Axe green tax or energy bills will go up every year for a decade, says energy chief

“We need to think about what people really want to pay for; maybe it’s time to retreat from decarbonisation and focus more on the cost of living. I think we have to have a debate about it.

“Do we want to be replacing one bit of [energy] generation that we can keep going for a bit longer with a new bit of generation that’s going to cost more?”

He added: “I doubt the public like price increases of this magnitude, but if we carry on firmly behind the green agenda we will continue to have price increases like this.”

He added that SSE, which made a £1.4 billion profit last year, would be stopping all investment in offshore wind and new power plants until the 2015 election because of the acute political uncertainty around energy since Ed Miliband promised a price freeze if Labour wins power.

The row threatens to intensify tensions in the Coalition, with speculation growing that the Tories want to react to the Labour leader’s pledge by funding some green levies through tax rather than passing the cost on to households through bills.

On Thursday, David Cameron said green levies to subsidise renewables would not be on bills “for a moment longer than is necessary”.

But Michael Fallon, the energy minister, went further by insisting that the Government was “looking hard” at what could be done to reduce green costs to both industry and households. He said: “I’m as green as the next man, but I’m a cheap green.

“We still have to deal with a legacy of underinvestment and we still have legal obligations under climate change regulations, we need to build new power stations, but within that, we are looking.”

Ed Davey, the Lib Dem Energy Secretary, said that wholesale energy costs were the real reason SSE was putting up prices and that customers should react by switching to a rival supplier.

National Grid earlier this week warned that the huge push to “go green” and take ageing coal-based power plants out of commission meant Britain was at a greater risk of winter blackouts this year than at any point since 2007. Britain is signed up to producing 30 per cent of its electricity from renewable sources by the end of 2020.

Experts believe more than £100 billion will have to be spent for the country to have any chance of reaching the target, and all of this would have to be recouped from household bills.

The TaxPayers’ Alliance said at the weekend that it had calculated that £22  billion of subsidies would be handed to “green” energy generators over the coming six years to pay for new wind farms and hydro power plants, with the entire cost passed on to consumers through bills.

The UK Independence Party joined the debate on Thursday by blaming Mr Miliband for bringing in the Climate Change Bill in the last Labour government.

Responding to SSE’s price rise on Thursday, Mr Miliband said it was proof the Government was letting energy companies “get away with it”. Caroline Flint, Labour’s shadow energy secretary, added: “When times are tough, energy companies should be helping their customers not hitting them with more price rises to boost their profits.”

Watchdogs said it was inevitable SSE’s rivals would follow suit with price rises of their own. As well as British Gas, industry sources said npower was to announce a price increase as early as Monday.

Ann Robinson, the head of the price comparison website uSwitch, said there were now real concerns that millions of vulnerable customers would be forced to turn down the thermostat or turn off the heating altogether over the winter.

She said: “It’s a crippling blow. We all knew increases were coming, but when you actually see them, well, it’s devastating.

“Last year, 70 per cent of households were rationing fuel at some point, 35 per cent turned their heating down at some point. How many more people are going to freeze to death this winter?”

SSE said it had held off from announcing an increase as long as it could. The new higher prices will take effect on Nov 15. The company said government-imposed levies on energy bills to pay for everything from free loft insulation and new wind farms, had gone up by 13 per cent in the past year, three times more than wholesale energy costs.

Will Morris, the SSE group managing director for retail, said: “We’re sorry to have to do this. We’ve done as much as we could to keep prices down, but the reality is that buying wholesale energy in global markets, delivering it to customers’ homes, and government-imposed levies collected through bills – endorsed by all the major parties – all cost more than they did last year.”

The SSE increase will affect seven million homes in the UK. Customers in the South East, former Seeboard customers, will have an 9.7 per cent increase, compared with a rise of 7 per cent in the North.

The company blamed the different transmission costs charged by regional power networks.

In addition, about 150,000 SSE customers will be hit with a new standing charge that could increase costs if they are low-users of energy. The company is also scrapping prompt payment discounts and loyalty discounts. Off-peak rates on the Economy 7 tariff will rise by 18 per cent in Scotland as SSE restructures its unit charges.

Gillian Guy, the chief executive of Citizens Advice, added: “This price rise will be a blow for stretched budgets. The hike comes at a time when some working households are turning to food banks to feed their families as they struggle to cope with the rising cost of living.

“I hope other energy firms show an understanding of their customers’ financial situation by not raising their prices.”