Boris Johnson, the Mayor of London, has scrapped plans to make owners of gas guzzling cars pay a £25 congestion charge – costing the taxpayer an estimated £400,000.

The increased charge, which was planned by his predecessor Ken Livingstone, had angered owners of so-called “Chelsea tractors” who said they were being unfairly targeted.

Porsche, the luxury sports car specialist, had begun a legal challenge to the proposal earlier this year. It was withdrawn by Mr Johnson today and a court ruled that Transport for London should pay Porsche's legal costs, estimated at the six-figure sum.

Mr Livingstone had planned to raise the charge for vehicles with the highest carbon dioxide (CO2) emissions to £25 in October.

Conversely, he had planned to scrap the £8 charge for vehicles with the lowest emissions. Mr Johnson claimed that would have added to congestion.

The Mayor said: “I am delighted that we have been able to scrap the £25 charge, which would have hit families and small businesses hardest. I believe the proposal would actually have made congestion worse by allowing thousands of small cars in for free.”

The higher charges were due to come into force on October 27, with the £25 charge applying to vehicles emitting more than 225 grams of carbon dioxide per one kilometre, as well as those registered before March 2001 which have engines larger than 3,000cc.

Of cars currently being driven in the congestion charging zone, 17 per cent would have been liable for the £25 charge.

The decision comes just one week after Mr Johnson announced he would review the western extension of the congestion charge, another major policy of his predecessor’s.

Mr Livingstone said the scrapping of his charge was a “further blow” to London’s attempts to help tackle climate change.

“The claim that £10m has been ’saved’ by scrapping the CO2 charge is entirely false - in reality London will lose £30 million – £60million expected annual revenue from the scheme.”

Porsche had published research that it said showed that the new charge would actually increase car mileage.

Andy Goss, the car company’s Managing director, said: “We were always confident that our legal case was right and that we would win in the end.

“The charge was clearly unfair and was actually going to increase emissions in London.”

Porsche says that it will give its payout to Skidz – a charity which offers youngsters training in mechanical skills and maintenance.

Edmund King, the AA president, welcomed the decision. “Families on tight budgets cannot afford to change their vehicles to suit increasingly punitive council policies that target certain types of vehicle, whether it is for parking permits or the congestion charge.”

Baroness Jo Valentine, chief executive of business group London First, said Mr Johnson had made TfL “see sense”.

“The last thing we needed was to discourage people from using buses, Tubes, cycles and motorbikes by subsidising the use of small cars. Reducing congestion is the best way to cut both air pollution and CO2 emissions.”

However London Assembly Green Party member Jenny Jones said the interest of a few had been put above the “needs of the planet”.