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The CMA has proposed the implementation of a 'safeguard' tariff to protect low income householdsiStock

Millions of low-income households will be protected from sharp increases in their electricity and gas bills, the Competition Market Authority (CMA) announced on Thursday (10 March).

The watchdog has proposed the introduction of a "safeguard" tariff, which could cut bills up to £300m (€388m, $426m) a year, to protect customers currently using a pre-paid meter. The decision follows an 18-month review by the CMA into the energy industry, which was brought upon by the discovery that households and small businesses have paid £1.7bn a year more than they should have.

The CMA said it believes the four million households currently using pre-paid meters need to be protected until the so-called smart meters are implemented in four years' time. The watchdog also suggested that Ofgem, the industry regulator, retains a database of customers that have been on a standard rate for three years.

"We have found that the six largest suppliers have learned to take many of their existing domestic customers – some 70% of whom are on default standard variable tariffs – for granted, not just over prices, but with their service and quality," said Roger Witcomb, chairman of the CMA's investigation.

"Given the scale of the problems and the potential savings on offer, we think bold measures like giving rival suppliers the chance to contact long-standing [standard rate] customers are justified."

In its review, the CMA also suggested to tackle so-called rollover contracts, where customers are automatically put on less favourable terms, and to end termination fees that discourage customers from switching providers.

Furthermore, the watchdog wants to end the restriction on suppliers to offer just four tariffs and aims to bolster the ability of price comparison services to help consumers find the best deal.

Energy Secretary Amber Rudd said: "This is a wake-up call to the Big Six [energy providers]. Energy customers should get a fair deal from a market that works for them. That's why we called for the biggest ever investigation into the energy market and won't hesitate to take forward its recommendations."