PM remarks spark coalition tensions

David CameronWarfare 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, Mr 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, Mr 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.

Mr 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.

Mr 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 a n 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."

Labour said that Ofgem had already carried out a Retail Market Review of the energy sector, taking in issues like price tariffs and companies' behaviour towards consumers, which reported as recently as June this year.

A Labour source said: "This is going to be another review by a failed regulator. The last one achieved absolutely nothing. Why should this one?"

Conservative MP and environmentalist Zac Goldsmith branded the party leaders "muppets" over energy.

The Richmond MP said on Twitter: "In 2010, leaders fought to prove they were the greenest. Three years on, they're desperately blaming their own policies on the other. Muppets. People don't trust politicians. Given this synthetic scrap between DC & EM on green taxes, is anyone surprised?"

Earlier in the day, Conservative former social security secretary Peter Lilley urged Mr Cameron to get tough with the big energy companies if it was shown they were using their monopoly powers to make excess profits.

"We have got to have a proper system that makes sure that the energy companies do not raise prices more than is justified by investment and rising costs," Mr Lilley told the BBC Radio 4 Today programme.

While he rejected the idea of a windfall tax - warning it would simply add to the cost of energy - he said both Sir John and Mr Miliband, who is proposing a temporary price freeze, were right to try to address the issue.

Responding to the Prime Minister's comments, the chief executive of environmental charity WWF-UK, David Nussbaum, said: "It's worrying to hear the Prime Minister call for the 'rolling back' of green regulations. Doing so could be a false economy, and not save money in the long run. Acting now to insulate homes and help people be more energy-efficient is the best way to reduce their energy bills immediately.

"Measures to tackle climate change are in place for a reason - to decarbonise our economy, increase our energy security, create jobs and encourage investment. The Government's own Committee on Climate Change has said clearly that the measures we have in place to decarbonise our economy represent the minimum action we can take to hit emissions reductions targets."

Friends of the Earth's head of campaigns, Andrew Pendleton, said: "With rocketing gas prices sending fuel bills soaring, the best way for the Prime Minister to protect cash-strapped households is through a comprehensive energy efficiency programme and ending the nation's dependency on costly fossil fuels.

"Our electricity system is broken - we need to end the way the Big Six control the market, starting with a clean power target in the Energy Bill."

Terry Scuoler, chief executive of manufacturers' organisation EEF, said: "We welcome any approach that involves more competition in the energy industry, which should lead to lower prices for hard-pressed consumers, including manufacturers.

"We've consistently pressed ministers to address the issue of competitiveness of electricity prices and the need to avoid cost increases that are out of line with our competitors. This review should be rapid and report back as soon as possible, as the rising cost of energy is acting as a block to investment and growth for many companies."

A spokesman for Ofgem said: "The most significant reforms to drive competition in the retail market, since market opening, are being implemented now by Ofgem. Reforms to the wholesale power market to strengthen liquidity and promote conditions for new entry are also in train.

"In Ofgem's September response to the Energy and Climate Change Select Committee we confirmed plans to produce annual reports looking at the state of competition in the market.

"We have invited the OFT and new Competition and Markets Authority to provide input and to support the development of a framework for competition assessment. We plan to set up a stakeholder workgroup to assist in the development of metrics and welcome input now from all stakeholders."

No 10 rejected the Lib Dem accusations that Mr Cameron's promise to roll back the green taxes represented a "panicky u-turn".

"I would not characterise it in that way," the Prime Minister's official spokesman said.

"It is the Government's position that we are looking at how that is done."

The spokesman said that Mr Osborne had indicated in a speech last month that he would be bringing forward measures in the Autumn Statement.

Ofgem rejected Labour's claim that its retail market review achieved nothing.

A spokesman for the regulator said: "We are introducing the most radical set of reforms to the energy retail market since competition began. Since August 26 this year our new standards of conduct have been in place so that customers get fairer treatment from their supplier.

"The standards are backed by our powers to levy fines if suppliers don't meet these rules. For the first time we are also introducing a cap on the number of tariffs suppliers can offer. It will be in place by the end of December. This will make it far simpler for people to find the best deal for them.

"From the end of March next year suppliers will also have to tell customers what their cheapest deal is. All these changes will help customers get much more out of the energy market."

A spokesman for the Department for Energy and Climate Change said: "The Government is looking at how to get people's energy bills as low as possible to help hard-pressed families. We've already increased competition, brought new players in to the market to offer consumers real choice and the most vulnerable are getting direct help with their bills this winter. We'll continue this work to make sure consumers are getting a good deal.

"No one is talking about changing support for large-scale renewables or Feed in Tariffs, which are essential for investor confidence in the renewables sector and our commitments to a low-carbon economy."

John Allan, national chairman of the Federation of Small Businesses, said: "The Prime Minister's review of green charges and third party charges could not only help households but also ease the pressure of high energy bills for millions of small businesses too. Green and third party charges are hitting small firms hard at a time when they want to grow and build their businesses."

Green Party MP Caroline Lucas said: "It's irresponsible of the Prime Minister to blame higher bills on measures to invest in green energy and energy efficiency.

"The main reason reason families are paying more is the increasing wholesale price of gas, which is expected to rise by 40% over the next few decades. The Government's own Committee on Climate Change has said that the costs of low-carbon measures have been small by comparison. The best thing we could do to cut bills in the long term would be to move away from gas and invest seriously in renewables."

Greenpeace deputy political director Joss Garman said: "When it is gas prices and the greed of the big six energy companies that is the real reason for energy bill hikes, the Prime Minister is wrong to pin the blame on clean energy.

"Investment in renewable energy can actually help families squeezed by rising bills by reducing consumers' exposure to the roulette wheel of international gas prices - the main reason for price hikes."

Mr Cameron insisted he had raised the ideas with his coalition partners and he was still committed to the environment.

He said: "This has been a very sound government in terms of the environment. But we do have to make progress on this issue of energy and electricity costs."

Energy bills were based on four elements: the wholesale cost, transmission costs, taxes and profits.

"It's those last two that we need to act on," he said to reporters in No 10.

"We need to make the energy market more competitive, and that's what we're doing, bringing in new competitors and having an annual market test, that will make a difference.

"Yes we should also look at rolling back the cost of some of these taxes, tariffs, charges that have been put in place.

"They are responsible for around £112 of someone's bill today and if we are serious about getting energy prices down and helping families it's no good having some phoney freeze policy, as Labour do, which is something of a con, what you need is to actually look at what is causing bills to go up.

"So that is what we are doing, it is something we have discussed in the coalition over the last few weeks.

"We are making some progress, we need to make more progress because I want to help people this winter paying their bills - that's why we have cold weather payments, winter fuel payments, an enlarged state pension, a warm homes programme taking £135 off people's bills - we need those things but we also need for the future to look at what is causing energy bills to rise and getting rid of some of those causes so we can have sustainably low bills in the future.

"That's what we are doing but we can do that while being a government that cares about the environment as I always have done."