The energy regulator Ofgem has set the new cap, which was first announced in September, at £1,137 a year.

This means suppliers will have to cut their default tariffs, including standard variable rates, to this price or below.

The cap comes into force on 1 January 2019 and will give 11 million households a fairer deal, according to Ofgem.

The exact savings for individual customers will depend on how much energy they use, the price of their current tariff, whether they have both gas and electricity, and how they pay for their energy. But the average customer will save £76 a year and households on the most expense tariffs will save up to £120.

The cap will be updated every April and October to take into account the varying costs of wholesale energy.

If the trend of rising wholesale prices continues, the regulator said it is likely the cap could go up in April. It will announce any changes in February.

Dermot Nolan, chief executive of Ofgem, said: “From 1 January, the energy price cap will put an end to customers on default tariffs being overcharged as much as £1bn for their gas and electricity.

“The price cap will ensure that whether energy costs rise or fall suppliers are not feathering their nest and changes in energy prices will reflect the underlying costs to heat and light our homes.”

Switching is still best

Alex Neill of consumer group Which? has called the cap a “temporary fix”.

She said: “Which? research has previously found that the cap won’t cut bills for customers on three in ten dual-fuel deals, so while the price cap will ease the financial burden for some households, people shouldn’t be lulled into a false sense of security that it will mean they are getting the best deal. Switching is still the best way to save money on your energy bills.

“The price cap can only be a temporary fix. What is really needed is more competition between suppliers to help drive the innovation that is so desperately required.”