Duty on fuel has risen by 6% above inflation and driven the price of a gallon for most fuels through the �3 mark.

In line with the government's "price escalator", the increase is equivalent to 4.25p for leaded and 3.79p for unleaded per litre. Diesel will go up by 6.14p.

But vehicle excise duty for small cars [1.1 litre or less] is to fall by �55 from 1 June. The chancellor said this would be the first cut in the licence fee for 50 years.

Duty for other cars will rise in line with inflation.

In an effort to promote "cleaner" engines, he froze excise duty for 98% of lorries and introduced further measures to discourage the use of vehicles that damage the environment.

"For buses and lorries with clean engines I am cutting the licence fee by up to �1,000," he said.

Mr Brown said that he would continue to support the more environmentally-friendly ultra-low sulphur diesel fuel with "additional tax advantage" in anticipation that "by the end of the year almost all producers will have switched".

He said he hoped to see a cut in emissions of 20% from the measure.

Arriva, which runs a fleet of 7,000 buses - most of which have been converted - hailed the move as a "Budget for buses", but asked the government to ring-fence car tax revenue for reinvestment in transport.

'Rural investment'

The Budget also introduced company car reforms to encourage use of fuel-efficient cars. Mr Brown said that from 2002 tax would be linked to emissions, at a cost that he estimated to be "around �1-a-week" for a "typical" company car user.

Employers will also benefit from tax-free "green" transport for employees, including car-sharing and employer-subsidised bus schemes.

Friends of the Earth said it gave the chancellor "six out of 10" for his new "green" measures.

Rural transport is set to receive a �120m boost in funding, in addition to more funding generally for public transport.

'Green smokescreen'

Anticipating the rise in fuel prices, the Automobile Association said drivers were "fed up and tired" of hikes and that "enough was enough".

A spokesman said that the government had made a policy of taxing petrol at 6% above the rate of inflation, but that the money was not being reinvested in the transport infrastructure.

"Last year road users contributed �31bn, but less than �6bn of that was reinvested in local transport and improving roads," he said.

The RAC said the hikes were a "green smokescreen" and would cost the average motorist �60-a-year.

'Scotland hit hard'

The Scottish National Party's Treasury Spokesman John Swinney said: "This tax hike hits Scotland hard and rural Scotland harder. We are being asked to pay the petrol penalty for the chancellor's sneaky tax rises."

He said that some Scottish families were facing an extra �50-a-year in fuel bills, while road hauliers could expect a �100,000 "Budget hit".

The Society of Motor Manufacturers and Traders said duty on larger cars would not necessarily target "gas guzzlers".

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