Alistair Darling, UK chancellor, will this week unveil plans to use legal powers to stop energy companies making an alleged £400m in excess profits from some of Britain's poorest consumers.
In an unusual intervention in the market, Mr Darling will announce in the annual Budget statement plans to control tariffs paid by 3.8m electricity customers and 2.8m gas customers using pre-payment meters.
The move represents an embarrassing admission that Britain's competitive energy market - often held up to other EU member states as a model - is not serving all sections of society.
UK Treasury ministers and officials have spent the past 10 days trying to persuade energy companies voluntarily to put more money into cutting bills for poor consumers but the talks became bogged down.
"They understand where we are coming from," said a government official. "But we got to the point where the companies were saying they would do it only if the others do."
Mr Darling is expected to say that talks are continuing with the companies on a wider package of measures to help the 4.5m Britons living in fuel poverty - defined as those spending more than 10 per cent of their income on heating and lighting.
Treasury officials said yesterday that as a first step the chancellor would use reserve government powers to cut tariffs for customers with pre-payment meters, either through a cap or some other mechanism.
Energywatch, the watchdog, claims consumers using pre-payment meters are charged an average of £255 more a year than those paying by online direct debit. "We have hard evidence of £400m (€525m, $805m) of excess profits being taken off the poorest members of society just at a time when fuel poverty is continuing to rise," said Graham Kerr of Energywatch, the industry watchdog.
John Hutton, business secretary, will today announce new guidance to Ofgem, ensuring that the energy regulator takes a lead in seeing poorer customers have the information they need to switch suppliers to get better deals.
British Gas and EDF already offer pre-payment meters for poorer customers in line with their cheapest prices. The industry argues that the higher tariffs for customers with pre-payment meters reflect the higher costs of administering those accounts.
If companies were not allowed to charge higher prices to high-cost customers they might start refusing to supply them, an industry source said.
Mr Darling's plan to help poor energy customers comes as he grapples with how to find enough money to tackle poverty when government coffers are empty, with fierce last-minute lobbying by Labour MPs for him to be generous.
Separately, Mr Darling is expected to use the Budget to announce a big increase in vehicle excise duty for new cars when they are registered, targeted at the least fuel-efficient. He is expected to signal further concessions in his plan to impose a £30,000 levy on long-term non-domiciles in Britain and a potential deal with Washington to ensure the levy can be offset against US tax.