And it should be more ready to wield tough sanctions against companies which fail to meet their obligations, an influential MPs' committee has said.

The Public Accounts Committee urged the regulator Ofwat, which oversees the 22 biggest water companies in England and Wales, to impose maximum fines on companies which fail to plug leaks.

And, in a report on Ofwat's performance, it said the watchdog should even take legal advice on the possibility of revoking companies' licences if they miss their targets.

Ofwat is responsible for setting price limits which will allow companies to meet demand for water at the lowest cost to the consumer. It is due to conduct a new price control in 2009.

The report comes after two dry years in which eight companies imposed hosepipe bans because of water shortages. And the MPs warn that further shortages can be expected in coming years, despite the wet winter of 2006-07.

A key factor in beating shortages is ending the leakage of millions of gallons of water from broken pipes. But the report says that Ofwat has been "weak... in using sanctions against companies that under-perform against their commitments to meet all reasonable demands for water, while limiting environmental impacts".

Despite missing its leakage targets every year since 2000, Thames Water received no sanction until 2005/06, said the committee. Even then, Ofwat did not use the new powers it was granted in 2005 to impose financial penalties, accepting instead a legally binding undertaking to carry out the £150 million replacement of 230 miles of water mains.

In April this year, the watchdog proposed the first fine on a water company for "repeated and serious breaches" of licence conditions, but the proposed penalty amounted to only 0.7% of United Utilities' annual turnover.

The committee warned that, by failing to use its powers to punish companies, Ofwat "risks sending a message to the industry that it will not readily use sanctions where appropriate".