Callum McCarthy, the director general of Ofgem, had initially proposed price cuts averaging pounds 25 for Britain's 22 million domestic customers - a reduction of about 10 per cent.
But yesterday he announced final price reductions from next April of only 7 per cent after accepting arguments from the electricity companies that bigger reductions would have undermined efforts to introduce competition into the market.
Consumer groups gave a guarded welcome to the announcement. But trade unions said that up to 10,000 jobs could be scsrapped and warned of a greater risk of lengthy blackouts.
Mr McCarthy insisted that, although the new price caps will lead to an average cut in bills of only pounds 15, consumers could eventually enjoy savings of as much as pounds 50 as competition stiffens and electricity trading is liberalised, leading to lower generation charges.
So far, three million consumers - one in eight households - have changed supplier, making savings of pounds 20 to pounds 30 a year. To try to accelerate the rate of switching, ministers intend to change the rules so customers who are in debt to their existing supplier can still change to a rival supplier.
Mr McCarthy said the price curbs would transfer almost pounds 1bn a year from electricity companies to customers. PowerGen, which supplies 2.5 million households, mainly in the Midlands, immediately pledged to reduce bills by more than the minimum. It said average electricity bills would fall by pounds 22 next year while gas bills would come down by pounds 19.
The Ofgem-ordered cut in charges will reduce the typical electricity bill from pounds 251 to pounds 236 from next April. On top of reductions in water and gas bills announced in the past week, millions of households will see their overall utility charges fall by an average of pounds 60 a year.
The size of the cuts in power bills will vary by region. Customers of Northern Electric will see the biggest reduction with average bills falling by pounds 28 next year. Households in the region covered by Southern Electric will see the smallest reduction, of pounds 7 a year.
Sir Ken Jackson, general secretary of the AEEU, an engineering union, said the industry had already shed 80,000 jobs since privatisation and any further cuts would put supplies at risk. "There'll be too few skilled people to service the network and ensure a secure supply. It may take weeks rather than days to restore power after a blackout."
Industry Reaction, page 22
Outlook, page 23Reuse content