Five million energy customers are paying an average of £330 more than their neighbours for gas and electricity because of a lack of competition in the market.
The Big Six - British Gas, Scottish & Southern Energy, Npower, Scottish Power, Eon and EDF - dominate the market and 99% of all customers use one of them, according to a report from the Institute for Public Policy Research (IPPR).
It says these companies are more focused on offering new customers cheaper deals, instead of making the whole of the market more competitive, and in order to do this they are charging loyal customers higher tariffs to make up for the shortfall.
Increased competition needed
The report shows that households could be missing out on annual savings of £1.9 billion by 2020 because the market is not working efficiently.
The think tank is calling for more action and says regulator Ofgem isn't being tough enough on the Big Six to improve competition so all customers get a better deal.
[widget:10667] Energy bills shot up by £455 between 2004 and 2010, largely because of rising wholesale prices but the number of customers switching has also fallen to an historic low as customers remain on costly deals instead of shopping around for a better deal.
"There are many improvements that can be made to this market, but a good start would be to ensure that smaller suppliers can compete with the Big Six on a level playing field," says Adam Scorer, spokesperson for Consumer Focus.
"Customers also need to know that suppliers are really competing for business by passing on efficiencies and wholesale cuts, as well as ensuring customer service is first rate. We need a market that serves everyone, not just a minority of pro-active switchers," he adds.