UTILITY firm Northumbrian Water has been given an early Christmas present of £4m.

Water industry watchdog Ofwat has finally given its blessing for a price rise in 2004/2005. But the amount sanctioned by Ofwat came as a surprise.

A draft indication in November suggested prices should rise 9.6 per cent - equivalent to £35m extra revenue.

But the regulator went further yesterday, and allowed that figure to rise to ten per cent. Also, when calculating the increase, Ofwat took this year's average bill of £206 and added £6, or two per cent, to allow for inflation. An increase of ten per cent of that figure would take average bills to £233 for 2004/2005.

However, since the actual average paid by customers in April 2003 - without Ofwat's £6 adjustment for inflation - was only £206, the true rise will be nearer to £27.

The need to increase charges was blamed on a legacy of past regulation which forced Northumbrian to slash its bills by 18 per cent in 2001.

The new increases will still see the average annual cost £36 lower than the levels of April 2000.

John Cuthbert, Northumbrian Water managing director, said: "We recognise that no one likes to see bills going up, but unfortunately on this occasion, it was unavoidable.

"We need to maintain the high levels of investment that have allowed us to deliver the quality standards of service and environmental improvements for our customers."

WaterVoice Northumbria, set up to protect the interests of the customer, said the rises were "in the long term interests of customers".

Northumbrian is still awaiting Ofwat's decision on a longer-term request to increase revenue from 2005-2010.

The company hopes to get permission to raise prices by 37 per cent by 2010 - the equivalent of taking bills to £286 plus inflation in that time. A decision is expected in the New Year.