Petrol taxes to rise again

The Chancellor is to press ahead with a 2p a litre rise in fuel duty. He also plans punitive taxes on gas guzzling cars and incentives to buy low-emission vehicles.

Alistair Darling will put the battle against climate change at the heart of his economic policy.

The rise in prices at the pump, known as the fuel duty escalator, will take the average cost of a litre of unleaded petrol to 107.8p - far above the 70p level which caused the widespread fuel protests of 2000.

Diesel is already an average of 111.9p and neither is likely to fall in the short-term while oil prices remain high, partly due to the plunging value of the dollar.

The fuel duty increase will add to the soaring cost of living by pushing up consumer goods prices.

In a further move to show his green credentials, Mr Darling will announce that Britain's first five-year "carbon budget" - setting out the target of reducing emissions by 60 per cent by 2050 - will be published next year.

There were claims this weekend that he had had a last-minute "wobble" over the rise in fuel duty, but Treasury sources have told the Standard he is determined to push ahead with the 2p-a-litre increase next month.

Motoring organisations have been calling on him to defer it but to do so would leave him short of revenue for income tax cuts due to come into force next month. It would also go against the grain of his pro-green message, aides said. Mr Darling is set to announce a shake-up of car taxation, with people buying the most polluting vehicles heavily penalised and those who go for more environmentally friendly alternatives paying less tax.

Buyers of new "gas-guzzlers" in car tax band G - including Range Rovers and other 4x4s - will be hit with a first-year charge of more than £1,000 in vehicle excise tax, before it reverts to the current level of £400.

Mr Darling will also increase the number of bands from the current seven. Drivers in the lower bands will pay less tax than at present and companies that use greener fleet vehicles fleets will get further tax incentives. Implementation of many of the tax increases, including those on cars, will be delayed for a year. The £1,000 "showroom tax" on new gas guzzlers is recommended in a report on "decarbonising road transport" prepared for the Treasury by Professor Julia King.

Mr Darling will also announce a consultation with the industry on ways in which the carbon emissions of particular vehicles can be made clearer to car buyers. Professor King's suggestions include different coloured tax discs on cars which could allow parking charges, for example, to be set higher for the more polluting vehicles. Mr Darling is expected to announce a switch to a new, tougher policy to encourage greater use of biofuels in cars.

But the overall green tinge to the Budget looks set to be undermined today when Business Secretary John Hutton signals support for a new generation of coal-fired power stations.

His remarks will trigger speculation that he will give the go-ahead to the first coal-fired station since 1984.