Investors in the UK’s largest water companies could face a fresh drain on dividends as the regulator prepares to wring more out of suppliers through a tough new price control period.

Ofwat will give its first clues to how stringent the regime will be between 2020 and 2025, amid rising concern that earnings among the major providers could slump by as much as a fifth.

Jonson Cox, the Ofwat chairman, has already warned the City that the regulator will be “less forgiving” and expects water bills to continue to fall, even as billions of pounds are invested in new technology and supply safeguards. Industry sources have warned that the steady flow of earnings and shareholder payouts which have made the sector an investor favourite for decades could be hit hard by heavy cuts to the regulated rates of return.

By squeezing the return rate from 3.6pc, to 3pc to 3.4pc, the largest three listed water companies could see earnings per share cut by 15pc.