Sir John Major, the former Conservative prime minister, sent a political thunderbolt into Downing Street by calling for a one-off windfall tax on the excess profits of the energy companies to fund extra support for the millions of people he said face a choice between eating or heating their homes this winter.

Asserting his party must represent the millions of "silent have-nots locked into lace curtain poverty", he described the profits of the energy companies as unjustified and unacceptable.

In his speech, at a press gallery lunch at Westminster, he urged his party to retain its compassion and he made it clear he regards the coalition's response to energy price rises as a test case for its wider political approach. "Governments should exist to protect people, not institutions."

Major's decision to get involved in one of the main current political battles came as the leaders of the "big six" energy firms were called to give evidence to MPs about the latest round of price increases next week. Major said: "We'll probably have a very cold winter, and it is not acceptable to me, and ought not to be acceptable to anyone that many people are going to have to choose between keeping warm and eating. The private sector is something the Conservative party supports, but when the private sector goes wrong, or behaves badly, I think it's entirely right to make changes and put it right."

His remarks were embraced by the Labour leader, Ed Miliband, who claimed Major had made his argument that David Cameron has not been willing to stand up to the energy companies.

Downing Street, unprepared for the intervention by the normally loyal Major, said the former Conservative leader "has made an interesting contribution, but [the government] has no plans to impose a windfall tax". It also denied there was any need, at this stage, to consider extra help for the poor to cope with their spiralling heating bills.

But Major was unequivocal that the energy firms were profiteering, saying: "I do not see how it can be in any way acceptable that with energy prices rising broadly 4%, in terms of costs, that the price for the consumer should rise by 9 to 10%."

He also rejected the energy companies' argument that the profits were necessary for investment, a case the big six energy companies will reiterate when they appear in front of an emergency session of the energy select committee next Tuesday.

Major said: "With interest rates at their present level, it's not beyond the wit of man to do what companies have done since the dawn of time and borrow for their investment rather than funding a large proportion of their investment out of the revenue of families whose wages have not been going up at a time when other costs have been rising."

In the only respite for Cameron, Major said Labour's rival plan for a 20-month energy price freeze was unworkable. Miliband's policy has dominated the political landscape for five weeks, but Major dismissed his plan, saying: "I think his heart was in the right place but his head had gone walkabout."

Major said his one-off windfall tax would be imposed retrospectively at the end of the winter to fund extra help to those struggling with rising energy bills.

Those close to Major denied that he was floating a policy on behalf of George Osborne, pointing out that if the Treasury was planning such a measure, the chancellor would not want to be seen to be forced into the move by a previous Tory leader. Cameron's has so far responded to the wave of price rises by focusing on creating more competition in the energy market, or urging consumers to seek lower tariffs.

Many coalition ministers have not accepted Major's premise that energy firms are making excess profits, and have instead focussed on cutting green levies to lower bills, something Major did not mention in his remarks.

But the demand for firm intervention from such an authoritative Tory source may well sting Cameron into a big response of his own in the next few weeks.

Major's move will also unsettle No 10 in its call for the party not to adopt a harsh rightwing tone on welfare abuse or to obsess about Europe at the expense of the cost-of-living crisis. "We Conservatives shouldn't be afraid to show that we have a heart and a social conscience," Major said. "If we do we might not only regain seats that are at present no-go areas for Conservatives, but far more importantly, we might transform lives as a result."

Recalling his own modest roots, he warned it was "criminally easy" to overlook the "silent citizens" because they do not "make a fuss, they just get on with their lives".

"If unemployed, they seek work; if employed, they work hard to hang on to their jobs. And how do I know about these people? Because I grew up with them. They were my neighbours, the silent have-nots.

"They are not high-fliers, not financially secure. They're the dignified poor or near-poor and to the shame of decades of politicians – and I include myself in this – there are still millions and millions of them.

"For too many of these people a room with a view is 30 stories up and every day they wake up hoping that the lift will work and that the graffiti on the walls won't be too vile.

Sir Major added: "If we Tories navel gaze and only pander to our comfort zone, we will never win general elections. All the core delivers is the wooden spoon". He also sent a blunt warning to the work and pensions secretary, Iain Duncan Smith, not to obsess about welfare cheats.

He said he wished Duncan Smith well in reforming benefits, but warned "unless he is very lucky, which he may not be, or a genius, which last time I looked was unproven, he may get some of it wrong".

He urged Duncan Smith to listen to some of his critics, warning: "If he listens only to the bean counters and cheerleaders concerned only with abuse of the system then he will fail."