Taxpayers to pay for PM's £910m winter fuel package

The revelation is likely to heighten anger among Labour MPs over Gordon Brown's refusal to impose a windfall tax on energy companies making big profits.

The Prime Minister unveiled the home insulation deal yesterday as part of his economic recovery plan.

But serious doubts were quickly raised after one energy chief admitted that part of its cost was likely to be passed on to consumers in higher bills.

Today the Financial Times revealed the taxpayer will also be hit by the agreement between the Government and energy firms as they will be able to offset the cost of lagging homes against corporation tax. The package includes free cavity wall and loft insulation for pensioners and poor households, and increasing cold weather payments from £8.50 to £25 a day to those eligible if temperatures drop below zero for seven days.

But shadow chancellor George Osborne accused Mr Brown of exaggerating the scale of the benefits to cash-strapped households while Help the Aged called them "flimsy."

Mr Brown stressed yesterday that he did not expect the cost of the scheme to be passed on to consumers.

However, David Porter, chief executive of the Association of Electricity Producers, suggested that his wish was likely to be ignored.

He said: "Whenever people impose costs on an industry like ours, or any industry, the bill to some extent always ends up with the customer."