Water companies are pressing the Government to give them more powers to tackle unpaid water bills amid fears that bad debt will rise as the economic situation worsens.

They want the Government to use the forthcoming Floods and Water Bill to make it easier for companies to pursue customers who refuse to pay their bills. Some in the industry suspect that customers deliberately avoid payment as they know that they cannot be disconnected.

The companies also want improvements to the benefits system so that those who cannot pay their bills can get specific help.

Severn Trent is the latest company to give warning of growing bad debt in the industry. Britain's second-largest water company said in its interim management statement that it feared that cash-strapped customers may soon struggle to pay their water bills. Severn Trent, which has more than eight million customers, mainly in the Midlands, said that although it had not yet experienced any serious payment problems, it was a risk for the rest of the year.

A spokesman said: “We managed to peg our 2007-08 debt back to the same levels as 2006, but only with an awful lot of effort chasing customers and getting tough with those who won't pay. Consumer debt is rising and we expect this to get worse. The water companies are not immune from the worsening economy.”

Bad debt has increased significantly since 1999, when water companies lost the right to cut off households' water.Moreover, it is an industry-wide problem, according to Barrie Clarke, spokesman for Water UK, the industry's trade association.

Water UK calculates the net effect of bad debt on everyone else's water bills at £11 a year per household — a figure that covers the cost of trying to recover debts as well as eventual write-offs. “The proportion of outstanding payments is probably higher in water than in any other utility sector since the right to disconnect people was removed,” Mr Clarke said.

According to the most recent figures from Ofwat, the water regulator, water companies had three-month customer arrears of £930 million and 12-month customer arrears of £575 million in 2006-07.

A rise in bad debts could mean that water companies' profits will fall in the short-term, but ultimately it is customers who will pay more. Prices are set every five years and companies are allowed to claw back money lost through unpaid bills.

Water companies have introduced a range of payment options and meters for people who struggle to pay their bills. They are also testing tariffs for vulnerable customers.

Citizen's Advice said that there had been a 13 per cent increase in inquiries about water and energy bills in the first two months of the year, a rate of increase that it expected to continue.

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts