Energy customers overcharged by £1.2bn

Millions of households could be paying too much for their energy bills.

Millions of households could be paying too much for their energy bills. - Credit: PA

Millions of households could be paying too much for their energy bills, according to a competition watchdog which found energy companies have been overcharging their customers by around £1.2 billion a year.

The Competition and Markets Authority (CMA) said it was considering setting a maximum price limit for standard variable rate tariffs, which could see bills reduced for millions of customers.

It's year-long inquiry into the energy sector found tariffs offered by the main suppliers - British Gas, SSE, EDF Energy, RWE npower, E.ON and Scottish Power - were overcharging customers around £1.2 billion a year - an estimated £40 per household.

The CMA outlined plans to encourage customers to switch, but stopped short of recommending a break-up of the energy giants, saying competition in wholesale markets was working well.

It said it uncovered 'widespread consumer disengagement', with the majority of customers on default standard variable rate tariffs despite better deals available.

More than a third - 34pc - of 7,000 people polled by the CMA have never considered switching, according to the report.

It found dual fuel customers could save an average of £160 a year by switching to a cheaper tariff but often failed to do so because of a lack of awareness of which deals are available, 'confusing and inaccurate' bills and worries over the difficulty of changing supplier.

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Roger Witcomb, chairman of the CMA energy market investigation, said: 'There are millions of customers paying too much for their energy bills - but they don't have to.

'Whilst competition is delivering benefits to increasing numbers of customers, mainly through the growth of smaller suppliers with cheaper fixed-price deals, the majority of us are still on more expensive default tariffs.'

He added: 'The confusing way energy is measured and billed can make comparing deals understandably daunting.

'The result is that some energy suppliers know they don't have to work hard to keep these customers.'

Consumer group Which? called the report 'a damning indictment of how the energy market is failing consumers' and welcomed plans to put a limit on variable rate deals.

Under the most radical of its proposals, the CMA will look at temporarily scrapping 'relatively high priced' variable rate deals and replacing them with capped 'safeguard' tariffs until competition is working as it should be in the market.

This would provide 'direct protection' to so-called sticky customers who fail to switch, some of whom are on low incomes or are vulnerable, including those on pre-pay meters, according to the CMA.

With Energy watchdog Ofgem welcomed the findings, saying: 'We will work with them, to develop and implement their final remedies, where they fall within our jurisdiction, to deliver a more competitive market for consumers.'

The CMA said its investigation saw it survey 7,000 residential energy customers, while it received more than 100 submissions from interested parties, such as energy suppliers, government and consumer groups, as well as academics.

It will now consult on its proposals and publish a final report before the end of the year.