The tax cut, announced at the end of Osborne’s 56-minute Budget speech yesterday, will be funded by a 12 percentage point tax hike on North Sea oil exploration.
A fuel “stabiliser” will also attempt to cushion motorists from some of the pain of higher oil prices.
Duty on petrol will not rise above inflation until the price of a barrel of oil falls below $75, and after that the hike would be 1p above the retail price index rate of inflation.
Fuel duty will rise in line with RPI from 1 January 2012, after Osborne delayed the inflation-linked rise due next week.
Labour lampooned Osborne for keeping the VAT rise on fuel, which the opposition party had lobbied to overturn.
Labour pledged in its 2010 budget to raise fuel prices by 1p plus inflation each year between 2011 and 2014, but oil prices have risen from around $80 a barrel last March to more than $115.
The AA said the fuel tax cut showed that the chancellor had listened to the concerns of motorists.