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"From tomorrow, the supplementary charge levied on oil and gas production will increase from 20 percent to 32 percent," Osborne told parliament in his annual 2011-12 budget.</p>
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"Even after this, profits on a barrel of oil are forecast to be higher in the next five years than in the last five years."</p>
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Osborne said the move would raise an additional £2 billion for the state coffers.</p>
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The budget was delivered one day after data showed that annual inflation surged to a two-year peak of 4.4 percent in February, driven partly by record prices for diesel and petrol (gasoline).</p>
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Oil prices have hit two-year highs above $100 a barrel owing to unrest in North Africa and the Middle East.</p>
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Osborne meanwhile said the North Sea tax hike would be flexible and allow for heavy falls in the price of crude oil.</p>
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"I don't want important investment on the North Sea lost. So if the oil price sustains a fall below $75 ... we will reintroduce the escalator and reduce the new oil tax in proportion.</p>
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"That is how it will work -- no escalator when the oil price is high -- no extra tax on the profits of North Sea oil profits if the price falls or stays low -- that's the fair fuel stabiliser.</p>
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"This is a result for Britain's hard-pressed families. I've made sure that there will be no fuel duty rise this year, I've cancelled the fuel duty escalator when the oil price is high," Osborne added.</p>
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The Chancellor also announced plans to cut fuel duty in a further move aimed at reducing motorists' costs.</p>
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