Ofwat intends to appoint an independent monitor to Thames Water who will supervise the company’s turnaround plan and report back to the regulator.

The monitor would have access to the company’s financial information, and the appointment comes after Thames Water's credit rating was downgraded twice by ratings agencies in July, which constitutes a breach of its licence to operate, the regulator said.

Agreeing to a monitor is one of four commitments Ofwat wants Thames Water to comply with, which also include developing a “suitable” business plan to turn around the struggling business.

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The watchdog said Thames Water must agree to “taking the steps required to deliver an equity raise”, and appointing new non-executive directors to its board.

Ofwat chief executive David Black said: “We are clear that Thames Water needs to remedy its licence breach, turn around its operational performance, and secure backing from investors to restore its loss of investment grade credit rating.

“These enforceable commitments will include our putting an independent monitor into the business, to report back to us on what is happening to drive meaningful change in performance, and to ensure appropriate expertise is added to their board.

“We will continue to monitor progress very closely and will not hesitate to take any further action if necessary.”

Under the plan, which is currently up for consultation, the commitments would remain in place until the company regains two investment grade credit ratings.

Moody’s downgraded its rating for Thames Water to “junk” status on July 24, indicating that the credit agency thinks the utility company is likely to default on its debt and may add to its financial pressures.

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And on July 31, S&P downgraded Thames Water’s Class A debt rating to BB and its Class B debt rating to B.

The measures come as part of a previously announced “turnaround oversight regime” floated by Ofwat for Thames Water last month.

The regulator also opposed the company’s planned 44 per cent rise in consumer bills over the next five years, telling Thames Water it should instead increase average yearly bills by 23 per cent to £535 over the period.

Thames Water is in the grip of a funding crisis and has more than £15 billion of debt.

It said in July that it only has enough money to continue trading until the end of May 2025.

Bosses are scrambling to secure a major cash injection to keep it afloat, and have held talks with both existing shareholders and outside investors.

Ofwat also proposed £168 million of fines for three of England’s biggest water companies for failing to manage sewage spills, including a £104 million penalty for Thames Water.

The fine for Thames Water came alongside a £47 million penalty for Yorkshire Water and £17 million for Northumbrian Water, as the first batch of results from its biggest-ever investigation into the industry.

The penalties relate to water firms’ management of their wastewater treatment and sewer systems, which have come under heavy criticism for releasing too much pollution into rivers.

A spokesman for Thames Water said: “We note that Ofwat is minded to accept the undertakings we have proposed, but understand the need for them to consult before doing so.

“We remain focused on working with Ofwat to secure an investible PR24 determination (the outcomes framework for the 2024 price review), which is key to attracting equity into the business.”