Energy firms will be forced to give all of their customers the lowest tariff available under new laws announced by David Cameron.
In response to mounting concerns over the rising cost of household energy bills – four of the UK's big six energy firms have already announced above-inflation winter price hikes – Cameron vowed in the Commons to tackle the problem.
"I can announce that we will be legislating so that energy companies have to give the lowest tariff to their customers," he told MPs during Prime Minister's Questions.
After the announcement, a spokesman for the prime minister said: "We have asked energy companies to take action themselves and make clear what the lowest available deals are. The point is, in practice this market is not operating for everyone. A small minority of people are actually switching deals, therefore we need to push some of this responsibility on to the energy companies."
He said customers would have to wait until energy bill was published, possibly in the autumn, for details of how the change would work in practice. The move did not mean energy companies would end up offering only one tariff, as different customers would need different rates, he said.
"At the moment, the way the market works, people are encouraged to switch but many people don't. It is only a minority of people who switch, so lots of people are not benefiting from that market, particularly vulnerable people who are less likely to switch deals."
The announcement followed a strongly-worded open letter to Cameron from consumer rights group Which?, calling for an independent review into the increasing cost of domestic energy bills.
In the letter, the group's executive director Richard Lloyd wrote: "It's time to face facts: the energy market is broken. The sector is dominated by a handful of big and powerful players who are seemingly unaffected by the normal competitive pressure of price and customer service."
In response to Cameron's announcement, Lloyd said: "Legislating so that energy companies have to give the lowest tariff to their customers is a big statement from the prime minister and acknowledges that competition in the energy retail market has failed. This is a big moment for consumers, but we must now see these words turned into action and see the detail from the government in the energy bill [expected this autumn]."
A spokesman for the Department of Energy and Climate Change (DECC) said that households facing rising energy bills this winter "aren't going to be helped by more inquiries or investigations that could take years to complete and implement. We know what the problems are, we want to get on with tackling them now. We're focusing on action, not more words."
Energy UK, the trade association for the gas and electricity sector, was equally dismissive of the call for an independent review. Chief executive Angela Knight said: "Rebuilding trust with customers is a priority. Britain may have the cheapest gas and fourth-cheapest electricity prices in western Europe, but wholesale energy prices have been rising and now only represent half of a standard energy bill."
Regulator Ofgem has already announced that it is looking into predatory pricing and tariff simplicity as part of its retail market review, while the government has encouraged consumers to shop around to make sure they are on the best available deals: the DECC has backed collective purchasing schemes such as the controversial Which? Big Switch initiative.
But following Cameron's remarks, the government is now expected to include legislation in the energy bill that will force energy firms to move customers on to their cheapest tariff.
On Monday SSE increased gas and electricity prices by 9%, with more price rises coming in November from other suppliers. British Gas has announced price increases of 6% in both gas and electricity; npower will raise the cost of gas by 8.8% and electricity by 9.1%; while Scottish Power's prices will rise in December by an average of 7%.
The effect on household bills has spurred consumer advice groups into action. The National Right to Fuel Campaign warned that the UK is facing "an energy bill crisis", with cold and poorly lit homes posing "a serious health risk to people of all ages".
Citizens Advice is launching the Big Energy Saving Week on 22 October to target millions of families across the country with advice on keeping energy bills down. The campaign coincides with a warning from price comparison site energyhelpline.com that the best fixed rate energy deals – including deals from from Ovo Energy and First Utility – are "disappearing fast".
Britons' complaints about their energy suppliers rose in 2011 by 26% from July to September, according to a report published by Consumer Focus, a leading UK consumer watchdog.
A major driver for the surge in complaints was the rise in prices announced by the six leading energy suppliers between June and September 2011. EDF’s prices rose by 15.4% for gas and 4.5% for electricity while E.ON’s prices rose by 18.1% for gas, 11.4% for electricity and 15.2% for customers receiving both gas and electricity from the supplier.
Increased energy bills has been the major worry for consumer groups regarding the newly adopted EU Energy Efficiency Directive.
The UK has started the implementation of its new energy efficiency renovation programme called the Green Deal. The UK is likely to integrate the Green Deal into the implementation of the EU's Energy Efficiency Directive.