Severn Trent, the UK's second largest water company, today admitted it is concerned that cash-strapped customers may soon struggle to pay their water bills.

The company, which has more than 8 million customers, mainly in the Midlands, warned that although it had not yet experienced any serious payment problems, the issue remained a risk for the rest of the year.

Severn Trent said: "Given the current economic climate we continue to closely monitor our customer debt and cash-collection performance.

"Whilst we have not experienced any material deterioration over the period to date, this remains a risk to our outlook over the remainder of the year.”

Bad customer debts are a major concern to water companies after a Labour Party manifesto pledge in 1997 made it illegal for utilities to cut off customers’ water supply even if they failed to pay their bills.

In the year to March 31, Severn Trent wrote off £22.7 million, up from £22.3 million, on what the company calls “doubtful debts", including those of customers who cannot pay.

The number of days it took the company’s debtors to pay was 37.4 days, down from 37.5 days.

Severn Trent has not published any updated figures and a spokeswomen for the company said it would continue to monitor the situation closely.

The company said that trading in recent months had been in line with expectations, sending shares up 51p to £13.98.

It said prices had increased 5.07 per cent from April 1 and that it remains on track to deliver around a 3 per cent annual out- performance against the water regulator Ofwat’s target costs, unless there is a big rise in energy or chemical costs.

However, the company warned that it believed a decline in consumption across its measured income base would cut revenues by between £12 million and £14 million in 2008/9.

Severn Trent was fined £2 million earlier this month for misreporting leakage information in a case brought by the Serious Fraud Office.

The penalty added to the £35.8 million imposed on the company by Ofwat for giving false information and for poor customer service.

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