The water regulator has hit suppliers with the industry’s toughest price control regime since privatisation in a bid to force household bills lower amid the rumbling threat of renationalisation.

Ofwat will shave at least £15 to £25 a year from the average water bill in the first half of the next decade by tightening the screws on water companies, whose revenues rely on the regulator’s approval.

Ofwat’s outgoing chief executive, Cathryn Ross, said the blueprint would push water companies to deliver more for customers through to 2025.

“We’ve said many times already that this will be a tough price review for companies. We will cut the financing costs they can recover from customers and, with this lower guaranteed return, they will need to be more efficient and innovative than ever before,” she said.

Ofwat’s revenue squeeze is underpinned by its decision on where to set the weighted cost of capital for the industry, and the record low rate could also prompt other utility regulators to follow suit.

The industry was braced for the cost of capital to fall below 3pc from 3.4pc today, but Ofwat has set the bar at the lower end of expectations, at 2.4pc.

This metric will play a crucial part in calculating new rates of return that could effectively wipe close to £700m in value from the industry in a single stroke, and prompt investors to rethink their interest in the sector.