Chancellor of the Exchequer Gordon Brown said in his pre-Budget Report that the duty discount now enjoyed by LPG, which makes it about half the price of petrol, was no longer justified by the environmental benefits.
He said: 'We will gradually increase the duty rate for LPG over the next three years, setting duty differentials on a path towards a level commensurate with the fuel's environmental benefits. Future differentials for the next three years will be announced in Budget 2004.'
Association of Car Fleet Operators' director Stewart Whyte said: 'The LPG lobby has lost the debate and the Government has decided the environmental credentials of LPG do not warrant its duty differential. This effectively means the end of LPG as a mainstream fuel and companies that have invested in dual-fuel vehicles will be fearful residual values will fall even further. We recognise it is also a significant blow to those manufacturers which have invested heavily.'
A spokesman for the LP Gas Association said despite the setback, the announcement was good news because it provided long-term stability.
He added: 'As an industry we will now be actively engaged in reviewing with the Government the appropriate duty level to target so that it takes into account the most up-to-date information available from the European emissions testing programme.
'We look forward to the creation of a regime that rewards existing customers who have invested in LPG as well as encouraging new customers to commit for the longer term on the basis of proven environmental benefits and cost savings.'
Both Ford and Vauxhall, which manufacturer LPG-powered vehicles, expressed disappointment that the price of the fuel is to rise.
However, Nigel Lock, director of LPG converter The Greenfuel Company, said: 'It is good news for the LPG sector because of the tremendous environmental benefits that come with using Autogas. We're confident that future duty levels will reflect these benefits.'