Chancellor George Osborne today said he was looking at the possibility of overriding the 1p rise in fuel duty due to come into effect in April.
The Government has come under pressure from motorists to scrap the rise as the cost of a litre of unleaded soared to almost £1.30 thanks to high global oil prices and this month's VAT hike to 20%.
Fuel duty already eats up 58.95p for every litre, on top of VAT of more than 20p. Labour chancellor Alistair Darling announced a further 1p rise this April in last year's Budget.
Asked during a visit to the West Midlands today whether he could do anything about the planned duty hike, Mr Osborne told BBC WM radio: "We can override it, we are looking at that."
The Chancellor appeared to indicate that any relief for motorists may be announced in his March 23 Budget, saying that "if we are able to do something about it we will do it before April".
Mr Osborne also confirmed that ministers were looking into the idea of a fuel stabiliser, so "the Government steps in to try to protect people from the effects" of volatility at the pumps by cutting the level of duty as oil prices rise and increasing it as they fall.
The Treasury later played down any suggestion that Mr Osborne was announcing an intention to scrap the rise.
"All taxes are kept under review as part of the budget process," said a spokesman. "We are not making any announcements outside the Budget."
Business Secretary Vince Cable told a Westminster Press Gallery lunch: "It is quite likely that we are going to get a nasty period of high fuel prices."
On bringing in a so-called fuel stabiliser, to dampen the effects of oil price hikes, Mr Cable said: "It could be made to work. It's difficult, because what is the price around which you set the ups and downs (of the oil price)?
"There are real technical difficulties in operating such a system."
Maria Eagle, shadow transport secretary, said: "The Conservative-led Government is all over the place on fuel prices.
"Each week ministers raise expectations of action but they've still done nothing.
"Warm words from George Osborne about a 1p change on fuel duty are all well and good, but families are paying 3p a litre more at the pump because of the VAT rise he chose to bring in."
Asked whether the Government was now more likely to scrap the fuel duty increase than introduce a stabiliser, the Prime Minister's spokesman said: "The Chancellor said what he said, he's the Chancellor and he's the one making the decisions in the Budget, so I don't think I can add, or should add, to what he said."
The spokesman said the Treasury was looking at the issue of the stabiliser, but added: "Any answers on this are going to be in the Budget."
Edmund King, the president of the AA, said: "A 3.4% drop in petrol sales during the last quarter, at a time when prices were actually falling, indicates that many drivers have reached breaking point.
"Should the Government go ahead with scrapping the fuel duty increase in April, it shows that it understands the plight of millions of drivers trying to go about their daily lives, the drain on consumer spending and the impact on economic revival.
"The AA and its millions of members would strongly support such a move. The Government should then look at the viability of a fuel price stabiliser in a calm and considered manner."Reuse content