: "Our customers said our plan was acceptable." The main result from the analysis of the customer survey data establishes that the overall level of acceptability, including the need to build the Thames Tideway Tunnel and the related bill impact, for the proposed 2015-to-2020 business plan is 78%. This result has a confidence interval of 70% - 85%, which represents the expected bounds of the level of acceptability of the proposed plan. A conservative interpretation of the main result is that in excess of 70% of customers find our plan acceptable.

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