David Cameron was accused on Wednesday of jettisoning his commitment to the environment when he capitulated to the pressure of spiralling energy costs by announcing he will roll back green levies that the government says is adding an unacceptable average of £112 to household bills.
Cameron's coalition partners, the Liberal Democrats, immediately accused Cameron of a "panicky u-turn" and making policy on the hoof, but conceded they had agreed to "stress test" the green levies to see if they are being implemented efficiently, and at minimum cost.
It is possible that the two parties could yet reach an agreement in time for the autumn statement by transferring some of the multi-billion cost of the green levies from the consumer to the taxpayer. The Scottish Nationalists proposed the same transfer last week.
The deadlines to meet some of the levies may also be delayed.
The Liberal Democrats said they will hold discussions with Cameron, but insisted they would not compromise on ends "protecting the environment, helping the fuel-poor and safeguarding our green industries and jobs".
In practice, the largest proportion of the so-called green levies go to help the poor with energy efficiency measures, and Cameron's commitment to roll them back comes only a day after the former Conservative prime minister Sir John Major had warned millions of the nearly poor faced a choice between eating and heating this winter. Conservative sources insisted they would not allow support for the poor to be reduced this winter.
Cameron also appeared to accept for the first time that the system of energy regulation is not working when he announced an annual energy competition review to be conducted jointly by Ofgem, the Office of Fair Trading and the new Competition and Markets Authority. Further details of the new competition test will be announced by the energy secretary Ed Davey next week, but it will cover profits, competition and communication with customers.
Labour has vowed to replace the energy regulator Ofgem for over a year, something the coalition opposed, but Cameron's announcements on Wednesday are an implicit acknowledgement that the regulatory system is inadequate. The review, due to make an initial report next Spring, may look at the way in which the industry is vertically integrated – a system that critics say leads to the industry selling to itself.
Cameron's announcements at prime ministers questions follows weeks in which Ministers have groped for a coherent response to the Labour commitment to freeze energy prices for 20 months. The timing appears in part to be prompted by Sir John Major's surprise call for a windfall tax on the energy utilities.
Liberal Democrats were given 30 minutes notice on Wednesday that Cameron would make his announcement at prime ministers questions, prompting a senior Liberal Democrat to claim no properly worked out policies had been put in front of them.
But Cameron told MPs: "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 [Mr Miliband] put in place as energy secretary [under Gordon Brown]. According to Number 10, green levies are due to rise from £112 annually to £194 – or 14% of the typical household bill – by 2020 if there is no policy change.
The PM's spokesman said: "One way or the other the prime minister is determined to roll back green levies. There have been discussions about more targeted support since George Osborne's speech on 9 September."
Miliband responded by claiming Cameron came up with a new policy every day of the week, and pointed out 60% of the green levies were introduced by Cameron's own government. He ridiculed Cameron: "Who is the man who said vote blue to go green? It was him. I tell you what's weak – it's not standing up to the energy companies, and that is this prime minister all over."
The energy companies have been campaigning for the levies to be scaled back for months, but Davey told the Guardian at the weekend that "anyone with GCSE maths can work out that energy bills are not rising due to green taxes".
The former energy secretary Chris Huhne also attacked the move saying :"Don't shoot ourselves in the foot. For the government to end a charge that cuts our energy bills by £100 in 2020– that would be crazy".
Peter Luff, the Tory former chairman of the business select committee, summed up the Conservative dilemma saying "When you are in the red, it is difficult to vote blue and go green."
Government figures show that £50 goes on the energy company obligation – which supports energy efficiency in poorer households. A further £11 goes towards the warm homes discount, which is designed to help with the costs of fuel bills for poorer households.
The other charges are meeting the UK's renewable obligations (£30), the EU's emissions trading scheme (£8), the carbon price floor (£5), feed-in tariffs (£7) and smart meters (£3).
Tensions between the two parties may come to an early head on Monday when Lord Stern, author of the landmark 2006 report on the economics of climate change, will table an amendment to the energy bill compelling the UK to set a decarbonisation target before 1 April next year.
The adoption of a decarbonisation target for 2030 is official Lib Dem policy and many of its peers are thought to support the amendment.
