Labour forced a Commons debate on the issue this week to put pressure on ministers to act.

Shadow chancellor Ed Balls said: 'At a time when world oil prices are going up, the Tory VAT rise is making things worse.

'It is putting an extra £1.35 on the cost of filling up a 50-litre tank and adding to the growing cost of living for families on low and middle incomes. George Osborne needs to stop dithering and take immediate action to help hard-pressed motorists.'

Shadow Treasury minister Angela Eagle wrote to Lib Dem MPs, asking for their support, and saying: 'The VAT rise in January was the wrong tax at the wrong time.'

In response Justine Greening, Economic Secretary to the Treasury, said: 'Ed Balls has got his facts wrong. Labour are proposing a tax cut that is illegal under EU law – a law they negotiated in 2009.'

However, Mr Balls says that it is possible to get permission from the EU for a specific cut on fuel VAT.

The Labour motion was rejected by MPS by 301 votes to 236 – a majority of 65.