THE energy market is “not working” and the UK’s big six companies should be passing on cheaper wholesale costs to their customers, according to the regulator Ofgem.

Dermot Nolan, who heads the watchdog, said wholesale energy costs had fallen by about a third in the last year to 18 months.

Yet, the big six – SSE, Scottish Power, British Gas, Npower, E.On and EDF – had yet to announce a corresponding cut in retail prices.

Nolan told the BBC: “The biggest component of your energy bill is the wholesale cost – it’s approximately half the bill, maybe a shade under ... it has fallen by nearly a third over the last year to year-and-a-half.

“We really should be seeing bigger retail cuts than we have seen so far.”

Figures released yesterday showed wholesale energy costs in the UK hit a five-year low at the end of last year.

Energy UK, which represents the major energy firms, insisted that there was a competitive market of 34 suppliers and that people should switch for savings of hundreds of pounds.

Its chief executive, Lawrence Slade, said the industry had “made mistakes in the past” in failing to help those languishing on variable deals, but the situation had improved alongside increased competition.

Ofgem has said 70 per cent of consumers remain on standard variable tariffs that have hardly changed since early last year.

The regulator has referred the issue of uncompetitive variable rates to the Competition and Markets Authority (CMA), said Nolan. The CMA will offer its final recommendations at the end of the month.

An Ofgem spokesperson said: “We don’t believe the energy market is working for consumers and that is why we referred it to the Competition and Markets Authority for a full competition investigation.”