Cameron gets drawn into row as confusion over energy tariff row escalates

David Cameron's pledge that gas and electricity consumers would automatically get the lowest tariff was thrown into confusion today as the Government staged a partial retreat.

Labour accused the Prime Minister of presiding over another "omnishambles" after John Hayes, the Energy Minister, stopped short of repeating Mr Cameron's promise on Wednesday of legislation to ensure "energy companies have to give the lowest tariff to their customers."

Ed Davey, the Liberal Democrat Energy and Climate Change Secretary, whose department was in the dark about the surprise announcement, distanced himself from it. He suggested energy firms would be obliged to merely "offer" the cheapest tariff.

As Whitehall officials scrambled to draw up a policy to deliver Mr Cameron's promise, government sources admitted the final package might fall short of his precise words. They said the top priority was to help consumers, which would mean preserving competition between energy companies to keep prices down.

One option is for customers to be "offered" the lowest tariff from their own energy provider --but not the lowest on the market as a whole. Nick Clegg, the Deputy Prime Minister, made a similar promise six months ago, based on voluntary action by the "big six" energy companies. Ministers are frustrated that only about 15 per cent of consumers "switch" providers - and many of those that do are not low income families. So they want to encourage switching by legislation.

Today Mr Cameron refused to back down. Speaking in Brussels, he insisted: "I want to be on the side of hard-pressed, hard-working families who often struggle to pay energy bills. We are going to use the forthcoming legislation, the Energy Bill coming up this year, so we make sure, we ensure, that customers get the lowest tariffs. That's what we're going to do."

Downing Street sources said the Bill would ensure consumers got the lowest tariff in a way that preserved the choices they made about how they pay their bill and their type of tariff. One option is for people on a variable tariff who pay by direct debit to be informed they will be automatically switched to the lowest variable direct debit tariff offered by their provider. They could "opt out" of that process if they wished. Officials believe such a system would promote competition between companies to offer the cheapest deals.

Answering an emergency Commons question tabled by Labour, Mr Hayes admitted he had not been forewarned about Mr Cameron's announcement at Prime Minister's Questions. He said: "We will use the Energy Bill to get people lower tariffs and of course there are different options to be considered in the process."

Caroline Flint, the shadow Energy Secretary, said: "It caused chaos in the energy industry and I have to say it left his own ministers at a loss as to what energy policy actually is. For the Government to spend a day pretending they have a policy they have no intention of implementing is no way to run the country. It is like something out of The Thick of It."

Business leaders warned that Mr Cameron's plan would damage the market and deter investors. Neil Bentley, deputy director-general of the CBI, said the statement had been "a bit of a surprise" to industry and was at odds with the idea of competition. "What this actually does is create a lot more uncertainty for companies who are looking to invest in the UK and investing in our infrastructure and new power stations," he told BBC Radio 4's The World At One.

But consumer groups urged Mr Cameron to stick to his original plan. Richard Lloyd, executive director of Which? said: "Just giving people information on the lowest tariff is not enough when trust is at an all-time low in the industry and switching levels are falling."