Water bills in England and Wales are set to fall by an average of £50 between 2020 and 2025, under plans published by the industry regulator.
Ofwat said firms would also have to invest an additional £6m each day in improving services for customers.
It comes amid widespread dissatisfaction with the performance of many water companies.
Ofwat said the measures would mean “better services, a healthier natural environment and lower bills”.
“These are seriously stretching goals for the sector, but we know they can be achieved,” said Ofwat chief executive Rachel Fletcher.
It comes after only three out of 17 water firms in England and Wales passed the last review by Ofwat, published in January.
All firms submitted plans to cut bills for millions of consumers over the 2020-25 period, while reducing leaks and helping vulnerable customers.
But only plans from Severn Trent, United Utilities and South West Water were approved.
There have also been big fines for companies over poor management of leaks.
While leaks in England and Wales are much lower than they were in the mid-1990s, progress in tackling them has slowed to a crawl since 2001.
Ofwat said firms would now have to invest more in tackling leakage between 2020 and 2025, as well as:
- Cutting pollution incidents
- Reducing the number of customers with low water pressure
- Helping some 1.5 million customers who are struggling to pay.
It said this would add up to £12bn of new investment – over and above business-as-usual costs – or £6m per day over the period.
Water companies will be able to make representations about the proposals and the final deals will be confirmed in December.