Chancellor scraps 3p fuel duty hike

George Osborne has scrapped a 3p rise in fuel duty due in August in a £550 million Budget U-turn.



The Chancellor had been under pressure to abandon the planned rise in fuel prices as household incomes are squeezed by the economic slowdown.

The announcement, made in the House of Commons during a regular session of Treasury questions, surprised many MPs and came hours after Labour had called for the rise to be scrapped.

“We will stop any rise in fuel duty this August, and freeze it for the rest of the year,” Mr Osborne told MPs.

"We are on the side of working families and businesses and this will fuel our recovery at this very difficult economic time for the world".

The change in course is the fourth major U-turn Mr Osborne has made since his “omnishambles” Budget in March. He has also abandoned plans to levy VAT on hot food including pasties and on static caravans. Plans to cut tax relief on charitable donations have also been abandoned.

New tax rules on historic buildings like churches and on landfill have also been altered.

The Office for Budget Responsibility has said that every 1 penny on fuel duty raises £500 million for the Treasury every year.

Treasury sources said Mr Osborne’s announcement will cost £550 million in all, because it covers less than a full year.

The cost will be covered by “larger than forecast” savings from departmental budgets which will be set out in the Autumn Statement later this year.

Treasury sources said the decision to cancel the duty rise had been made “weeks ago”, but Mr Osborne’s announcement appears to have caught even Cabinet ministers by surprise.

Earlier this week, Justine Greening, the Transport Secretary, told the Daily Telegraph that the duty rise had to go ahead in order to help clear the Government’s deficit.

Business groups welcomed the decision.