The boss of Ofwat has said the regulator “should have stepped in” to stop water companies increasing borrowing in the early 2000s, as questions were raised over debt-laden Thames Water’s future.

David Black, chief executive of the water regulator, appeared before the Lords Industry and Regulators Committee on Tuesday and said officials were concerned about Thames Water’s financial resilience in October last year.

It comes as the utility giant, which serves 15 million households across London and the Thames Valley, faces concerns over its future amid mounting debt.

The committee was told most water companies are looking at “significant bill increases” for customers.

Mr Black said Thames Water has about £4 billion of liquidity to draw on, so some of the concerns about the company have been “overstated”, and it has “an ability to weather the present issues”.

He also said Thames Water is revising and redeveloping its turnaround plan, and will submit a business plan to Ofwat on October 2.

He said the impact of inflation and the drought last summer exacerbated the financial issues, and rising interest rates had a “material impact” on the company.

But he added that inflation is “beneficial” to the firm as it does “increase their underlying capital base and that will reduce pressure on their gearing in the near term”.

Mr Black said Thames Water needs £1.5 billion of equity, and has secured £500 million so far.

Lord Cromwell asked why it took so long to become concerned after Macquarie bought Thames Water in 2006, “loaded them up with £14 billion of debt and with financial engineering paid out dividends and parent companies”.

Mr Black said the financial resilience problems have “become more acute in recent years”, but Ofwat should have stepped in back in 2006.

He added: “I think if I went back to, sort of, 2006, if I was turning the clock back, I think we should have stepped in at that point to stop companies gearing up, I think that’s right.

“We’ve changed companies’ licences so we’ve got the powers to stop that happening now. At the time, we really didn’t have the powers to stop that happening.”

He added that in the early 2000s regulators took a “relatively hands-off approach” to companies increasing borrowing.

Lord Cromwell asked if Ofwat’s new licence conditions are enough to “prevent repeats” of what is happening with Thames Water.

Mr Black said the companies the regulator has been concerned about all have plans to raise equity, and they are raising equity.

Lord Reay asked if £1 billion in equity at Thames Water would be enough, and called it a “sticking plaster on a huge problem”.

Mr Black said the total equity needed is more than £1 billion, but that figure is needed for the current financial period.

Asked by Baroness McGregor-Smith about how much Ofwat expects bills to rise, Mr Black said officials have not seen company business plans due on October 2, but that all companies are looking at requesting a bill increase.

He added: “I think most companies are looking at quite significant bill increases, but I’ve really yet to see the maths worked out.”