It is considering raising the price cap on household bills by £21 per year to help energy companies which have been hit by a rise in unpaid bills.

The news was met with dismay from campaigners, who questioned the logic of raising prices when many householders were struggling to pay.

The current price cap is set at £1,042 per household for gas and electricity.

It runs to the end of March and consumers will learn in February what it plans to do.

Octopus Energy boss Greg Jackson said the plans let dominant suppliers off the hook.

"Legacy suppliers charge long-standing customers hundreds of pounds more than new customers," said Mr Jackson, whose firm is now the UK's sixth biggest supplier.

"If they cared about customers, they could handle Covid debt by reducing this disparity, rather than exacerbating it by lobbying for a hike in the price cap."

'Absolutely shocking'

"Ofgem's single biggest success of the last decade has been the price cap - saving billions for customers and finally forcing dinosaur companies to become more efficient. They should resist all attempts to undermine it."

The price cap was introduced in January 2019 and limits energy unit prices for about 11 million customers on more expensive variable tariffs.

These are often default tariffs that customers are moved to after a period on a lower fixed rate.

"Just like every other business, there have been challenges from the pandemic," Emma Pinchbeck, chief executive of trade body Energy UK, said.

"It is the independent regulator's job to hear views, look at the evidence, and weigh up how to support energy retailers through their own commercial difficulties in the pandemic, so that they can continue to supply and support all customers."

The £21 rise to £1,063 is based on a household with typical usage and which pays for both electricity and gas by direct debit.

Price comparison website Uswitch says 12-month deals can be had for as little as £821.40 by comparison.

Cat Hobbs, the director of We Own It, which campaigns to nationalise energy supply, said: "These proposals from Ofgem are absolutely shocking. The idea that at a time when millions of people are struggling to pay their bills, the solution would be to charge people even more is farcical."