Energy watchdog announces price cap for pre-payment gas and electricity metres

:: What does it mean for consumers?

The charge will affect some four million of the poorest households in the UK, saving them around £75 annually from April. In total some £300 million will be slashed from UK home bills in total each year.

The price cap will remain in place until 2020, when the introduction of "smart meters" is expected to be completed.

:: Why is it being brought in?

Authorities have been concerned for some time about the amount people using pre-paymeters are spending on their power. A report in June by competition watchdog the Competition and Markets Authority (CMA) warned that 70% of people using the system were on a more expensive "default" standard variable tariff, costing consumers £1.4 billion more than in a competitive market.

The cheapest plans were £260 to £320 more expensive than for people paying by direct debit because pre-payers face limited competition from suppliers and have less ability to switch and find better deals.

:: What does it mean for energy providers?

Moves to liberalise the domestic energy market. From the spring of 2018, providers will have to share customer data to allow rivals to offer them better deals.

A pilot scheme database will be introduced that allows competitors to offer domestic users on standard variable rates for three years or more better-value packages.

The move will target "disengaged" consumers less likely to search for the best deal, allowing other providers to send letters to them, offering cheaper and easy-to-access deals based on their actual energy usage, under plans suggested by the CMA in June, although customers can opt out if they want.

:: Why is it coming now?

The watchdog's response follows a report published by the Competition and Markets Authority (CMA) in June setting out ways in which the market could be improved for customers.

Ofgem said it will work closely with suppliers to help "disengaged customers" who remain on expensive tariffs to shop around for better deals.

Chief executive Dermot Nolan said: "The CMA's final report is a watershed moment for industry and consumers and points the way to a fairer and more competitive future. I call on energy companies and consumer groups to seize this opportunity."

Ofgem said the meter cap will help the "most vulnerable and least likely to switch" and will save them around £75 a year from next April.

The cap is expected to remain in place until 2020 when the introduction of smart meters, which will allow customers to access better deals, will be completed.

Next year the energy regulator said it will also pilot a database service - allowing rival suppliers to offer better value deals to those who are on standard variable rates for three years or more.