Fuel duty rise delayed

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The widely anticipated move will rob the Treasury of around 500 million pounds this fiscal year at a time when the public finances are already deteriorating as the economy heads into a slowdown.

Tax on fuel was set to rise by 2 pence per litre on October 1, an increase that had already been deferred from April. Fuel duty had been frozen for several years previously.

"The global credit crunch and sharp rise in world oil prices have pushed up prices at the pump," Chancellor Alistair Darling said in a statement. "Today's decision will help motorists and businesses get through what is a difficult time for everyone."

The government has also come under pressure to scrap proposals for increases in vehicle excise duty for more heavily polluting cars. A Treasury spokesperson said policy on that issue had not been changed.

The Treasury said delaying the increase was also consistent with the government's commitment to support the Bank of England in maintaining low inflation.

But economists calculated the move would have little impact on the CPI inflation rate, which hit a series-high of 3.8 percent in June and is making it hard for the central bank to cut interest rates in order to revive the flagging economy.

"It would have boosted the inflation rate by around 0.06 percentage points," said George Buckley, chief UK economist at Deutsche Bank.

The loss in receipts to the government, meanwhile, will be offset by the rise in North Sea oil revenues. These were forecast on the basis that oil would cost 84 pounds a barrel. It has soared to $146 this week before tumbling.

"In any case, the key influence on the public finances will be the downturn in the wider economy, which is set to push borrowing well above the Chancellor's forecasts," said Jonathan Loynes, chief UK economist at Capital Economics.

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