Osborne vows to get UK economy motoring again as fuel duty cut

After weeks of relentlessly rising petrol and diesel prices – hitting a record high on Tuesday – Mr Osborne cut fuel duty by 1p from last night and halted another 5p increase due to come into force next month by launching a £2bn raid on soaring North Sea oil profits to fill the coffers instead.

Labour’s fuel duty escalator – which would have added an extra penny on top of inflation every year – has also been scrapped unless oil prices plunge again, to the delight of coalition MPs and motorists.

At the climax of a Budget unashamedly focused on getting the economy motoring again, the Chancellor said: “I know that by itself this will not end the pressure on family budgets, but we’ve done what we can to help.”

The cut in fuel duty – mocked by Labour, who claimed that January’s VAT increase had added 3p to a litre of petrol – gave MPs something to cheer after Mr Osborne was forced to admit that independent forecasts had downgraded predictions for economic growth and increased expectations of the amount the Government will need to borrow.

The Office for Budget Responsibility (OBR) said the economy was now expected to grow by 1.7 per cent this year – down from 2.1 per cent – and said that while it would grow stronger from 2013 it warned: “We expect this recovery to be weaker than the recoveries of the 1980s and 1990s.”

Inflation is predicted to remain at up to five per cent this year and Labour pointed to OBR figures suggesting unemployment would be up to 200,000 higher every year than previously predicted – which Shadow Chancellor Ed Balls said could cost an additional £12.6bn in benefits over the next four years.

With little room for giveaways as he refuses to yield in his drive to reduce the deficit, Mr Osborne nevertheless gave squeezed families a boost by confirming they will enjoy a £48 tax cut next year as the basic rate tax threshold was raise to more than £8,000. Unlike this year, higher-rate earners will benefit from the move as well.

But he spent the bulk of his statement setting out a range of measures to get the economy growing again, including a surprise doubling of next month’s cut in Corporation Tax to give businesses a boost.

An £85m rail project in Manchester will cut journeys to Leeds by 15 minutes and increase the number of trains by 50 per cent, while slashing 35 minutes off journeys between Leeds and Liverpool.

Leeds City Region and Sheffield City Region will each host one of the first 10 1980s-style Enterprise Zones, where firms setting up will enjoy business rate discounts worth up to £275.000, fast-track planning and superfast broadband.

Local Enterprise Partnerships will be able to keep all business rates within the zone for 25 years, giving them a stream of funding to boost business development across the region.

Specific sites for the two zones are not yet thought to have been agreed, although Prime Minister David Cameron and Deputy Prime Minister Nick Clegg will reveal the exact location of some of the other sites today.

A radical streamlining of the planning system and the scrapping of £350m of business red tape and tax simplifications will help make Britain the most attractive place in Europe for people to set up business, said Mr Osborne as he called for Britain to be “carried aloft by the march of the makers”.

A total of 24 new University Technical Colleges will be set up to boost skills training, while there will be funding for 100,000 additional work experience placements and 50,000 extra apprenticeships.

There was no relief for hard-pressed publicans, as the Chancellor pressed ahead with a previously announced 7.2 per cent increase in beer duty, which the pressure group Campaign for Real Ale said would raise the price of a pint to £2.84 for real ale and £3.02 for lager.

But travellers will benefit from the freezing of air passenger duty this year, knocking between £4 and £36 off the cost of a flight for a family of four.

And 10,000 first-time buyers will get a leg up onto the property ladder with a £250m shared equity scheme, funded from the banking levy.

Mr Osborne also confirmed that military action in Libya will be financed entirely by the Treasury reserve, easing fears it would put extra strain on the Ministry of Defence.

But he again dismissed Labour calls for him to rein in the Government’s £81bn package of spending cuts, insisting: “Britain has a plan and we’re sticking to it.”

The Budget was welcomed by business leaders, but condemned by Labour as the “same old Tories”.

The budget at-a-glance

• Fuel duty cut by 1p – and next month’s 5p increase cancelled.

• £48 tax cut next year by raising income tax threshold.

• £250m shared equity scheme for first-time home buyers.

• £100m to help repair potholes in roads.

• 21 new enterprise zones to be created.

• Extra 40,000 apprenticeships for jobless young people.

• Consultation on merging National Insurance and income tax.

• Corporation Tax reduced by two per cent next month.

• £50,000 charge for non-doms who have lived in the UK for 12 years.

• The 50p tax rate should be a temporary measure.

• Tax avoidance loopholes to be closed, raising £1bn.

• Air passenger duty rise postponed for one year.

• Inflation expected to remain at 4-5 per cent this year, 2.5 per cent next year.

• Borrowing forecast to fall from £146bn this year to £29bn in 2015/16.

• Annual growth forecast revised down from 2.1 per cent to 1.7 per cent in 2012.