Speaking to more than 130 delegates at the Water Scotland conference this week, he said the water sector had “outstripped most other utilities” in terms of what it has been charging for its services.
“The substantial progress made in the water industry to reduce costs and improve efficiency has been almost entirely absorbed by quality improvements – environmental, drinking quality and quality of service,” he said.
However, while “admirable”, Hughes said this performance could not “necessarily go on”.
“It is unlikely that in the longer term it is going to be acceptable for water charges to rise in real terms more rapidly than the rest of the economy.
“At the same time there are a number of pressures which mean that while charges can’t go up as fast as they have in the past, costs have all the potential to continue to increase,” he said.
Hughes added: “In particular capital costs are going to increase. The pressure to deal with an ageing infrastructure is ever present and will probably become more expensive over time and there is the requirement to continue to maintain the levels of environmental and drinking water quality that are being provided by the water industry at present.”