Government shelves fuel tax rise

The government last night shelved a planned increase in fuel duty as it sought to defuse the possibility of politically damaging protests from motorists and road hauliers in the run-up to the election.

As oil prices in New York last night edged close to their highest levels for 21 years, the Treasury minister John Healey told the Commons that Labour was postponing the 1.4p a litre rise in duty due to come into force on September 1.

Motoring organisations welcomed the decision, which was brought forward after it became clear that petrol prices might jump in August in response to the rising cost of crude.

Ministers had hoped the oil cartel Opec might agree at a scheduled meeting this week to pump more oil, which would have offered the prospect of lower prices.

However, Opec's decision to delay its meeting until September left the government facing six weeks of uncertainty in which it feared a rerun of the fuel protests in September 2000. "With the next meeting of Opec ministers now moved from July to September, and in light of the continuing uncertainty in the oil market, we have decided to keep the planned increase ... under review," Mr Healey said.

Bert Morris of AA Motoring Trust said: "We have said that Gordon Brown should not increase duties on petrol further until the price of petrol in the UK moves into line with the EU average, so this is good news for motorists."

Susie Haywood, of the RAC, said: "We welcome this move by the chancellor ... We have said recently that including the depreciation costs, the monthly cost of running the average car is now more than the average mortgage."

Friends of the Earth said: "We are very disappointed that the chancellor has chosen to retreat in the face of opposition to this important policy decision, especially on the day when the transport white paper confirms that fuel prices are one of the most effective means of limiting the environmental impact of transport growth."

Mr Brown announced in the budget in March that the increase in fuel duty would not come into force until September 1 and reaffirmed the decision in June when the price of crude in the US hit $42.45 a barrel, its highest since the early 1980s.

A pledge by Opec last month to increase production led to a temporary fall in prices, but strong global demand and terrorist attacks in the Middle East have seen the cost of crude creeping back up. In early trade in New York yesterday, US crude stood at just over $42 a barrel amid speculation that it could rise towards $45 over the next few days.

A Treasury spokesman said the original decision to postpone the fuel increase would cost the exchequer £300m and the new delay a further £150m.

He said the improvement in the public finances shown up in official figures yesterday had made the decision on fuel easier to make. Data from the Office for National Statistics shows tax revenues are up in response to faster growth.