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Three million households are to see their energy bills fall by up to £19 a year as the energy market regulator lowers a price cap aimed at protecting pre-payment customers.

Ofgem announced on Monday that the change coming into force on October 1, will see the average annual dual fuel bill for pre-payment customers cut from £1,067 to £1,048.

A review was launched on Sunday looking at ways to reduce energy costs. lt will examine how the UK can keep energy bills down while meeting climate change targets.

Helping hand: the average annual dual fuel bill for pre-payment customers will be cut.

The energy watchdog introduced a temporary safeguard tariff in April and will update it every six months based on the estimated cost of supplying energy.

It comes after British Gas said last week it will increases electricity bills by 12.5 per cent for 3.1 million customers, a move condemned by the Government and branded a 'slap in the face' for families.

British Gas was the last of the Big Six providers to increase prices after it promised in December last year to freeze tariffs until August as its rivals opted to raise bills at the start of the year.

Hike: British Gas will increase bills by 12.5%

The safeguard tariff is aimed at protecting pre-payment meter customers, primarily those on poor- value standard variable tariffs.

It applies to households who pre-pay for their energy with token-operated or traditional coin pre-payment meters.

Ofgem added these customers are among those least able to take advantage of competition and are more likely to be in difficult circumstances.

The safeguard tariff is one of the Competition and Markets Authority's (CMA) remedies stemming from its two-year investigation into the energy market. 

Gillian Guy, chief executive of Citizens Advice, said: 'Energy suppliers should be looking to follow the regulator's lead by identifying where lower costs can be turned into price cuts for their customers.

'Ofgem's decision to pass on lower electricity costs to consumers by reducing the level of safeguard tariff for prepayment meter customers is right - and will mean millions of often poorer households will get some relief on their energy bills. 

'The regulator has an opportunity to widen the protection of the prepayment meter cap to help more of the worst-off customers on standard variable tariffs, as well. Extending the prepayment safeguard tariff to all credit meter households eligible for the Warm Home Discount will mean Ofgem can quickly pass on reduced costs to more people who can least afford to be overpaying for their energy.'