Households, businesses and the public sector will see the cost of water fall in real terms until at least 2015.

Charges for water and sewerage services are to remain at their current level during the 2010-11 financial year, with the possibility of continuing the freeze into the following year, “subject to inflation”.

Prices will also be kept below inflation until at least 2015. It means that, on average, bills will increase by 5% below inflation over the next five years.

The figures were revealed today in a final determination report by regulator the Water Industry Commission for Scotland (WICS), following a two-year consultation process with Scottish Water.

Alan Sutherland, Chief Executive of WICS, said: “We are pleased that our final determination offers some good news to customers during continued global economic uncertainty but, at the same time, allows for a sustainable future for the Scottish water industry.

“Scottish consumers will see their charges kept at levels below inflation over the next five years but also see a marked improvement in customer service and the public health and environmental improvements, which will benefit Scotland for many years to come.”

Among the priorities are upgrades and improvements to the drainage system in Glasgow, particularly in the east end of the city where the 2014 Commonwealth Games venues are being built. The WICS report says money has been set aside to ensure improvements can be made in time.

Unlike in England and Wales, where water is a separate household bill, charges for water and sewerage processing are included as part of council tax in Scotland. Rates currently range from £263 a year for a band A household up to £788 for a Band H household.

At present, Scottish Water – the only publicly owned water and sewerage provider in the UK – has the fourth lowest average household charges. That position may change, however, with providers in England and Wales also due to receive their final determination report today.

Although WICS expects the financial position of Scottish Water to remain “robust”, chief executive of Scottish Water Richard Ackroyd said it would be a “major challenge” to deliver the necessary cost-savings.

Scottish Water is required to reduce its leakage by at least one-third by 2014 and to investigate reducing the volume of ground water unnecessarily entering the sewage system.

Mr Ackroyd said: “We are pleased to see that many of the points we raised in our response to the draft determination have been taken on board in the final determination. However, we recognise that it will be a major challenge to meet the tough efficiency targets.”

“We will study this in detail before making the decision in the New Year whether to accept the final determination. We need to ensure that we can deliver all the service improvements required within the price guidelines set.”

Today’s announcement also detailed investment for other initiatives to encourage a greener water industry. They include £7 million set aside for household metering trials and supporting property developers in the introduction of more sustainable practices.

A Scottish Government spokeswoman said: “These real-terms decreases are great news for families and businesses across Scotland, especially in these challenging economic times.

“This is one of the best value for money water services in the UK, demonstrating just how well Scottish Water is performing as a publicly owned corporation.”