Osborne set to scrap 1p hike on fuel duty

The Chancellor said he had "heard" protests from motorists being "squeezed" by rising costs at the pump.

The comments, in a speech to Conservative Spring conference in Cardiff, came as one of Osborne's colleagues warned that turmoil in Libya and the Middle East could drive petrol above 2 per litre. International development minister Alan Duncan - a former oil trader - said the current rate of 1.30 could look like a "luxury" if the situation deteriorated.

Signalling he was ready to drop the increase in his Budget later this month, Osborne told delegates: "I know how hard the rises in world oil prices are hurting families in Britain. We've got another of the Labour Party's pre-prepared rises in petrol tax coming this April - one penny above inflation. When it costs 1.30 for a litre of petrol, 80 to fill up a family car, I know people feel squeezed. And I say this to people watching: I hear you."

Despite Liberal Democrat doubts, the Treasury is still believed to be looking at a "fair fuel stabiliser" - where duty is reduced or raised to offset oil price movements.

The Chancellor also said the crucial 23 March package would include measures such as new enterprise zones in England, to boost growth and tackle "forces of stagnation".

"The Budget is going to be unashamedly pro-growth, pro-enterprise and pro-aspiration," he said. "It will look at the planning delays, the bureaucracy and the costs that hold business back and stop jobs being created. Not just in London, or the South-east, but across Britain."

Osborne added that he wanted to see a "manufacturing revival", accusing his predecessors of relying too heavily on financial services.

At least ten "Enterprise Zones" are to be introduced in England, in a scaled-down revival of the Thatcher government's flagship urban renewal scheme. The zones will be targeted in areas of "high growth potential" and offer incentives such as simpler planning rules and "even lower" taxes for firms. Councils will also be allowed to keep revenue from business rates so it can be ploughed back into the local economy.

No enterprise zones will be located in Scotland, however, despite calls for at least one around RAF Kinloss, which is being closed as part of UK defence cuts.

Critics also warned that the 100 million of funding available over four years is a fraction of the billions that were given to Labour's Regional Development Agencies.

Shadow chief secretary to the Treasury, Angela Eagle, said Osborne was offering "nothing more than platitudes for millions of families facing the squeeze". She called on the Chancellor to reverse his VAT rise on petrol, which she said has added 1.35 to the cost of filling a 50 litre tank.