Gordon Brown and Alistair Darling finally scrapped a planned 2p rise in fuel duty yesterday as they bowed to pressure to ease financial stress on badly squeezed families and businesses.

In a long-expected move that cost the Treasury £550 million in lost revenue, the Prime Minister and Chancellor acted to soothe households, hauliers and companies.

The decision followed months of pressure on ministers as the surging price of oil has fed through into soaring prices at the pumps for motorists. The cost of filling a family car has leapt by more than £20 over the past year as petrol prices have climbed to a typical 120p a litre, reaching as high as 132p in some parts of Britain.

Mr Darling announced the planned 2p fuel duty rise in his April Budget but said that he would defer it until October. Yesterday's announcement means that the increase will be put off until April 2009, when a 1.84p rise is being pencilled in. Scrapping that would cost the Chancellor another £1billion a year. The delay is the latest in a series of policy retreats over tax by the Chancellor, including a compensation package to mitigate the scrapping of the 10p income tax band, and U-turns over capital gains tax proposals and so-called non-domiciled residents.

Yesterday's action was hailed by motorists' groups, the haulage industry and business leaders.

However, Mr Brown came under heavy fire from opposition parties, who accused him of playing politics with petrol prices and denouncing the decision as a political fix made with an eye on next week's Glasgow East by-election. Alex Salmond, Scotland's First Minister, whose Scottish National Party threatens to unseat Labour in the by-election, said the concession showed that Mr Brown was a worried man.

The Prime Minister insisted that the move had nothing to do with the poll. The Government would “continue to help hard-pressed families who are facing high fuel bills and high food prices”, he said.

Times Recommends

• ‘Lame duck’ fear for FSA as chief quits
• Storm over bailout of EU's most ailing economy
• Northern Rock to drop 100% savings guarantee