Fuel tax hike delayed

By Sumeet Desai

LONDON (Reuters) - The government postponed on Wednesday a rise in fuel duty planned for October for at least another six months because of soaring world oil prices and in a bid to keep the headline rate of inflation down.

The widely anticipated move will rob the Treasury of around 500 million pounds this fiscal year at a time when the public finances are already deteriorating as the economy heads into a slowdown.

Tax on fuel was set to rise by 2 pence per litre on October 1, an increase that had already been deferred from April. Fuel duty had been frozen for several years previously.

"The global credit crunch and sharp rise in world oil prices have pushed up prices at the pump," Chancellor Alistair Darling said in a statement. "Today's decision will help motorists and businesses get through what is a difficult time for everyone."

The government has also come under pressure to scrap proposals for increases in vehicle excise duty for more heavily polluting cars. A Treasury spokesperson said policy on that issue had not been changed.

The Treasury said delaying the increase was also consistent with the government's commitment to support the Bank of England in maintaining low inflation.

But economists calculated the move would have little impact on the CPI inflation rate, which hit a series-high of 3.8 percent in June and is making it hard for the central bank to cut interest rates in order to revive the flagging economy.

"It would have boosted the inflation rate by around 0.06 percentage points," said George Buckley, chief UK economist at Deutsche Bank.