Water regulator Ofwat has approved England and Wales’ water companies combined £104bn investment plans for the eighth asset management period (AMP8), between 2025 and 2030.
This decision marks a significant shift in the scale of investment in the sector, nearly quadrupling expenditure compared to previous years.
The financial commitment, outlined in the final determinations of the 2024 Price Review (PR24), will see nearly 90% of these funds directed towards new regulatory requirements set forth by bodies including the Environment Agency, Natural Resources Wales and the Drinking Water Inspectorate.
In its draft determinations on the water companies’ plans, released in July, Ofwat cut the proposed expenditure figure down to £88bn through “analysis of those plans, removing or reducing costs where expenditure is insufficiently justified, inefficient or for activity for which companies have already been funded; customers will not pay twice”.
This was met with anger by the water companies, represented by Water UK, which said that “if it doesn’t put this right Ofwat will be repeating the mistakes of the past”. It later put out a more fulsome case for why the full £104bn would be needed, citing delivery of housing, recovery of rivers and dealing with water shortages.
The water companies have therefore been vindicated by the regulator’s decision to reinstate the full breadth of their initial proposals in its final determinations.
Water UK said: “After a decade of cuts Ofwat has finally listened to public anger and agreed a much-needed quadrupling of investment in our aging infrastructure.”
Breaking down the £104bn
Central to the AMP8 investment strategy is an allocation of £12bn aimed at reducing sewage spills from storm overflows by 45% from 2021 levels by the year 2030. This investment, which amounts to more than £6.5M daily over the PR24 period, is intended to address one of the significant environmental and public health concerns regarding water quality.
Additional funding includes £6bn for upgrades targeted at combatting nutrient pollution across approximately 1,000 sites, £3.3bn focused on nature-based solutions to enhance biodiversity, and £2bn marked for development financing to unlock a projected £50bn investment in the sector.
This latter funding will help kickstart 30 major infrastructure projects, including the construction of new reservoirs and large-scale water transfer schemes, aimed at bolstering water supply resilience amid changing climate conditions.
Earlier this year, NCE spoke to numerous water companies about how it is approaching the challenge of delivering the enormous AMP8 investment in infrastructure given the timeframe, drain on supply chain and the need to meet regulatory requirements.
Overview of what ‘is expected to’ be delivered over the next five years with £104bn expenditure
Water bill hikes
As part of the overhaul, average water bills are projected to rise by £31 per year over the next five years, substantially lower than the £39 increases that companies previously requested.
However, there will still be significant rises in bills over the next five years. The highest being a 53% increase for Southern Water customers (cut from a proposed 83%) and Severn Trent not far behind with a 47% increase. Struggling Thames Water has been given permission to increase bills by over a third (35%).
Moreover, Ofwat says it has implemented safeguards for consumers, including a claw-back mechanism to return unspent investment funds to customers, ensuring that they are not charged excessively for enhancements that should have been addressed in prior budgets.
However, Citizens Advice has warned that the cost hikes “could push levels of water poverty up 55%, amongst debt clients seen by Citizens Advice, if no increase in water bills support was delivered”.
How water bills will increase for customers of water and wastewater companies over the next five years
How water bills will increase for customers of water only companies over the next five years
Ofwat says the approved plan reflects a crucial intersection of economic and environmental priorities, as water companies will be encouraged to implement efficient management practices while addressing long-standing issues such as infrastructure deficits and the impacts of climate change. Ofwat has stressed its role in ensuring that such investments deliver tangible benefits to both customers and the environment.
The framework set by Ofwat includes specific performance targets for companies, with automatic penalties applied for those that fail to meet these standards—potentially translating to reduced bills for consumers. Conversely, companies exceeding performance expectations will have the option to raise bills in compensation for the exceeded service level.
Water companies’ response
The water sector has greeted Ofwat’s final determinations with cautious acceptance.
A Water UK spokesperson said: “After a decade of cuts Ofwat has finally listened to public anger and agreed a much-needed quadrupling of investment in our aging infrastructure.
“This will be the largest amount of money ever spent on the natural environment, and will help to support economic growth, build more homes, secure our water supplies and end sewage entering our rivers and seas. Each water company will now need to take time to assess what Ofwat’s decision means for them.
“We understand increasing bills is never welcome. To protect vulnerable customers, companies will triple the number of households receiving support with their bills to three million over the next five years.”
Thames Water has not put out a full response to the determination, but it has put out a statement saying: “The deliverability and investibility of Thames Water’s Final Determination is critical to the Company’s future and its ability to deliver improvements for customers and the environment.
“Given its importance and complexity, Thames Water will take time to review the determination in detail before making its response.
“The Company will set out by early February the charges for customers that will apply from April 2025. These charges will reflect Ofwat’s Final Determination, and Thames Water remains committed to supporting those customers who need help with their bills.
“Thames Water has previously announced a proposed transaction to extend its liquidity runway by up to £3.0bn. The Board and leadership team remain focused on maintaining the stability of the business and increasing long-term financial resilience as well as on the delivery of its turnaround and the supply of essential services to 16 million customers across London, the Thames Valley and Home Counties.
“Taking into account the proposed Liquidity Extension Transaction and the related STID Proposals, the Company’s liquidity would be extended to October 2025, with the potential to extend further to May 2026 if the company chooses to make an appeal to the CMA [Competition and Markets Authority].”
Southern Water CEO Lawrence Gosden said: “We note Ofwat’s publication of its Final Determination for 2025-2030. It’s important that we take time now to review all the detail carefully, as we seek to understand the level of support the regulator has shown for our ambitious investment plan.
“We’re very conscious that a rise in bills isn’t easy for our customers, essential though it is to delivering the improved performance and infrastructure that’s required. So we’re significantly expanding the wide range of support available for those customers who are most in need.
“Our plan was driven by the views of thousands of Southern Water customers. That’s why we need to be sure that what’s been set out in Ofwat’s Final Determination meets the expectations of our communities — in protecting the environment and building a truly resilient network for future generations.
“We’ll say more about Ofwat’s Final Determination in due course.”
Warning that bill hikes could increase poverty
Citizens Advice has put out a stark warning of the impact the increase in water bills could have among those in debt.
It has found:
- New water costs could push levels of water poverty up 55%, amongst debt clients seen by Citizens Advice, if no increase in water bills support was delivered.
- Amongst our debt clients, the number of households in a negative budget – spending more on essential costs than they have coming in – will go up by more than 7%.
- In four major water companies’ areas, water poverty rates are set to outstrip social tariff expansion for the debt clients seen by Citizens Advice.
- In one example, Citizens Advice predicts a 65% increase in water poverty, set against only a 29% increase in social tariff provision.
Director of Policy at Citizens Advice director of policy Tom MacInnes said: “These price rises will hit many households hard. While it’s encouraging to see help for customers increasing, the current dysfunctional approach to bill support in this industry means that people will continue to miss out.
“Ending the postcode lottery for water social tariffs – cheaper rates for those who need them – is an essential step to shield those struggling to keep pace with rising bills.
“We found that more than two fifths (42%) of those likely to be eligible aren’t aware that water social tariffs exist. The government and suppliers must work together to ensure that no one is missing out on the support they’re entitled to.”
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