Nick Clegg will block Conservative plans to cut energy bills through big reductions in green taxes before the 2015 general election.
The Deputy Prime Minister has agreed to a government review of the green energy measures the Tories blame for rising gas and electricity bills. But he will not allow them to cut subsidies to relieve fuel poverty, encourage householders to insulate their homes or boost renewable energy like wind power.
George Osborne is under pressure to respond to Ed Miliband's pledge to freeze gas and electricity bills for 20 months if Labour wins the election. The Chancellor may try to reduce bills for small firms but any significant pledge to reduce environmental taxes might have to wait until the Tories issue their election manifesto.
Mr Osborne was rebuffed by Mr Clegg when green taxes were discussed after Mr Miliband's promise by the Coalition's most powerful body, "the Quad", which also includes David Cameron and Danny Alexander, the Lib Dem Chief Treasury Secretary.
A senior Liberal Democrat source told The Independent today: "It's completely misleading for the Conservative right to blame rising energy bills on green taxes, which make up a very small proportion of the total bill. The point that Nick Clegg has repeatedly made in both public and private that if you want to keep the lights on; help those in fuel poverty; and insulate homes, it has to be paid for. You can do that through taxation or through bills but there is no free lunch to be had."
He added: "Of course, it would be irrational not to look at these policies, to stress test them but it is irresponsible to suggest they could be scrapped. The result in the long term would be higher bills, more people in fuel poverty and fewer homes with proper insulation."
Lib Dems believe their Tory coalition partners are raising "false hopes" that green taxes can be reduced. Chris Huhne, the former Lib Dem Energy and Climate Change Secretary, has accused Mr Osborne of "hypocrisy" because he has used the carbon floor price, a tax on fossil fuels used to generate electricity, to raise revenue. Lib Dem MPs claim the Tories have been rattled by Mr Miliband's pledge, which both Coalition parties have dubbed "a con", given the uncertainty over wholesale energy prices.
But the pressure on the Government to act increased yesterday when npower became the third of the "big six" energy firms to increase their prices. The company's 11.1 per cent hike for gas and 9.3 per cent rise in electricity charges are bigger than the 9.2 per cent increase announced by British Gas and 8.2 per cent rise posted by SSE.
Paul Massara, chief executive at RWE npower, denied his firm is profiteering. "We only aim to make around 5p in every pound in our retail business which we feel is a fair return for delivering reliable energy to consumers and for the risks that we bear", he said. "Although the Labour Party's proposed price freeze may appear superficially attractive it will not lead to lower sustainable prices going forward because it doesn't cut the growing costs of supplying energy."
Mr Miliband said: "It's another day, another 10 per cent price rise in energy. We've got a Prime Minister who is standing up for the energy companies, not hard pressed families. That's why we need Labour's price freeze. The reason prices are going up is because you've got a broken market and you've got companies that are overcharging people. "
Ed Davey, the Lib Dem Energy and Climate Change Secretary, described the npower increases as "extremely disappointing" but said Labour's "fixed price con" showed the party's "economic illiteracy" because energy firms could go bust if they were unable to raise charges when wholesale prices increased.