The research identified the most favourable option for smaller firms as a rebate of 25 pence per litre (ppl), calculated on the distance travelled against fuel purchased in the UK by operators of vehicles of 38 tonnes and above, the weight level most favoured by foreign companies working in the UK and thus providing the most intensive competition.

The FTA is arguing that, although this would reduce the Government's income from these vehicles from around £1 billion to £413 million per year, providing the rebate would boost Government coffers by some £200 million because of increased Corporation Tax take, business growth generating more taxes, new fuel purchases by foreign operators working in the UK, and increased employment leading to higher income tax and national insurance receipts.

"While the postponement of the proposed 2p rise in fuel duty is welcome news for our members, the FPB would like the Government to go further and actually cut VAT on fuel, instead of deferring the increase every six months," said Nick Palin, the FPB's Director of Finance and Administration. "With surging oil prices, adopting the FTA's proposals would at least bring some relief for small businesses."

The FTA believes the move would cost the exchequer around £380 million per year – a sum already exceeded by increased VAT and North Sea oil revenues as a consequence of higher world oil prices. The FPB agrees that the transport industry urgently needs support in the face of a 40% increase in diesel prices over the past year.

"The transport industry delivers the UK economy for the benefit of the whole population. The industry is clearly suffering from the massive increases in the price of diesel whilst the UK operates the highest levels of duty in the whole of Europe," said the FTA's Director of Policy, James Hookham. "With the EU about to remove the present limits on foreign lorries working in the UK, now is the hour for the Government to deliver some practical steps to support the industry."

He added: "After the 2000 fuel crisis Gordon Brown promised to consider the way in which transport is taxed. Eight years later we have seen no progress. The proposals offer practical and relatively economic means of real assistance for our vital industry at such a difficult time. The Government must address these problems."

The FTA has submitted its proposals to the Chancellor of the Exchequer, and to the Prime Minister, the Rt Hon Gordon Brown.