Brown to announce surprise cut in fuel price for 'green' drivers

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Gordon Brown will announce a surprise cut in petrol prices today for ordinary motorists who switch to a new "clean and green" form of unleaded fuel.

Gordon Brown will announce a surprise cut in petrol prices today for ordinary motorists who switch to a new "clean and green" form of unleaded fuel.

Although the Government has insisted since the September fuel protests that the nation could not afford a reduction in petrol duty, the Chancellor will justify his move on environmental grounds.

In his draft Budget, Mr Brown is expected also to announce one of the biggest-ever increases in the £67.50-a-week basic state pension. Campaigners for higher pensions, who met Tony Blair and Mr Brown and lobbied Parliament yesterday, believe the figure could rise by more than £10 a week over the next two years.

Mr Brown is increasingly attracted by "green taxes" and has been impressed that the introduction of ultra-low sulphur fuel for vehicles with diesel engines has cut air pollution in cities by 8 per cent.

The market converted to this "clean diesel" between 1997 and last year, after a 3p-a-litre price differential was brought in.

Now the Chancellor wants to achieve the same process for car drivers and may opt for a parallel 3p cut in duty paid on ultra-low sulphur petrol, which can be used by all cars that run on unleaded fuel.

A 1p differential took effect last month to encourage petrol retailers to offer the new product at filling stations. Customs and Excise estimates that 40 per cent of unleaded petrol sold at pumps will be low sulphur by the end of the 2000-01 financial year, but Mr Brown may try to speed up the whole process by opting for a further cut.

The Treasury gave a clue to his intentions last night by publishing a study showing that successful switch to "clean diesel" enabled Britain to meet European Union standards for diesel emissions in 2005. Stephen Timms, the Financial Secretary to the Treasury, said the introduction of low-sulphur diesel was "not only a success story in its own right, but has also provided a model of how duty differentials can be used to deliver a cleaner environment."

Other measures in today's draft Budget are likely to include a two-year freeze in petrol duty; cuts in road tax for smaller cars; and a reduction in vehicle excise duty for lorries which do less damage to roads and the environment.

The governor of the Bank of England, Sir Eddie George, warned Mr Brown yesterday not to announce "over-generous tax cuts" or a pre-election spending spree in today's pre-Budget report.

In a speech to the Confederation of British Industry conference in Birmingham, Sir Eddie said: "I am surprised by the billions of pounds that some commentators have suggested the Chancellor could give away." He said spending plans already announced by the Government meant private sector demand would have to slow to prevent further rises in interest rates.