George Osborne makes £550m fuel tax U-turn

CHANCELLOR George Osborne has scrapped plans to introduce a 3p rise in fuel duty in August, following intense pressure from motoring groups, opposition parties and rebel Tory MPs.

• Chancellor George Osborne scraps plans to introduce 3p rise in fuel duty in August

• About-turn came hours after Labour said it would campaign against the increase along with rebel Tory MPs, motorist groups and the SNP

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• Treasury sources claimed U-turn had been discussed as far back as May

In the latest UK coalition U-turn, Mr Osborne pledged the levy will not be increased until next year, a move that will cost the Treasury £550 million.

The abrupt change of policy came just days after ministers claimed the long-planned rise had to go ahead to help clear the deficit.

Mr Osborne’s announcement also came on the day official figures revealed the poorest members of society have borne the brunt of tax and duty hikes under the coalition’s austerity measures.

According to the Office of National Statistics, the poorest fifth of the population spend 31 per cent of their disposable incomes on indirect taxes levied on items such as petrol, up from 28 per cent. The richest fifth saw the proportion they pay increase from 12 per cent to 13 per cent.

The UK government’s about-turn came hours after Labour said it would campaign against the increase alongside rebel Conservative MPs, the SNP and motorist groups, who had been piling intense pressure on the Chancellor to abandon the planned rise in the face of spiralling pump prices.

Explaining the decision, the Treasury said that “larger than expected” savings from departmental budgets, to be set out later this year, had enabled the postponement.

The move marks the fourth major U-turn on policies announced in Mr Osborne’s March budget, following retreats on the so-called “pasty tax”, a new levy on static caravans, and another plan to cut tax relief on charitable donations.

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The Chancellor’s fuel duty decision, by far the most expensive yet, came as a shock, after Prime Minister David Cameron had appeared to pour cold water on any hint of a U-turn at the weekend. Transport Secretary Justine Greening had specifically insisted the duty rise was needed in order to help balance the books.

But Treasury sources said the move had been discussed at a meeting of the “quad” – Mr Cameron, Mr Osborne, Liberal Democrat Deputy Prime Minister Nick Clegg and Treasury Chief Secretary Danny Alexander – as far back as 28 May.

The announcement came on the day Labour’s shadow chancellor, Ed Balls, had signalled his party’s intention to oppose the increase, with the support of the Sun newspaper, prompting claims that Mr Osborne had been forced to act in order to stave off a political mauling.

Mr Balls said last night: “It is the right thing to do. When oil prices are high it is not right to go ahead with a duty rise. What is baffling is that he said in the Budget, ‘I’m going to go ahead’. He has done so many U-turns, I can’t remember anything like this. It is shambolic.”

Coalition sources insisted the announcement was timed to coincide with the last Treasury questions session in the Commons before MPs begin their summer recess next month.

The decision was welcomed by the Scottish Government, which has lobbied the Treasury for lower fuel duty. On Tuesday night, it called on UK ministers to go further with more discounts.

A spokeswoman said last night: “The Scottish Government will continue to call on the UK government to introduce a fuel duty regulator to reduce the rate of duty when wholesale prices rise, and discounts on duty for more remote areas. With record North Sea oil and gas revenues going to the Treasury this year, the UK government must continue to take urgent action to tackle the price of fuel.”

Peter Carroll, founder of FairFuelUK – a body that has gained more than a quarter of a million signatures in opposition to more fuel duty rises – said: “There are serious longer term issues to address on fuel pricing – but for today, we thank the government for listening and acting.”

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AA president Edmund King said: “A duty increase at the same time as the Olympics would have cast a shadow over the UK.” The AA said the decision would save a two-car family an average of £6.41 a month up until January.

The move would have siphoned off £1.6m a day from other consumer spending, Mr King added.

Andy Willox, the Federation of Small Businesses’ Scottish policy convener said: “Many in the small business community, especially in rural and remote Scotland, have no choice but to fill up on a regular basis.”

Glasgow Taxis vice-chairman Stephen Flynn said: “This is a small step in the right direction, as a further 3p fuel duty increase would have been a real kick in the teeth for our drivers, who are finding it hard enough to make an honest living right now.”

But Labour MP Jim Cunningham asked why Mr Osborne did not announce the freeze when other U-turns were unveiled.

The Chancellor said: “Last year we cut fuel duty and froze it. This year we have frozen it again. You should welcome that.”