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Millions of households in England and Wales are due to face a further hike in bills after water companies were given provisional watchdog approval to spend £3.4bn more than previously agreed, including to support new homes and datacentres.
The newly announced spending is in addition to the £104bn programme of investment approved by the water industry regulator Ofwat, that had already been estimated to equate to a 36% increase in water bills over the second half of the decade.
Ofwat said 13 companies had requested to spend £4.3bn on top of what had been agreed in 2024 owing to unforeseen costs and it had allowed £3.4bn. The extra spending includes £1.2bn to be used to “safeguard” water services and assets, and £477m to enable housebuilding and datacentre development.
Five water companies – Southern Water, Thames Water, Severn Trent, Wessex Water and South East Water – will be allowed to increase bills more than originally planned before the end of the decade to allow for the extra spending. The remainder will add the costs to bills in the 2030s.
Labour’s housing and AI growth agenda
The investments are reportedly aimed at support Labours growth plans for both new housing and AI data centres. The Labour government has pledged to build 1.5m new homes across the country to tackle the country’s housing crisis. It has also set out ambitions for AI growth zones to host massive AI datacentre complexes, raising concerns over whether the UK has sufficient water and energy resources to support the government’s growth agenda.
Ofwat’s own analysis highlights a projected shortfall of 5 billion litres of water a day by 2050 due to factors including a growing population, climate change, and pressures on river health.
Tackling toxic pollution
A further £34m of extra water company spending has reportedly been earmarked to reduce toxic chemicals in the water system to help improve drinking water. The allowance was announced days after government data revealed that every single English water body is polluted with toxic chemicals.
Expenditure “can be clawed back”
The investments will supplement the regulated spending plans of £104bn that were approved in late 2024 for the period from April 2025 until March 2030, just below the industry’s initial request to spend £108bn over the five-year period.
At the time, Ofwat reportedly said it would allow extra funding requests for spending “where costs were uncertain or unknown”. These included allowances for United Utilities to invest in new water infrastructure to enable datacentres in East Manchester and investments in Newquay Wastewater Works which to benefit residents and support growing tourism in the area.
Helen Campbell, the executive director for delivery at Ofwat, said allowing the water companies to spend more would allow them to deliver “without delay”. Campbell aimed to reassure the public that the regulator would track the performance of the water companies to make sure they are “delivering the expected improvements for customers and the environment” and has boldly promised “if they don’t, expenditure can be clawed back.”