Energy suppliers should be forced to cap their most expensive tariffs until it becomes easier to switch suppliers, the Competition and Markets Authority (CMA) has suggested.
Consumers need to be encouraged to shop around for a better deal, said the report from the competition watchdog.
A 12-month inquiry found that consumers could save £160 per year on a standard dual fuel bill of £1,200 per year by switching their supplier.
The report, though, stopped short of recommending the ‘big six’ power groups be broken up into their supply and distribution businesses as vertical integration had not hindered competition.
Rather, a lack of awareness of what deals are available, confusing and inaccurate bills and the real and perceived difficulties of changing suppliers all deter switching by consumers.
The CMA added that measures designed to simplify pricing, such as the "four-tariff” rule, had produced the opposite effect and hindered competition and price cuts.
In future, it wants measures to encourage consumers to understand how much they are paying, such as smart meters, to help them move around.
This could mean capping tariffs until other measures have led to a more competitive market.
Roger Witcomb, chairman of the investigation, said:”Many customers do not shop around to see if there's a better deal out there - let alone switch.
He said confusion over the way energy is measured and billed often meant suppliers know they don't have to work hard to keep these customers.
“It's notable that there are such high levels of complaints about customer service.”
Power suppliers reacted cautiously. British Gas owner Centrica (LON:CNA) said it has some concerns and questions about the proposals, while SSE, another of the ‘big six’ said it would study the proposals thoroughly before responding.
The big six companies - SSE, Scottish Power, Centrica, RWE npower, E.ON and EDF Energy - account for almost 90% of the UK market, though smaller independents have been increasing their share recently.
Stephen Murray, at MoneySuperMarket, said: “The investigation by the CMA hasn’t unearthed any significant new revelations of serious failings in the UK energy market but has highlighted that millions of consumers are paying over the odds due to lack of competition in the sector, costing UK households and small businesses a collective £1.7bn over five years between 2009 and 2013.”
The report It also called for clearer definition of the roles of regulator Ofgem and the Department of Energy & Climate Change (DECC).
Decisions on new generation capacity and the use of renewable energy also need to be taken through a competitive process, it said.
Shares in Centrica eased slightly to 1% to 265p, while SSE fell to 1,559p.