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The government has announced it will postpone its 3p-a-litre rise in fuel duty in August until January next year.

The move follows a campaign by some road users' groups, who argued the increase would damage the economy.

Fuel duty will be frozen for the rest of the year, Chancellor George Osborne told MPs, adding that this would benefit families and businesses.

Labour, the SNP, Plaid Cymru and MPs from other parties had threatened to force a Commons vote on the issue.

The Sun newspaper and several Conservative MPs have also been pushing for a change of heart, amid concerns that prices at the pumps are squeezing living standards.

Announcing the postponement of the duty rise, Mr Osborne said: "We are on the side of working families and businesses and this will fuel our recovery at this very difficult economic time for the world."

The government was "doing everything we can", he told the Commons, adding: "The one-off cost of this change will be fully paid for by the larger-than-forecast savings in departmental budgets."

In last year's Autumn Statement Mr Osborne cancelled a scheduled 3p rise in fuel duty for January this year but said another planned rise this August would proceed - although it would be cut from 5p to 3p.

A Downing Street spokesman said the issue had not been discussed at Tuesday's cabinet meeting, adding that it had been "under consideration" for some time.

Labour has called for the increase to be delayed until next January, saying the cost - between £500m and £600m - could be covered by the underspend on the Olympics budget or by closing tax loopholes and reversing changes to tax allowances for pension contributions for those earning more than £150,000.

In the Commons, Mr Balls told the Commons that Mr Osborne was a "part-time, U-turning chancellor" who would "not assume responsibility for his own decisions".

But Mr Osborne said road users would be paying 10p a litre more in taxation had Labour still been in power.

SNP Treasury spokesperson Stewart Hosie MP said: "This is a great result... the chancellor's cave-in comes on the day that our Budget clause, supported by 54 MPs from across nine parties, was due to be tabled ahead of the Finance debates next week."

Plaid Cymru's Westminster leader, Elfyn Llywd, said: "This latest in a string of government U-turns will offer people some relief as they struggle to make ends meet - at least until the end of the year as the chancellor has noted...

"Plaid Cymru alongside the SNP have been calling for a genuine fuel duty stabiliser for nearly a decade and that is yet to be achieved, but at least this further damage has been avoided."

RAC Foundation director Professor Stephen Glaister said: "This is good news for drivers and good news for the country. Given that tax makes up around 60% of the pump price, falls in the price of oil were only ever going to go so far in easing the financial burden on motorists."

Quentin Wilson, national spokesman for FairFuelUK, said: "This is democracy at its very best where a government and a chancellor can review decisions, and act with fairness and common sense. Businesses and hard-working families across this country will breathe a grateful sigh of relief, at least for the rest of this year."

Friends of the Earth's head of campaigns, Andrew Pendleton, said: "The main reason for high pump prices is the cost of oil, which is predicted to rise in the long-term.

"Motorists up and down the country will continue to pay a heavy price if ministers and motor manufacturers don't take urgent action to wean our cars off their oil dependency.

"Ministers must help fast-track the production of electric vehicles and super-efficient cars that burn less fuel - and provide decent alternatives to driving, such as better public transport and safer cycling."

Last week Prime Minister David Cameron said the planned duty rise would be "looked at", but held out little hope for a delay, saying: "I think people sitting at home know that the government doesn't have a bottomless pit of money."

´óÏó´«Ã½ political correspondent Gary O'Donoghue said some Tory MPs were furious that they had been told to defend the government's decision not to delay the fuel rise until a few hours before it was reversed.

"It was absolutely bloody stupid, treating us like idiots," one said.

The cancellation of the duty rise comes after Bank of England governor Sir Mervyn King said he was "pessimistic" about the short-term prospects for the global economy.

He told the Commons Treasury Committee there was "enormous uncertainty" and that he had "no idea" what the outcome of the eurozone crisis was going to be.

Official data shows the government borrowed £17.9bn in May, more than most experts had predicted.