Fuel tax would be slashed to help families cope with soaring prices under radical plans unveiled by the Tories yesterday.

JAMES TAPSFIELD

Fuel tax would be slashed to help families cope with soaring prices under radical plans unveiled by the Tories yesterday.

Shadow Chancellor George Osborne promised to link duty levels to oil costs, so that the government "shared the pain" of rises and "shared the gain" of falls.

The move would have cut 5p off the price of a litre of petrol or diesel if it had been introduced at the last Budget.

Motoring groups immediately welcomed the proposals, warning that drastic steps were needed to ease the pressure at the pumps.

But the government branded the Tories "dishonest", saying the policy would leave a "massive hole" in the public finances.

"Either George Osborne doesn't understand the way tax revenues work, or he's prepared to play fast and loose with the public finances for the sake of a good headline," said Treasury Minister Kitty Ussher. "It is far from clear that there will be a net gain to the public finances from the higher oil price."

The Tories moved to outflank the government amid burgeoning anger over rising fuel and food prices.

There has also been anger over plans to reform the road tax system to penalise "gas-guzzlers", which many believe will punish poorer families with older cars.

Prime Minister Gordon Brown and Chancellor Alistair Darling have already hinted strongly that the 2p duty rise due for the autumn will be suspended.

However, the government is under pressure to do more, amid fears the economy could slip into recession as consumers and businesses struggle to cope with bigger bills.

Speaking on BBC1's Andrew Marr programme, Mr Osborne described his fair fuel stabiliser as a "totally different approach".

"What this would mean is that when the price of oil goes up the fuel duty comes down to help families," he said. "But the quid pro quo is that when the price of oil falls the duty goes up.

"So government is sharing the pain of rising oil prices, but government is also sharing the gain when prices fall." The system would take Treasury predictions for oil prices as a "base" and fuel duty would then be altered if they proved wrong.

The Chancellor predicted in his spring Budget that a barrel of oil would cost around $84 but it has since risen to more than $140. As a result, under the Tory proposals, fuel duty today would have been 5p lower. That would save around £3.50 on filling up a Ford Mondeo or £2.60 for a Vauxhall Astra.

However, if oil prices had dropped below the level predicted fuel duty would have risen to compensate.

Liberal Democrat Treasury spokesman Vince Cable - a former chief economist at Shell - said Mr Osborne was "presuming a knowledge of future trends in oil prices which is not shared by most people who look at these professionally".