Gordon Brown's fuel initiative, said to be worth £1bn, was dealt another blow, following Phil Woolas's claim that homeowners were in a strong position to ‘borrow against' their homes to fund energy saving improvements.

Struggling homeowners, already hit by a collapse in house prices, rigorous lending conditions and rocketing fuel and food bills are unlikely to greet the suggestion with unadulterated joy.

It has also been revealed that part of the £910million bill to lag homes, which is being paid for by the energy companies, can be offset by the firms against corporation tax.

All low income and pensioner households will be entitled to free wall and loft insulation under this package. A half price discount will be offered to other homeowners, as long as they pay for the balance from their own resources.

When the Environment Minister was asked how struggling families could be expected to raise the money for their share of the work, he replied that their homes represented an asset to borrow against and that the installation of insulation was an investment in the long term. He added that as your home would be more valuable following insulation, lenders were prepared to offer loans for the work and whatsmore the payback period was good.

Both the LibDems and the Tories maintained that his comments only confirmed their suspicion that the Government was not on the same wavelength as voters. Chris Grayling, who is the Opposition spokesman for work and pensions, said that such comments were yet another example of how arrogant and divorced from real life the Government was.

Vince Cable, the LibDem treasury spokesman, underlined the point by saying the Government didn't appreciate we were in the middle of a credit crunch, which meant people were no longer able to borrow.

Salt was added to the wound, when the Treasury confirmed that the cost of the fuel package to power companies would be a great deal less than the figure of £910 million, as they would be able to write of some costs against corporation tax at a rate of 28%. The Government insisted however that the scheme was intended to help households rather than to overcharge businesses.

Mr Woolas's remarks seem to contradict Mr Brown's promise to provide cut price or free insulation for everyone. A Government spokesperson said that they had considered all of the knock on effects of the package, including how it would impact on tax revenue.

However, the issue is sure to annoy the unions and Government MPs, who will increase their calls for a windfall tax. They accuse the Prime Minister of weakness when dealing with the energy companies, who are making massive profits. For example, there has been a massive average rise in gas bills of 31% this year and electricity is not far behind with a rise of 22%.

The Premier announced other proposals including a rise in cold weather payments, which jump from £8-50 to £25 per week during severe weather, tariffs being frozen for 500,000 of our poorer households and action being taken to ensure consumers with pre-payment meters are not being fleeced. However the Opposition have warned that the measures are of no immediate benefit to the 5.4 million people who are living in fuel poverty.

So who is eligible for an insulation grant? Anyone aged over 70 is entitled to a grant which covers the entire cost of insulating a home. 100% insulation grants are also available to households where any person living in the house receives certain tax credits, benefits or allowances.