It is the second time George Osborne has scrapped the fuel duty in the last six months. The Chancellor cancelled a similar 3p rise in petrol prices – due to have taken effect in January – in his Autumn Statement in December.
Osborne was under enormous pressure to scrap the duty after official figures yesterday blamed higher prices at petrol pumps for a rise in inflation to 2.8 per cent.
Inflation has remained stubbornly above the 2 per cent inflation target of the Bank of England. And economists warning inflation could hit 3.5 per cent by the summer.
Petrol prices rose by 4.0p per litre compared to 1.9p last year and diesel rose by 3.7p compared to 1.4p last year, as the price of brent crude oil remained well above $100 (£85) a barrel partly as a result of continuing demand from China.
The move by the Chancellor means fuel duty has not risen since the Coalition Government came to power almost three years ago. Mr Osborne said fuel duty was now 13p per litre less than it would have been if he had not frozen the duty. He added this was the equivalent of a saving of £7 every time a family filled up a Vauxhall Astra.
But taxes on petrol are at a near record of about 81p per litre because the higher fuel price means a bigger amount is paid in VAT.
Mr Osborne’s announcement was welcomed by motoring groups.
AA president Edmund King said: ‘A September fuel duty hike would have been the last straw likely to break UK drivers’ budgets and would have led to a summer of discontent.
‘The scrapping is a pragmatic move and will bring some relief at the pumps. Already 76 per cent of AA members are cutting back on journeys, household expenditure or both, due to the high cost of fuel.’
Professor Stephen Glaister, director of the RAC Foundation, said: ‘This news provides breathing space for families being smothered by the soaring costs of motoring, especially the 800,000 households spending more than a quarter of their income on operating a vehicle.
‘Through this move the Chancellor will lose about £1billion a year in duty and VAT income, but tens of thousands of people will be saved from being forced to give up their cars against a backdrop of generally rising running costs.
‘It is welcome that George Osborne has listened to the concerns of the nation’s 35 million motorists about the inflammatory issue of near-record pump prices.’
The MP for Harlow, Conservative MP Robert Halfon, who the Chancellor cited during his Budget speech as someone who had lobbied him on this fuel duty increase said: ‘This was a cost-of-living Budget. It has put fuel in the tank of the British economy.
‘I’m glad that the Chancellor has listened again, and helped the millions of car-owners and businesses who are struggling to fill up their family car. Fuel duty is a toxic tax. It hits the poorest Brits the hardest. We have to keep petrol and diesel prices down.’