The chancellor Alistair Darling has scrapped the 2p increase in fuel duty.
The soaring price of petrol – highlighted in yesterday’s inflation figures – has prompted the Treasury to backtrack on plans to increase the levy come October. It will, instead, be delayed until next April but is likely to be scrapped altogether in next year’s Budget.
As a result of the u-turn, main road fuel duty rates will remain at 50.35p per litre, and planned increases in road fuel gases, biofuel duty rates and rebated oils rates will also be postponed.
Darling says: "The global credit crunch and sharp rises in world oil prices have pushed up prices at the pump. Today's decision will help motorists and businesses get through what is a difficult time for everyone."
This is the second u-turn regarding fuel duty. The 2p increase was meant to come into effect on 1 April 2008, but Darling, in his March Budget, announced a postponement until October in light of rising petrol prices.
The price of petrol increased by 5.3p between May and June, to an average of 117.6p a litre. In comparison, petrol inflation was just 1.3p during the same period last year.
Despite the delay, pressure from lorry drivers, business leaders and MPs prompted an admission from the government that it would review the issue this summer.
The rise in petrol prices is the direct result of higher crude oil costs; oil recently hit $150 a barrel, and is currently being traded at $137 a barrel.
AA president Edmund King has welcomed the news: "We are delighted that the chancellor has seen common sense. The prospect of extra, government-inflicted pain was not something that road users were looking forward to. Many motorists have endured months of misery and this is a welcome piece of good news for them."
But the Liberal Democrat Party has questioned how the government intends to plug the hole in public finances that the u-turn will create. It estimates that scrapping the policy will cost the Treasury £1 million.
And pressure group, Campaign for Better Transport, says the move is a step backwards.
“The government has taken a huge step backwards which has condemned us to more traffic, more pollution and more CO2 emissions," says its campaigns director Jason Torrance. "The government must get some backbone and invest fuel duty in public transport and provide people with much-needed travel choices.”
The timing of the u-turn - just one week before the Glasgow Easy by-election - has also raised eyebrows.
George Osborne, shadow chancellor, called the move a "short-term political fix". His party recently proposed offsetting high petrol prices with lower rates of fuel duty and vice versa.
"What the government should be doing is adopting our plans for a fair fuel stabiliser so that motorists get automatic relief when the price of oil goes up, rather than relying on the political whims of the chancellor," Osborne adds.
“Now under pressure, he’s u-turned on one of his car tax measures, surely it can’t be long before he shows his weakness again and backs down on the Vehicle Excise Duty rise on family cars?”