Energy firms will face 'competition test', PM says

Announcing the move at Prime Minister's Questions, Cameron also signalled he wanted to "get to grips" with "green" regulations which he said were driving up energy bills (join our free Cheap Energy Club to cut costs).

"I can tell the House today that we will be having a proper competition test carried out over the next year to get to the bottom of whether this market can be made more competitive," he said.

Cameron also called for an annual audit of competition to make the energy market more competitive, and said "we need to roll back the costs that have been imposed on people's energy bills".

How will the review work?

Downing Street says details of the competition review will be set out next week in the annual energy statement to the House of Commons by Energy Secretary Ed Davey.

An annual review of competition in the energy sector will be conducted by regulator Ofgem, the Office of Fair Trading and the new Competition and Markets Authority. The first review is expected to begin within weeks and report next year.

It will look at issues affecting competition and consumers, ranging from prices and profit levels to barriers to new entrants in the market, as well as how companies engage with customers.

'This couldn't come soon enough'

Archna Luthra, MoneySavingExpert.com energy analyst, says: "This couldn't come soon enough. The energy market is a mess and it's time the decision makers sorted it out.  

"To make the market more competitive, the Government must help ease the stranglehold of the big six suppliers, by making it easier for newer firms to enter the market. The government also needs to make switching easier.

"Currently it can take weeks to switch energy provider when all that changes is the bill payer – you can switch a bank account in seven days and a mobile contract even quicker. Suppliers are undermining the switching process and this must be remedied to shake up competition."

'Rolling back' green costs

Details of the Prime Minister's plans to "roll back" green levies will be released in Chancellor George Osborne's Autumn Statement on 4 December.

Downing Street sources say that if there is no policy change, green levies could rise from the current £112 to £194 – or 14% of the typical household bill – by 2020.