Motorists will be spared any increase in fuel duty for six months, but gas-guzzling vehicles will incur a new “showroom tax” of up to £950.

Alistair Darling deferred the 2p a litre increase, due on April 1, until October. He also announced that fuel duty would rise by only 0.5p a litre in 2010, the lowest increase for three years.

But a big reform of vehicle excise duty, or road tax, means that motorists will pay an additional £1.2 billion between April 2009 and March 2011.

The Chancellor also quashed speculation that the idea of road pricing had been abandoned. He announced funding for trials next year to examine how charging by the mile would change drivers’ behaviour and how concerns over privacy could be answered.

Rose-tinted specs fail to offer hope

The obvious justification for Mr Darling’s relatively upbeat scenario is that the outlook is fraught with uncertainty

Background

• Darling's first Budget: the main points

• The Chancellor's speech in full

• Darlings first Budget: the reaction

• Chancellor hits the home budget as his debts soar

• Need to know: Budget 2008

The Chancellor delivers a modest Budget

As so often is the case, virtue, in terms of improving public finances, is not now, but at least a year away

Multimedia

• Video sketch: Matthew Parris and Ann Treneman

• Eco-worrier: should we be pleased?

• Green Central: round-up of the green Budget measures

Multimedia

• Red Box: a list of Darling's new enemies

• The winners and losers

• Video: the 'fingers crossed' budget

• Graphic: the new car tax

The trials will also examine the cost-effectiveness of road pricing, which the Treasury believes will replace fuel duty in the long term.

Mr Darling said that the majority of motorists would either pay less road tax or be no worse off. But rates will rise by up to £90 a year for many medium-sized family cars.

Six new road tax bands will be added to the existing seven next year, creating a scale from A to M, which Mr Darling said would encourage motorists to buy efficient cars.

From 2010, band M cars such as the Range Rover and larger BMW and Mercedes models, which emit more than 255g of carbon dioxide per km (g/ km), will be liable for a higher road tax rate of £950 in their first year. Motoring groups described it as a showroom tax because drivers will have to pay it to collect their new cars.

All cars over 160g/km, which is the current average for new cars, will pay the showroom tax. The owner of a two-litre Ford Mondeo, emitting 189g/ km, will pay £210 road tax today, £260 next year and £270 the year after. The showroom tax for a similar new Mondeo in 2010 will be £425.

The 2.5 million cars emitting more than 225g/km in the existing band G will pay £400 in road tax. Band A cars that emit 100g/km or less will continue to pay no road tax for the next three years. Businesses will be penalised for buying any car with above average emissions, under changes to capital allowances for company cars.

Mr Darling said that the Government would urge the EU to adopt a target of 100g/km for the average new car by 2020. This would force manufacturers to make sharp reductions in average engine size and weight. Motorists will have to switch to smaller, less powerful cars or face large penalties.

A report commissioned by the Treasury on low-carbon cars recommended that retailers be forced to give buyers much clearer information on fuel economy and to show how much they could save by choosing the most efficient models in the same class. The report, by Professor Julia King of Aston University, also suggested that all advertisements should have more prominent information on emissions. She said that tax discs should be colour-coded according to the car’s road tax band. However, with 13 bands from next year, this may prove impractical.

Professor King was sceptical about the benefits of biofuels and recommended that the Government should “move the short-term focus to automo-tive technology”. She advocated much greater investment in electric cars.

The Petrol Retailers Association welcomed the six-month delay in the fuel duty increase, but pointed out that drivers would face two rises within six months: 2p in October and another 2p in April 2009. With VAT, these increases will add almost 5p to the cost of a litre of petrol or diesel.

Norman Baker, the Liberal Democrats’ transport spokesman, condemned the postponement of the fuel duty rise. He said: “Over the last ten years the cost of motoring has decreased by 10 per cent in real terms while the cost of public transport continues to rise. The last thing the Chancellor should do now, when public finances are so tight, is throw away an income stream while simultaneously damaging the environment.”Paul Everitt, chief executive of the Society of Motor Manufacturers and Traders, said: “Trying to force people out of high-value cars has no environmental merit and will be seen as a smokescreen for revenue-raising.”

A poll of 1,000 drivers commissioned by the insurance company esure and conducted before the Budget found that 42 per cent planned to buy an environmentally friendly car when they next changed vehicles.

Another survey, by the Environmental Transport Association, found that two-thirds of drivers did not know how much CO2 their cars emitted.

Times Recommends

• London rallies after US rescue of Fannie and Freddie
• Green gives warning of 'double dip'
• ‘Winter of discontent’ looms amid strike action