Britain’s water companies are owed a record £2.1bn by cash-strapped customers, with bad debts adding £21 to the average annual water and sewerage bill, according to the industry regulator.

The average water and sewerage bill is £385 a year, but in some parts of the UK it is higher. For example, the average South West Water bill is £532, though this is offset by a £50 government subsidy for every household. These bills are leaving more than 2.5 million households unable or struggling to pay.

There has been a 17% increase in the revenue outstanding at water companies since 2010, jumping from £1.9bn to £2.2bn, Ofwat says. The regulator is pressuring firms to do more to promote “social tariffs”, introduced in 2013, to help customers pay.

Yorkshire Water said its social tariff has cut bills for 10,000 vulnerable customers by an average of £150 a year. But four of the major water companies are yet to introduce social tariffs, while others have been underpromoted.

The regulator says that while in real terms bills have risen in line with inflation in recent years, it recognises they are part of a widening debt issue, with 56% more households seeking help from debt charities since 2012.

Critics argue that the absolute level of water and sewerage bills has been inflated by surging profits and pay at the companies since privatisation. Average water bills have risen by about 40% more than inflation since the utility companies were privatised under Margaret Thatcher’s government in 1989-90.

This year Thames Water, the UK’s biggest water company, reported profits up by a third and said it would be raising prices again. It also revealed that it had paid no corporation tax.

According to Ofwat, the households most likely to struggle to pay their water bills are working-age adults living alone, lone parents and single pensioners. Debts are proportionately highest in Wales, even though south-west England suffers from the highest water tariffs.

The regulator admits water companies enjoyed an easy ride during the financial crisis, with their costs falling as they pushed through price rises. In response, Ofwat has ordered the companies to cut bills by 5% in real terms by 2020.

Cathryn Ross, Ofwat chief executive, said: “Ofwat’s priority is to protect customers’ interests, and clearly customers who struggle to pay get the help they need. This important research highlights that while three quarters of customers think their water services are good value there is a growing problem that more customers are not paying their bill.

“Some companies need to get better at collecting unpaid bills from those customers who can pay but don’t. Yet this report is clear that many households are feeling the squeeze and need support. While some companies are improving how they respond to these customers, others have to get better at identifying those at risk and helping those who are genuinely struggling.”