NORTHUMBRIAN Water may be forced to impose "significant" increases to its customers' bills to comply with legislation.

The price hike fear comes as a senior consumer watchdog last night warned that a short-term decision forcing water companies to cut prices five years ago will haunt the industry for years to come.

Andrea Cook is chairman of Water Voice Northumbrian - the regional arm of a semi-independent consumer watchdog organisation set up by regulator Ofwat.

She told The Northern Echo that customers would suffer the consequences of efforts by the company to restore the type of quality that has earned it the highest ratings possible for service.

Ms Cook said: "In the last eight or 12 months I have seen evidence of much more pressure on the system than I think the company would want to see.

"I think that is definitely related to the price reductions."

Northumbrian Water is not the only water company facing such problems.

Ms Cook said they were endemic throughout the industry and it was likely that Yorkshire Water and Anglian Water - which owns Hartlepool Water - would face tough decisions on pricing.

The regulator sets pricing brackets which restrict the amount by which suppliers can increase prices, and which they have to abide for a five-year period.

Ofwat can expect heavy pressure in coming months to allow water companies to charge more for 2005 to 2010 to enable them to maintain assets and to comply with ever more stringent European regulations.

Ms Cook said customers faced the prospect of "significant" price rises.

"(In 2000) Northumbrian Water was told to make a price reduction in the order of 22 per cent," she said.

"That was, I guess, promoted as being something of great benefit to consumers.

"My assessment is that it had short-term value, but the level of prices are not sustainable.

"They have a lasting effect in terms of the quality of service provided both in terms of maintaining the assets and keeping everything running as it should be."

Northumbrian Water has presented a draft business plan to Ofwat which will set out the proposals for what the company intends to do between 2005 to 2010 and how much it will need to charge to meet these targets.

* Northumbrian Water was under pressure yesterday to improve its credit rating after watchdog Ofwat expressed concern at its ability to raise finance.

The business has seen its Standard and Poor's rating reduced by two notches to triple B following its takeover by a consortium of institutional investors.

Ofwat is concerned about the water company's ability to access capital markets in the event of it needing to pay for infrastructure improvements, such as those that may be required to meet drinking water standards.

In a statement, Northumbrian Water said: "The company is reviewing options to improve its credit rating and is confident of achieving this prior to Ofwat's further review in June 2004."