More than 11 million households will save a combined £1 billion a year under plans to cap rip-off gas and electricity tariffs at £1,136, the energy watchdog has announced.

Ofgem said each typical customer would save around £75 a year on average, with those on the most expensive default standard variable tariffs saving more than £120 a year when the cap comes into effect.

It has proposed to set the cap for the typical dual fuel customer paying by direct debit at £1,136 a year, forcing suppliers to cut prices to that level or below.

The regulator, which was given legal powers by the Government in July to introduce the cap, hopes to have the measures in place by the end of the year.

Dermot Nolan, chief executive of Ofgem, said: “Once the price cap is in place, all households in Great Britain covered by the cap will be protected from being overcharged for their energy.

“Consumers can have confidence that falls in energy costs will be passed on to them and if costs increase, Ofgem will ensure that any rise will be due to genuine increases in energy costs rather than supplier profiteering.”