British Gas triggered an energy price war yesterday as it announced the first reduction in gas and electricity bills for six years.

Millions of households will save an average of £167 a year after the biggest supplier said that it was cutting gas prices by 17 per cent and electricity by 11 per cent next month.

The move would mean that British Gas went from the most expensive supplier to the cheapest. “We want to win our customers back,” it said.

But the group’s rivals immediately pledged to follow suit and join a battle that promises even bigger savings in the spring.

Scottish & Southern Energy said it would “blow British Gas out of the water” within a month, while npower and Powergen are expected to act after crisis meetings this weekend.

A Powergen spokesman said: “We will be reducing prices.”

The price war, which follows a drop in wholesale prices, will be a huge boost to long-suffering customers who have seen average annual power bills almost double to more than £1,000 in the past three years.

The rise has been a factor in the highest inflation for 11 years. The consumer watchdog Energywatch said that the promise of lower bills was “the best news customers have had for some time”, but urged British Gas’s rivals to match the cut “quickly and significantly”.

Adam Scorer, campaigns director, told The Times: “This has to be the start of something. We have had four years of double-digit increases and we need all suppliers to show they value their customers enough to compete on price.

“Everyone is in a position to follow British Gas now, and probably offer bigger savings. Anybody who doesn’t act significantly and quickly is showing contempt for the consumer.”

British Gas has increased gas and electricity prices five times in the past three years and lost almost three million customers. It still supplies gas to twelve million homes and electricity to five million.

The price cuts will take effect on March 12. The four-week delay will generate at least £100 million in extra revenue for the company. Once the cuts kick in, the company’s average annual dual-fuel bills will drop by £167 to £953. Gas bills will come down by £120.

Britain’s energy suppliers have been under huge pressure to lower rates after a 60 per cent fall in wholesale prices in the past six months.

British Gas said that March was the earliest date a cut could be implemented given that most of the energy now in use was bought on higher prices a year ago. The mild new year and a new pipeline from Norway means there also is far more gas coming into Britain.

Sam Laidlaw, chief executive of Centrica, which owns British Gas, said: “We don’t go and buy our gas purely on a day-to-day spot basis — we go out and have to buy our gas on a long-term basis. If we see a continued fall in the wholesale price we will again act and pass that through to our customers.”

British Gas is introducing an Essentials Tariff for 750,000 of its lowest-income customers on pre-payment meters. This will reduce their bills by almost 25 per cent, or £285 a year.

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