Bradford is set to become home to the headquarters of Yorkshire Water as it announced shock plans today for its 4.5 million customers to own the company.

Its Buttershaw site is believed to top the list of potential HQ sites of the new company which is all set to become a mutual firm - hived off from its parent group Kelda and owned by its customers.

Millions of water bill payers are to be asked this week what they think of the plan and thousands of shareholders will also be consulted. The move will mean profits can be invested back into the company and not paid to shareholders.

The proposal, which was hinted at when a review of the Kelda business was announced in April, means the firm is losing its Plc status - gained in 1989 - and millions of pounds in windfall cash will be paid back to its 50,000 shareholders - 40,000 of whom are in Yorkshire.

Shareholders and the water regulator Ofwat will have to be consulted on the plan.

The group admitted it was carrying out the shake-up because of a fall in the value of shares and a drop in profits which left it open to predators.

The new company, still to be known as Yorkshire Water, will employ 160 staff. Kelda, which currently employs 2,200 people, will remain a public limited company.

Alex Thompson, Unison national secretary for water today gave a guarded welcome to the proposal and demanded an assurance that jobs would be safe.

"Faced with a tough regulatory review, the prospect of modest share price growth, lower dividends and huge debts, the company is a clear target for asset strippers. With barbarians at the gate like that, Unison supports in principle the creation of a mutual for the core water assets and a return of these to the control of water customers."

Kelda Group is the first utility company in the UK to set up a mutual company and the model could well be repeated around the UK with privatised water, gas and electricity firms.

The firm promised today that there would be no further redundancies on top of the 500 it has already made this year as a result of the re-organisation.

Bradford was worst hit when the redundancies were made because the majority of Yorkshire Water's workers are based in the city.

The decision to set up a mutual flies in the face of the current trend to de-mutualise in the financial services industry - including the Bradford & Bingley which holds its crucial vote on turning into a Plc next month.

Kelda said the plans followed a recent review of price controls by the water regulator Ofwat which had put a squeeze on profits at the water company. Yorkshire Water accounts for 95 per cent of Kelda's operating profits.

A number of water companies are thought to be considering similar plans and last month Ofwat launched a public review into the ownership of the water industry to consider how such moves would fit current rules.

Kelda's chairman John Napier, said: "Following the last price determination, the board has found it necessary to consider relevant options to deal with declining shareholder value and profits, coupled with the continuing need finance a major long term capital investment programme."

The new Yorkshire Water company will continue with its contracts with Kelda in the next three to five years when it will be free to contract with whomever it likes.

Shareholders in Kelda will benefit from the cash raised by the sale, while the Kelda business will focus on its waste recycling business and its US water company Aquarion.

Kelda said Yorkshire customers would benefit from closer involvement in their service, while as a not-for-profit business the mutual would be able to use any cash surpluses generated to improve the service.

The announcement came as Kelda reported pre-tax profits for the year to March 31 of £222.1 million, up fractionally on last year's £221 million. Turnover was up almost 14 per cent at £782.8 million. Shareholders will receive a total dividend for the year of 24.15p, up from 22.25p.