Five water companies have won approval for an extra £556m in funding to upgrade infrastructure and improve resilience.

But the Competition and Markets Authority has rejected nearly 80% of the £2.7bn they were seeking in an appeal against Ofwat’s price determination.

Anglian Water, Northumbrian Water, South East Water, Southern Water and Wessex Water challenged Ofwat’s 2024 price review, arguing that its five-year spending limits left them unable to meet new environmental and supply obligations.

After a seven-month review, the CMA’s independent panel ruled that only 21% of the firms’ proposed increases were justified, allowing a smaller uplift to help tackle pollution, strengthen supplies and reflect higher borrowing costs.

The decision adds an average 3% rise to customer bills for the five companies. This increase will be on top of the 24% increase already set out in Ofwat’s PR24 settlement for 2025–30.

Kirstin Baker, chair of the CMA’s independent group, said: “We’ve found that water companies’ requests for significant bill increases, on top of those allowed by Ofwat, are largely unjustified.

“We understand the real pressure on household budgets and have worked to keep increases to a minimum, while still ensuring there is funding to deliver essential improvements at reasonable cost.”

The CMA said it recognised rising costs of capital and inflation pressures, but stressed that most of the additional bids were unnecessary or poorly evidenced.

It said future increases would be tied to clear performance outputs, meaning companies could face penalties if they fail to deliver promised service improvements.

The provisional ruling is now open for consultation before a final decision is published next year.