Warfare over energy policy within the coalition Government broke into the open today as Liberal Democrats branded David Cameron's plan to roll back green levies a "panicky u-turn".
In an unexpected move at Prime Minister's Questions, Cameron announced a review of competition within the energy market and signalled he wanted to "get to grips" with green regulations which were driving up energy bills.
Labour, which is calling for a freeze on gas and electricity bills, dismissed the move as "panicked and totally inadequate".
And, in a mark of the depth of divisions within the coalition on the issue, a senior Liberal Democrat source said that Conservatives had not put forward any "properly worked-up policies" in discussions inside government and suggested the PM was "making policy up on the hoof".
"Everybody knows the Tories are getting cold feet on the environment," said the source. "The Tories have put no properly worked up policies in front of us.
"But we will not allow a panicky u-turn during PMQs to dictate Government policy. The way to provide stable fuel bills now and in the future is not to make policy up on the hoof."
Mr Cameron's intervention came after former prime minister Sir John Major yesterday called on the Government to impose a windfall tax on the profits of the energy companies.
Challenged on Sir John's remarks by Labour leader Ed Miliband, Cameron said: "I want more companies, I want better regulation, I want better deals for consumers. But yes, we also need to roll back the green charges that he put in place as energy secretary."
The Prime Minister's comments put him on collision course with Lib Dem Energy Secretary Ed Davey, who earlier this month said it would be "silly" to cut green levies which help low-income households install energy efficiency measures.
The Lib Dem source said: "Liberal Democrats in Government will not allow the Tories to undermine our commitment to the environment; hurt the fuel-poor; or destroy our renewable energy industry.
"Nick Clegg has always said that we should stress test every policy to make sure that there isn't a penny more on bills than necessary.
"Of course, we will look at the specific details of what the Tories propose. That is coalition Government.
"We will discuss the means but we are not prepared to compromise on the ends - protecting the environment; helping the fuel poor; and safeguarding our green industries and jobs."
Downing Street yesterday appeared to pour cold water on Sir John's call for a windfall tax, saying merely that it was an "interesting" suggestion.
Cameron said the former premier had been "absolutely right" however to say that energy bills had reached a "completely unacceptable level" and that action was needed.
Miliband said Sir John had exposed the Prime Minister's unwillingness to stand up to the energy companies.
"Many people face the choice this winter between heating and eating. These are the ordinary people of this country who this Prime Minister will never meet and whose lives he will never understand," he said.
Downing Street said that an annual review of competition in the energy sector will be conducted by regulator Ofgem, the Office of Fair Trading and the new Competition and Markets Authority. Details will be set out by Mr Davey next week in his annual energy statement to the House of Commons.
The first review is expected to begin within weeks and report next year, and will look at issues ranging from prices and profit levels to barriers to new entrants in the market, as well as how companies engage with customers, said the Prime Minister's official spokesman.
A Number 10 source said that the Prime Minister's ambition to "roll back" green levies had been discussed with Liberal Democrats over recent weeks, and details will be released in Chancellor George Osborne's Autumn Statement on December 4.
If there was no policy change, green levies could rise from the current £112 to £194 - or 14% of the typical household bill - by 2020. Mr Cameron wants action to reduce the impact of the levies, the source said.
But Labour said that £67 of the £112 levies were accounted for by measures introduced by the coalition. A Labour source said: "The Prime Minister is clearly in a panic over energy prices.
"He is refusing to take real action to tackle overcharging now. He wants to wait another year when bills are going up 10% as we speak. The Labour Party has a comprehensive plan to freeze prices and reset the market. David Cameron's response is panicked and totally inadequate."
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