Severn Trent today announced a six per cent drop in profits to £273.5 million after cash-conscious customers cut down on the amount of water they use.

Lower consumption by businesses also cost Severn Trent £20.8 million in lost income, the company said.

The water giant said profits were also dented by £34 million of bad debts caused by companies going bust in the recession and unable to pay their bills.

Severn Trent serves a population of more than eight million people from the Bristol Channel to the Humber, and from Mid Wales to the East Midlands.

Bosses said its overall debt collection performance had improved, but the firm was finding it harder to collect debts more than one year old.

In April, the firm submitted its final plans to Ofwat for the next five-year period.

Severn Trent said this would result in average household bills rising four per cent in real terms over the life of the plan – an annual average of 0.8 per cent a year – by 2015.

The business plan also includes a crackdown on operating costs with £200 million in savings from its contractors, as well as investment levels of around £2.6 billion, similar to the current period.

Chief executive Tony Wray said: “We are engaged with Ofwat in reviewing the plan. We believe it to be a high quality, holistic and balanced plan that has customers at its heart.”

The firm added that it had outperformed leakage targets set by regulator Ofwat for the second year in a row despite the the coldest winter for 13 years. The utility spent £635.3 million on assets and maintaining and improving its infrastructure network over the year.