Overcharging loyal customers could be banned under new plans being unveiled this morning by the Government.

The so-called “loyalty penalty”, where existing customers see their insurance premiums or mobile contracts increase in price or are charged more than new customers, costs consumers £4.1bn a year.

The Government’s new regime will see the competition watchdog given the power to issue fines to firms which overcharge or mislead their customers.

The proposals would include rules to prevent mobile phone providers from charging the same monthly rate after the cost of the handset has been paid off.

It comes in response to a "super-complaint" filed by charity Citizens Advice last year.

If the plans are adopted, the Competition and Markets Authority (CMA) will be able to determine whether a firm has breached consumer law, without going to court, and issue a fine.

The Government said the rules would act as a “powerful deterrent” to firms relying on unfair terms and conditions and hard-to-exit contracts.

Prime Minister Theresa May said: “For far too long, many big companies have been getting away with harmful trading practices which lead to poor services and confusion among customers who have parted with their hard-earned cash.

“The system as it stands not only lets consumers down but it also lets down the vast majority of businesses who play by the rules.”