The price of a gallon of unleaded petrol will top pounds 3 for the first time after the Chancellor announced a 6 per cent rise in fuel duty.
He also unveiled a package of measures to reward the use of "greener" cars, initiatives to encourage workers to share vehicles or to come to work by bicycle, and a crackdown on company car tax-breaks for 1.5 million drivers.
Motoring organisations warned the measures would hit rural drivers and the elderly and accused ministers of raising a green "smokescreen". But environmental groups gave the Budget a cautious welcome.
From 6pm yesterday, duty on unleaded fuel rose by 3.79p a litre. This means a rise in a litre of fuel of 3.79p to around 67p and to pounds 3.13 from pounds 2.91 for a gallon. Leaded fuel duty rose by 4.25p per litre to 74.4p. Diesel rose by 6.14p per litre to nearly 71p.
The 6 per cent rise implements the Government's commitment to "escalate" fuel duty as part of its climate change strategy.
The Chancellor announced a reform of the Vehicle Excise Duty (road tax) on cars based on the level of pollution emissions. VED for all private and light goods vehicles will be increased by pounds 5 to pounds 155 from today. But from 1 June smaller cars with engines up to 1,100cc would pay a rate of pounds 100. From autumn 2000, the rate for new cars will be determined primarily by their carbon dioxide emission rate.
The RAC said that an average motorist driving 10,000 miles a year using unleaded fuel in a hatchback car would be pounds 60 worse off. Edmund King, head of campaigns, said: "Many motorists, such as the elderly, disabled and rural residents are totally dependent on the car."
He said the two-tier VED system was a "tax on luxury not use" as it did not punish drivers of larger cars for heavy mileage. "The Treasury is dressing up tax rises in greenery."
The AA said the rises in fuel duty meant motorists were paying a record pounds 8.50 to the Chancellor for every pounds 10 spent on the garage forecourt. John Dawson, head of policy, said: "The Chancellor's environmental excuses for hitting drivers again with the fuel escalator are wearing extremely thin."
Mr Brown announced a reform of tax on company cars to encourage the use of fuel efficient cars. The current system that cuts the tax by a third for people who do more than 2,500 business miles and by half for more than 18,000 will be abolished in 2002. It will be replaced with incentives to encourage the purchase of cars with lower CO2 emission. Mr Brown said the reform would cost the typical user about pounds 1 a week.
The Chancellor was applauded by environmental groups for removing tax penalties on employers who offer green benefits such as works buses, discount fares and allowances for using cycles.
Tony Bosworth, of Friends of the Earth, said: "This Budget represents the Government's first halting steps towards green economies."
Transport 2000 director Stephen Joseph said: "We're now seeing the tax system starting to swing behind integrated transport and away from rewarding gas guzzlers and business car travel."
The Chancellor said there would be more money for public transport. However, the Government said the details would not be published until John Prescott, the Deputy Prime Minister, returned from India.
The changes are unlikely to meet Mr Prescott's target of cutting the number of car journeys. One think-tank, the Centre for Economics and Business Research, said road usage would be cut by just 0.51 per cent.
Mr Brown offered some good news for the freight industry. VED will be frozen for 98 per cent of all lorries and cut by up to pounds 1,000 for lorries and buses with clean engines.
The Freight Transport Association welcomed the move but condemned the 6.14p rise in duty on diesel, which it said effectively doubled the world price of bulk diesel. "The Chancellor's crude strategy of bleeding the transport industry to pay for Government expenditure should be about helping industry - not stealing from it," it said.
Drivers will also have to pay extra for motor insurance as Insurance Premium Tax rises by 1 per cent to 5 per cent from 1 July, adding pounds 6 to an average household insurance bill of pounds 667.
The Opposition seized on the rises in fuel duty. William Hague, the Tory leader, said: "The Government have taken their persecution of the motorist too far and their damage to the haulage industry too far."