Energy company Powergen fired another salvo in the gas and electricity price war by revealing plans to cut charges for domestic customers.

The company said the move would make it cheaper than British Gas for electricity, gas and dual-fuel customers.

Powergen is cutting gas bills by 16% and electricity bills by 5% but said the lower prices will not come into force until April 30.

Powergen is the second company - after rival firm npower - to announce lower prices since British Gas first unveiled lower prices at the beginning of February.

Other power companies such as Scottish and Southern Energy and ScottishPower are also expected to enter the fray with price cuts shortly.

But the energy watchdog energywatch said last night it believed more cuts should be made to help tackle hardship created by many months of rising prices.

Powergen, part of the E.ON group, said the average bill for a dual-fuel customer buying both electricity and gas would fall from £1005 to £913.

The cut makes it £40 cheaper than the £953 announced by British Gas three weeks ago, although British Gas will introduce its new price more than six weeks sooner, on March 12.

Powergen's move also matches German-owned npower's decision to cut gas bills by 16%, but its 5% cut in electricity prices goes further than npower, which said that average electricity bills would fall 3% from April 30.

The company's announcement yesterday follows the firm's recent launch of three products guaranteed to be cheaper than British Gas until September 2008, although these were only made available to new customers.

Powergen managing director Nick Horler said: "Now the wholesale market appears more stable, we're pleased to be able to reduce our prices."

British Gas kicked off the price war on February 8 after revealing 17% cuts in gas prices and 11% reductions in electricity bills, its first price cuts in seven years.

Energywatch gave a cautious welcome to Powergen's move but criticised the slow pace of price cuts.

Campaigns director Adam Scorer said: "This is better news. We have to remember consumers have seen energy prices double over recent years. Wholesale gas costs have come down by around 50% over the past six months. We aren't seeing those sorts of price cuts."

Tim Wolfenden, energy manager at uSwitch.com, said: "There are more tactics being played in this price war than in a game of poker - we have seen bluffing and double-bluffing and now the stakes have been raised once again."

The news came as it emerged the SNP's social justice spokeswoman, Christine Grahame MSP, will raise the issue of energy charging in the Scottish Parliament today. She plans to contact the Office of Fair Trading over concerns those not paying bills by direct debit are being penalised by being charged more.

Energywatch Scotland said last night the reductions were not enough as it released figures showing Scots households are £60m in debt to their energy suppliers.

It said the problem was now so severe that each week around 1000 prepayment meters were being installed in consumers' homes.

Almost one in five Scots now uses a prepayment meter. The watchdog said tariffs can be as much as £200 a year more expensive than suppliers' direct debit rates.

David McNeish of Citizens Advice Scotland said: "Energy companies are adding misery to an already intolerable situation. Not only are they quick to increase prices and slow to bring them down, but their pricing structure and recovery methods can compound the difficulties."