Residential landlords could be made liable for unpaid water bills left by departing tenants under a government review of water charges.

Landlords described the proposal, which has been submitted to the forthcoming Walker review on the social, economic and environmental aspects of water charging, as an “alarming prospect”. They said that it would push up rents.

The proposal comes amid plunging profits and rising bad debts at quoted water companies. Yesterday Northumbrian Water reported a 10.3 per cent fall in pre-tax profits to £152.7 million for the year to March 31. This was slightly ahead of analysts’ forecasts of £150.7 million.

The group, which provides water and sewage collection services in the North East, Essex and Suffolk, proposed a final dividend of 8.50p a share, compared with 8.07p last time.

John Cuthbert, its managing director, said that the company had increased its provision for bad debt from domestic users by £2 million to £30 million. Demand for water and sewage services fell by 1 per cent last year. He said that water companies were vulnerable to bad debts among consumers because they were not permitted to disconnect their supply for non-payment. This meant that their bills tended to be the last ones paid.

Recovering outstanding debt from tenants was particularly difficult. “Quite often by the time we have found out who the tenants are, they have gone,” Mr Cuthbert said. “We are talking to the Government about what help they can give us here. One proposal would be to make the landlord liable.”

Research for TDX Group, a provider of debt liquidation solutions for creditors, suggests that up to 5 per cent of all householders (representing 1.1 million homes) could default on their water bills this year, which would add a further £350 million of debt to water companies’ balance sheets by the end of 2009.

John Telford, of TDX, said that last year water companies’ bad debt had grown by 11 per cent. “As economic conditions worsen, the situation for water companies is going to get a lot worse as competition among creditors to recover outstanding debts will intensify,” he added.

The proposals to make landlords liable for water bills at their properties have been drawn up by Ofwat. They would require property owners or managing agents to identify who is the “liable person” for water charges at any property. A spokesman said: “The occupier will always be the first person liable, but, as things stand, there is no incentive for the landlord to tell the water company who the occupier is and without this information the water company cannot bill anyone.”

The new rules, which would require primary legislation, would give landlords an incentive to provide details of the tenant or face paying an outstanding bill themselves.

Ofwat has submitted the proposals to Anna Walker, chief executive of the Healthcare Commission, who was asked by the Government last summer to conduct a review of charging and metering for water and sewerage services.

A draft report is expected to be published in the next few weeks with a final report later in the year. A spokeswoman for the Department for the Environment, Food and Rural Affairs confirmed that the Ofwat proposal was “one option being considered by the Walker review”.

Thames Water, which serves 8.5 million drinking water customers in London and the Thames Valley, welcomed the proposals and said that bad debt and write-off costs increase the typical household bill by £11 a year. “Landlords take damages deposits up front from their tenants and so they are in a better position to recoup outstanding debts if needed,” a spokesman said.

Richard Jones, secretary of the Residential Landlords’ Association, said that rents would have to rise to cover landlords’ extra exposure. “We are already concerned about how money can get held up in the new tenancy deposit regime. If you end up with a dispute resolution service, excessive procedural requirements are being put on landlords. Cases are being thrown out on technicalities,” he said.

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