Reduced energy bills on the way for 4m

Those on pre-payment meters are to benefit from a temporary price cap which will reduce bills by around £300m a year, the Competition and Markets Authority (CMA) said.

The authority also said an Ofgem-controlled database of consumers who had not switched recently would be introduced to allow them to be contacted by other suppliers for the best deal.

This will allow rival suppliers to contact people by letter and offer cheaper deals based on their actual energy usage, the CMA said, though customers can opt out if they want. The CMA found that 70 per cent of people were on the more expensive “default” standard variable tariff, costing consumers £1.4bn more than a competitive market.

The price cap for households on pre-payment meters is being introduced because the cheapest tariffs £260 to £320 more expensive than for people paying by direct debit. It will remain in place until the introduction of smart meters which will allow customers to access better deals.

Roger Witcomb, chairman of the investigation, said the measures will help more customers get a better deal and “put in place a modernised energy market equipped for the future”.

“With far too many customers paying hundreds of pounds more than they need to, they will be alerted to the better value deals that are out there and it will be easier for them to identify a good deal and switch to it,” he said.

“For those customers on pre-payment meters, whose options to switch are far more limited, we’ll cap prices until the time that they too can benefit from competition.”

As part of the changes, the CMA is recommending Ofgem remove some of its rules, including the “four tariff rule” which limits the number of different deals suppliers can offer.

There should also be changes in the way that the Department of Energy and Climate Change (Decc) awards subsidies for low-carbon power to make sure customers get the best deal, it said.

Dermot Nolan, chief executive of Ofgem, said the report marked an “important milestone” towards making the market more competitive and fairer.

“The CMA’s remedies, combined with smart meters and faster switching, clear the way to secure a new and better deal for all consumers, especially the vulnerable,” he said.

However, Juliet Davenport, chief executive of independent energy supplier Good Energy, said the CMA should have gone further. She said: “I’m not convinced that a database of customers to be marketed to will get people switching more.

“If twerking men and meerkats on our TVs can’t make you switch, then junk mail through your letter box won’t.”

And Darren Braham, founder and chief executive of First Utility, said the CMA had “completely missed the mark” with its reforms.