Water companies in England and Wales have been told to cut the average household bill by £50 over the next five years.
The regulator Ofwat said the average bill will fall by 12 per cent before inflation as part of a price review conducted every five years.
The specific reduction will depend on which company a homeowner is with.
In a report published on Monday, the regulator included a commitment from water companies to produce net zero carbon emissions by 2030 and reduce leaks by 16 per cent by 2025 as part of a £6bn cost-cutting exercise.
The move is part of Ofwat’s approval of a huge £51bn investment plan for water companies, which includes £13bn earmarked for “new and improved services that go above and beyond water companies’ day-to-day operations”, including £1bn on cutting the impact from flooding.
Ofwat chief executive Rachel Fletcher told the BBC the review set much tougher targets for the benefit of both customers and the environment.
She said: “It is a really good package that we are announcing today, with massive investment to improve services and the environment for the future – in fact probably the greenest settlement we have ever put in place.”
The report was published after Bedfordshire residents were left without water for three days due to a fault with a broken valve in Leighton Buzzard, home to around 40,000 people.
Service had resumed for many customers on Sunday afternoon, but Anglian Water gave itself a deadline of midday on Monday to restore water to all affected homes.
Asked about the issues in Bedfordshire, Ms Fletcher said: “Things will go wrong from time to time and, frankly, what’s important when that happens is that companies get on it and address the issue quickly, that they support customers during outages like we have seen in Leighton Buzzard.
“We are pressing companies to do better. They will face penalties if they have interruptions, they will face penalties, frankly, if customers are not happy with the service that they are getting.”
Ofwat’s review was welcomed by consumer groups.
Tony Smith, chief executive of the Consumer Council for Water, said: “Most customers will see this as a good deal but more must be done to make sure everyone can afford their bill and ensure there is sufficient investment in safeguarding these essential services long into the future.”
“Water companies have had it too good for too long. At first glance, it appears Ofwat has listened to our repeated calls for it to get tougher and tip the balance back in favour of customers.
“But we’ll be keeping a close eye on the performance of companies to make sure customers are not short-changed.”
Additional reporting by Press Association