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Ofwat has provisionally approved up to £3.4 billion of additional investment by water companies during AMP8, bringing renewed attention to infrastructure spending, customer bills and the challenges facing the water sector.
The figure is substantial. But understanding the decision requires looking beyond the headline.
The additional investment sits outside the allowances originally determined through the 2024 Price Review (PR24) and is being considered through Ofwat’s new cost-change process. This mechanism was specifically created to deal with certain critical investment requirements that emerge or develop during the five-year price-control period.
Thirteen water companies submitted proposals through the first round of the process, seeking approximately £4.3 billion of additional investment. Ofwat has provisionally accepted around £3.4 billion.
The decision is not yet final. Consultation is under way, with final determinations expected in December.
So why is additional investment being considered when AMP8 has only recently begun, and what does the decision actually mean?
Why can investment change during AMP8?
AMP8 runs from April 2025 to March 2030 and follows Ofwat’s PR24 price review, which established the expenditure and revenue allowances for water companies over the five-year period.
PR24 already represents a major increase in planned investment across the sector. Ofwat’s final determinations provided for a substantial programme intended to improve services, strengthen water supplies and address environmental performance.
But a five-year regulatory settlement cannot always anticipate every investment requirement with sufficient certainty.
Costs can emerge or become clearer after the main price review has concluded. New evidence can change the scale of an investment need, while developments in areas such as drinking-water quality, infrastructure condition and economic growth can create requirements that were not sufficiently certain when the original allowances were set.
The cost-change process was designed to provide a controlled way of responding to those circumstances without waiting until the next full price review.
Rather than reopening the entirety of PR24, it allows companies to submit additional investment proposals in specific areas defined by Ofwat.
What is the cost-change process?
Ofwat introduced the process for the 2025–30 period following its PR24 final determinations.
It covers a defined group of critical cost areas, including asset health, measures relating to PFAS — sometimes referred to as ‘forever chemicals’ — cyber security, demand growth and certain major infrastructure projects.
Water companies can submit claims during specified windows in 2026, 2027 and 2028.
Importantly, the existence of the mechanism does not mean companies automatically receive whatever additional funding they request.
They must submit evidence supporting the need for the investment, its cost and its deliverability. Ofwat then assesses those proposals before determining whether additional expenditure and, where appropriate, additional customer revenue should be allowed.
That distinction is important in understanding the latest announcement.
The approximately £4.3 billion requested by companies and the £3.4 billion provisionally accepted by Ofwat are not interchangeable figures. Nor should the £3.4 billion be treated as final approved expenditure while the draft decisions remain under consultation.
What would the additional investment pay for?
The proposals cover several different pressures facing the sector rather than one single infrastructure programme.
One area is demand growth.
New housing, commercial development and increasingly water-intensive industries can create additional demand for water and wastewater capacity. Infrastructure may need to be expanded or reinforced to enable that development without compromising existing services.
Another is drinking-water quality, including investment associated with PFAS. These persistent chemicals are receiving increasing regulatory attention, creating requirements for some companies to introduce additional treatment or other measures to protect drinking-water supplies.
There are also proposals relating to asset health, where further investment may be needed to address the condition and performance of priority infrastructure.
Other expenditure relates to treatment capacity and specific infrastructure requirements.
Taken together, the proposals illustrate why the investment needs of a sector cannot always remain static throughout a five-year regulatory period.
Why wasn’t this included in PR24?
That is perhaps the most obvious question raised by an announcement of additional investment so soon after a major price review.
The answer lies partly in the way long-term infrastructure regulation deals with uncertainty.
For Ofwat to allow expenditure through a price review, there needs to be sufficient evidence about the need for the investment and the likely costs. Where requirements are uncertain, allowing substantial expenditure too early could mean customers paying for investment that is later found not to be necessary or appropriately justified.
Waiting until every requirement is completely certain, however, can delay infrastructure that becomes urgently needed.
The cost-change mechanism is intended to provide a middle ground.
It allows defined investment needs to be assessed during AMP8 when better information is available, rather than requiring every possible future cost to be included in customer bills from the beginning of the period.
That flexibility is particularly relevant at a time when the water sector is responding simultaneously to population growth, environmental pressures, changing regulation and increasing demands on existing infrastructure.
What does this mean for customer bills?
For some customers, the provisional decisions could mean further increases in bills during AMP8.
Five companies — Severn Trent Water, Southern Water, Thames Water, Wessex Water and South East Water — have provisionally been allowed additional revenue that could result in higher charges between 2027 and 2030.
That is likely to make the cost-change process particularly visible to the public.
Water bills have already increased as the sector enters a period of significantly higher investment, and further increases inevitably raise questions about affordability, performance and whether customers are receiving the improvements they are paying for.
That makes regulatory scrutiny of the additional expenditure particularly important.
The central question is not simply whether more money can be spent. It is whether the proposed investment is necessary, efficient and deliverable — and whether the expected benefits are ultimately achieved.
Additional funding comes with additional scrutiny
The cost-change process is designed around evidence rather than simply additional spending.
Ofwat’s assessment considers whether companies have demonstrated the need for investment and whether the proposed costs are efficient. In areas such as asset health, companies also need to demonstrate that the requested expenditure goes beyond what existing PR24 allowances should already provide.
This is intended to protect customers from paying twice for the same activity.
Delivery is another important consideration.
Approving an allowance does not, by itself, improve infrastructure. The intended projects and interventions still need to be delivered, and Ofwat has indicated that it will monitor performance to ensure companies achieve the expected improvements for customers and the environment.
Where regulatory mechanisms link allowances to defined outputs or delivery commitments, companies may also be required to return funding where those commitments are not met.
The significance of the £3.4 billion decision therefore extends beyond the amount provisionally allowed. It also provides an early indication of how Ofwat intends to balance flexibility with accountability during AMP8.
A price control designed to respond to change
Five-year price reviews provide the water sector with a framework for long-term planning and investment, but infrastructure requirements do not always develop according to a regulatory timetable.
The cost-change process recognises that reality.
It gives companies a route to bring forward evidence for additional investment in defined critical areas while giving Ofwat an opportunity to challenge whether that expenditure is justified before it is passed on to customers.
That does not remove the difficult questions surrounding affordability, company performance or the pace of infrastructure improvement. If anything, additional investment during AMP8 makes those questions more important.
But it does provide useful context for understanding the latest £3.4 billion announcement.
This is not simply an increase to the original PR24 settlement, nor is it yet £3.4 billion of guaranteed expenditure.
It is the first significant test of a mechanism designed to allow the regulatory settlement to respond when important investment needs become clearer during the five-year period.
What happens next?
Ofwat’s decisions are currently provisional.
The draft determinations are subject to consultation, after which Ofwat is expected to publish final decisions in December 2026. Only then will the final scale and treatment of the additional investment be confirmed.
The cost-change process will also continue beyond this first round. Companies can submit further eligible claims during AMP8, with submission opportunities scheduled for 2027 and 2028.
That means the investment programme established at PR24 should not necessarily be viewed as a fixed picture of everything the water sector will spend between 2025 and 2030.
As pressures develop and better evidence becomes available, some investment requirements will change too.
The challenge for the regulator, water companies and ultimately customers will be ensuring that flexibility leads to necessary infrastructure being delivered at the right time — without weakening the scrutiny applied to how that investment is justified, funded and delivered.
Further reading: Ofwat, Cost change process; Ofwat, Cost change process decision document; Ofwat’s 2026 cost-change application guidance and draft determinations.
