Utilities companies could be fined by the Competition and Markets Authority (CMA) if consumers are harmed by company practice under proposed powers to be handed to the watchdog.
The government is considering granting new powers to the CMA to fine companies that breech competition law without the need to go to court.
The Department for Business, Energy and Industrial Strategy (BEIS) said the reforms would allow the competition watchdog to intervene earlier and more quickly, creating “a powerful deterrent to firms that are harming consumers with misleading claims, unfair terms and conditions and hard-to-exit contracts”.
Prime minister Theresa May said: “For far too long, many big companies have been getting away with harmful trading practices which lead to poor services and confusion among customers who have parted with their hard-earned cash.
“The system as it stands not only lets consumers down but it also lets down the vast majority of businesses who play by the rules.
“It is high time this came to an end and we are confirming our intention to give much stronger powers to the CMA, to strengthen the sanctions available and to give customers the protection they deserve against firms who want to rip them off.”
Business and energy secretary Greg Clark added: “The key to successful markets and businesses is ensuring that they work for the benefit of consumers and that unfair practices are tackled effectively, as the majority do.
“I strongly believe that consumer loyalty should not be exploited and nor should consumers have to work so hard to get a fair deal. We have already shown our willingness to take action through our energy price cap, which means every household is protected from unjustified price rises.”
The price cap came into effect at the start of this year to protect 11 million customers on default tariffs.
The government said it will also legislate to give regulators such as the Financial Conduct Authority new powers to stop companies taking advantage of loyal customers if their existing powers are insufficient.
A spokesperson for BEIS said the proposals will be subject to a consultation but could be expected to impact both the water and energy sectors.
Back in February, the CMA requested to be allowed to impose legally enforceable remedies to protect consumers without having to show they arise from a lack of sufficient competition.
CMA chairm Andrew Tyrie said: “The CMA has set out wide-ranging proposed reforms to enable it to take more effective action to protect consumers.
“The government will now be consulting on one crucial element of those proposals. So their announcement is a big step in the right direction.”
Andrea Coscelli, chief executive of the CMA, added: “Our investigation revealed that loyal customers are being trapped in poor-value contracts or paying more than they should. This has to stop – that’s why we set out significant recommendations to tackle poor practice.”
“But the CMA also needs stronger powers to act against companies who break consumer law, including the power to impose fines to deter such wrongdoing. We’ve been calling for legislation so we can act rapidly on behalf of people who are being ripped off.
“The response from the government is a very welcome step – it is absolutely important that we are able to intervene and penalise businesses when we find they are in the wrong.”
Alongside the announcement, the government also published its response to a super-complaint filed by Citizens Advice, which urged the CMA to take action to prevent disengaged customers falling victim to a “loyalty penalty”. The complaint did not cover the energy sector on the grounds there had already been market intervention to address this issue in the form of the price cap.
Speaking at the Utility Week Energy Summit last week, Ofgem chair Martin Cave said the price cap has not lowered switching rates as some had feared. But he said the gap between capped standard variable tariffs and the cheapest tariffs has also remained “pretty constant”.