The Draft Domestic Gas and Electricity (Tariffs Cap) Bill will give energy regulator Ofgem the power to cap standard variable tariffs to households in England, Wales and Scotland.

Around two-thirds of energy consumers in Great Britain are currently on this type of tariff – that is around 18 million customer accounts, four million of which are on pre-payment meters and are already protected by a price cap.

The Bill requires Ofgem to consult and impose the cap as soon as practicable after the legislation is passed; however, it is unlikely to take effect before winter.

The cap would be a temporary measure, having effect initially until the end of 2020. The need for it would be kept under review, and extensions could be made, on the advice of Ofgem, up to the end of 2023 at the latest.

The announcement comes after Ofgem revealed it would extend its prepayment safeguard tariff for more around 1 million vulnerable people this winter.

Prime Minister Theresa May said: “I have been clear that our broken energy market has to change – it has to offer fairer prices for millions of loyal customers who have been paying hundreds of pounds too much.

“Today’s publication of draft legislation is a vital step towards fixing that, and in offering crucial peace of mind for ordinary working families all over the country.”

Business and energy secretary, Greg Clark, said: “People who show loyalty to well-known brands are paying hundreds of pounds a year too much on standard variable tariffs and I am determined that this practice should end.

“We have published draft legislation today, sending a clear message to the industry that we will protect the interests of their customers if they do act now to tackle the detriment found by the Competition and Markets Authority.”

Earlier this week, First Minister Nicola Sturgeon pledged to set up a state-owned not-for-profit energy company in Scotland to offer cheaper power to homeowners.