The price of petrol will increase in line with inflation - up two pence per litre, much to the relief of motoring organisations.

Chancellor Gordon Brown said fuel prices had already been pushed up by rising oil prices.

The chancellor also announced plans to freeze road tax.

The AA said it was "pleasantly surprised" by a budget that provided a "welcome respite from ever-rising motoring costs".

John Dawson, the AA's policy director, said: "This is the first time drivers can take some heart from a budget in over seven years."

Mr Dawson added: "His promise to freeze road tax is especially welcome. It shows that he has listened to our view that he has gained an extra one billion pounds in tax in the last 12 months from rising oil prices, and he didn't need to hit drivers again."

'Carry on guzzling'

In the first of a series of measures aimed at cutting vehicle emmissions, the chancellor said he would encourage the use of ultra-low sulphur petrol by setting duty on it to one pence a litre below other petrol from 1 October.

This was welcomed by the National Society for Clean Air, but the organisation said the chancellor had not gone far enough and had "failed to use fiscal measures to seriously tackle carbon dioxide emissions from transport".

Tim Brown of the NSCA accused the Chancellor of "running scared from the motoring lobby by making no more than token gestures".

He said his "message to car-drivers is - Carry On Guzzling".

Cutting emmissions

As an incentive for people to use smaller cars, Mr Brown said from next year he would extend the reduced rate of vehicle tax to cars at 1200ccs or below.

Currently only cars below 1100cc qualify for the cheaper �55 rate.

He also announced that from next March, the most environmentally friendly vehicles will be rewarded by the introduction of a four band vehicle excise duty for newly purchased cars.

The chancellor said under the new system "95% of new cars will pay less than they would under the current system".

The NSCA welcomed this in principle but said the proposed tax differential "would be totally inadequate to affect car-buying patterns".

Vehicle excise duty will be cut for 38 tonne and 41 tonne lorries by �500; for 40 tonnes lorries by �1,800; for all other heavy lorries rates will be frozen.

Mr Brown said "The environmental impact of these tax cuts, taken together with the revenue neutral proposals for company cars - will be a reduction in carbon emissions of one million tonnes by 2010.