Price of fuel to fall by 1p at 6pm tonight and planned increase in April axed

The price of fuel at Britain's pumps will fall by 1p per litre from 6pm this evening.

Chancellor George Osbourne announced a raft of measures aimed at saving money for motorists in today's annual Budget, chief among them today's 1p cut in fuel duty per litre and the scrapping of Labour's fuel duty escalator for the rest of this parliament in favour of a new 'fair fuel stabilsier'.

Duty on fuel was due to rise by inflation plus 1p from 1 April, which would add around 5p in cost to each litre of fuel. But the introduction of the fair fuel stabiliser will see increases on oil and gas production profits from 20 per cent to 32 per cent to fund cuts in fuel duty, expected to raise £2 billion. Labour's fuel-duty escalator would have seen seven incremental increases in fuel duty; next week's rise would have been the third.

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Ed Keohane blog - you pay £40 tax to fill your car

Proposals by Labour to cut VAT on fuel were rejected by Osbourne. After looking into them, he said they would take six years to introduce as they were "illegal". The escalator could be re-introduced should there be a dramatic drop in the cost of a barrel of oil to consistently below $75 per barrel; it is currently at $105 per barrel.

The Society of Motor Manufacturers and Traders has welcomed today's budget. "The outlook is certainly still challenging, but we are encouraged by the impact these measures will have on our sector and the wider economy," said chief executive Paul Everitt.

The last of the fuel duty rises from Alastair’s Darling’s final Labour budget came into effect on 1 January this year, raising fuel duty by 0.76p per litre to just under 59p per litre. Combined with the rise in VAT to 20 per cent from the first coalition budget, which appeared on 4 January, this added around 4p to each litre of fuel, raising the cost of filling an average family car (50-litre tank) by £2.

Osbourne said the overall cost of filling a family car, such as a Ford Focus, had gone up £10 in six months. It had become a "huge burden on families and small businesses".

Other measures introduced in the budget include a freeze on vehicle excise duty for commercial vehicles (although it will rise in line with inflation for passenger cars on 1 April), an increase in approved mileage rate allowance from 40p to 45p (the first rise since 2002) and an extra £100m to help repair potholes on Britain's roads, the same amount as given to councils last year by Labour. Car tax bands will also be eventually changed as part of the "green energy revolution", although Osbourne didn't go into details on the scheme.

Automotive production in the UK could also benefit from the budget, according to Everitt. "We are pleased to see that the chancellor’s plans have a strong focus on manufacturing and making the UK an attractive place to invest," he added.Mark Tisshaw

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