Supermarkets could be allowed to provide water direct to consumers’ homes following a Government review.

A review headed by Professor Martin Cave and backed by industry regulator Ofwat is set to mark a major shake-up of the industry and could pave the way for supermarkets to buy water at wholesale prices and sell it on directly to consumers.

The review will conclude with a final report next year and is likely to be closely watched by the likes of Sainsbury’s and Marks & Spencer, which both already provide electricity and gas.

The review has recommended that businesses should be given more freedom to shop around for the best deal from water suppliers, with a future extension of the policy set to include consumers.

“The current scope for competition in the water and sewerage sectors is severely limited by legislation, is confined to a small number of business customers and has not developed successfully,” said Ofwat chief executive Regina Finn.

“We propose that more of the market is opened progressively, starting with all business customers. In time, households could be able to choose their water supplier, when the market is ready and safeguards are in place.”