David Cameron attacked by all sides over ‘panic’ pledge to cut green energy taxes

Prime Minister accused by both Liberal Democrats and Labour of sacrificing green credentials he won in opposition

David Cameron has promised a 'proper competition test' (PA)

The Coalition is at war after David Cameron pledged to cut the £112 of "green taxes" on the average annual household energy bill.

The Prime Minister was accused by both the Liberal Democrats and Labour of sacrificing the green credentials he won in opposition because he is in a "panic" over soaring gas and electricity bills.

Mr Cameron rushed out two announcements while he was on the ropes at Prime Minister's Questions over Sir John Major's called for a windfall profits tax on the "big six" energy companies and Ed Miliband's pledge to freeze prices for 20 months. Mr Cameron promised to "roll back" green levies and taxes on energy bills and said the energy giants will face an annual "competition test".

The green tax review provoked a major row inside the Coalition. The Prime Minister's spokesman said he was determined to reduce green taxes "one way or another"-probably by next year. An announcement is expected in the Chancellor George Osborne's autumn statement on December 4.

Cameron allies insisted the review would take account of the need to safeguard investment in the energy industry and to protect vulnerable people. The green taxes include help for those in fuel poverty and with home insulation. Any move to reduce these would be highly controversial, especially as Sir John warned that many people would have to "choose between keeping warm and eating" this winter.

The Lib Dems threatened to veto any cuts to green taxes. "There is only one way this Government decides policy-with both Coalition parties agreeing," said a senior Lib Dem source. "We are not going to allow a panic U-turn in the middle of Prime Minister's Questions to change government policy. We are happy to stress test the need for every penny that goes on to energy bills. But we will not damage the environment; reduce help for people in fuel poverty or damage our renewables industry."

All options will be considered, including switching some green taxes from energy consumers to general taxation. Their £112 annual cost is due to rise to £194 by 2010, about 14 per cent of the average energy bill.

Mr Cameron's move undermined his pledge to head "the greenest government ever." Zac Goldsmith, the Tory MP and environmentalist, said: "In 2010, leaders fought to prove they were the greenest. Three years on, they're desperately blaming their own policies on the other. Muppets."

The "big six" will feel the heat in an annual review that will see other regulators brought in alongside Ofgem, whose performance has been criticised. The Office of Fair Trading and the Competition and Markets Authority will join forces with Ofcom. Their agenda will include the companies' profits as well as their prices; how they treat their customers and barriers to new firms entering the energy market.

Details will be unveiled next week by Ed Davey, the Lib Dem Energy and Climate Change Secretary, in his annual energy statement to the Commons.

Labour insisted that 60 per cent of the current green taxes were as a result of Mr Cameron's policies and denied his claim they were imposed by Mr Miliband when he was Energy Secretary.

In a speech in London on Thursday, Mr Miliband will claim Mr Cameron has lost control of his Government. "In weakness and panic, he made up a policy on energy, which means business as usual for the energy companies and which is already falling apart," the Labour leader will say. "This Prime Minister is too weak to stand up for the consumer and he always takes the side of the 'big six' companies."