Economic woes force Chancellor to delay green taxes

Alistair Darling will delay the introduction of the "green taxes" on motorists that will be announced in tomorrow's Budget to reduce the risk of Britain sliding towards recession.

The Chancellor may delay a scheduled 2p-a-litre rise in fuel duty until the autumn, while his plans to impose a "showroom tax" and higher vehicle excise duty on gas-guzzling cars are not expected to take effect for a year. There will also be incentives for people to buy low-emission vehicles.

Mr Darling wants to deliver a "green Budget" to combat climate change and boost Treasury revenues so he can reduce government borrowing. But he will have to scale down his growth forecasts for this year and does not want to jeopardise the economy's prospects by raising environmental taxes immediately.

A six-month delay in the planned petrol-price rise would be seen as a compromise between the green lobby, which wants it to go ahead now, and motorists and business groups, who want it scrapped. The eventual rise, based on current prices, would take the average cost of a litre of unleaded petrol to 107.8p.

Campaigners say the Government should forgo the planned increase because rising oil prices have brought the Treasury a £4bn windfall from petroleum revenue duty from the North Sea and VAT.

Mr Darling, who is expected to forecast growth of 1.75 per cent this year, is confident that Britain will emerge from the global economic slowdown in better shape than most of its competitors. He accepts the need to ensure higher tax revenues are in the pipeline, but does not think that it is right to bring all of them in now – a move which could make the downturn even sharper. But his plans to increase excise duty on beer, wine and spirits are likely to take effect immediately.

The Chancellor will present his first Budget as a package not for the next year, but one to enable Britain to meet the long-term challenges facing it over the next 20 to 30 years.

He is expected to boost tax credits to reassure Labour MPs that the Government remains committed to its target of abolishing child poverty by 2020. But the goal of halving child poverty by 2010 is likely to be missed.

Mr Darling has decided not to impose a windfall tax on energy companies, despite mounting criticism of their huge profits. But he will announce plans to combat fuel poverty. One proposal is to prevent the firms charging more for pre-payment gas and electricity meters used by poor families, which cost them an estimated £255 a year more than consumers who pay by direct debit.

Yesterday, the Conservatives hinted that they will not be able to cut taxes if they win power at the next election. Philip Hammond, the shadow Chief Secretary to the Treasury, said that paying Britain's national debt may have to take priority over cuts in tax. Mr Hammond added: "We are a tax-cutting party by instinct and I very much doubt that it will not be possible to reduce taxation overall in the lifetime of the next economic cycle."

He criticised Gordon Brown for failing to prepare for more difficult economic times and said he had left Mr Darling in a fix: "He can neither significantly increase taxation because of the risks to the economy, nor can he significantly decrease taxation because of the size of the deficit."