Thames Water and other water companies can pay any bonuses under the rules that will take effect next month by industry regulators.

Environment Secretary Steve Reed said the new measures will prevent water companies from throwing "tidal waves into our rivers while making money for millions of pounds of bonuses".

Ofwat's regulators are able to stop using customer funds to fund companies with bonuses, but the new rules mean they can't use shareholders or lenders' funds, either.

However, in a recent statement agreeing to a £300 million rescue loan, Thames said it was not a performance-related bonus, but a "reserve payment" that was not covered by the new rules.

The Thames River Water is the largest water company in the UK, accounting for about a quarter of the UK's population, but has been under fire in recent years.

It has huge debts and is working to address leaks, sewage overflows and modernize outdated infrastructure.

The company estimates that leaks and sewage spills could be fined up to £900 million over the next five years.

Earlier this year, it received £3 billion in emergency funds, which it said would give it the space it needs to complete a debt restructuring and attract cash buyers.

It then chose our private equity giant KKR as its "preferred partner" to buy the company.

Under its new authority contained in the Water (Special Measures) Act, Ofwat will be able to prohibit “no bonuses when the high standards and financial management of water companies are not met”.

This could mean that water company bonuses could be blocked immediately next month.

The ban will also be retrospective, meaning bonuses paid in the previous fiscal year may be withdrawn.

The Department of Environment, Food and Rural Affairs (DEFRA) said customers “should not pay the price for poor management of water companies” and “request for improved performance.”

It said that companies will be judged annually based on four measures – environmental performance, consumer affairs, financial resilience and criminal liability.

If (water company) fails to meet acceptable criteria, bonuses will be "banned".

“The government will prohibit unfair bonuses to polluted water bosses,” Reed said. “The days of profiting from failure are over.”

Earlier this week, Thames Chairman Sir Adrian Montagu told MPs: “We live in a highly competitive market and we have to provide these people with the right packages or hunters will knock on the door.”

A Thames spokesman said in a statement that the company was involved in “complex turnover and restructuring processes” to “prove better results for our customers and the environment and seek long-term solutions for our financial resilience.

“It is crucial that businesses retain the people who best suit our stakeholders’ improvement results.”

Thames said the upcoming payments are not performance-related bonuses covered by the new rules, but "reserve payments."

It said none of these reservation payments will be funded by customers.

In November of last year, Ofwat blocked three water companies – including Thames, Yorkshire Water and DWR Cymru Welsh Water – using client funds to fund a total of £1.6 million boss bonuses.

It said it is “enhancing executive mindsets” and pushing companies to improve their performance and accountability culture by preventing customers from “paying improper bonuses.”