The electric vehicle grant of up to £5,000 per vehicle will be introduced from the start of 2011.
Transport Secretary Philip Hammond confirmed this morning (July 28) that the grant, which was promised by the previous Government and then put under review by the coalition Government, would go ahead.
However, while the amount put aside by the previous Government to fund the scheme was £230m, a spokesman at the Department for Transport has confirmed that just £43m has been made available up to the end of March 2012.
He said a decision on whether more or less more money will be provided when the scheme is extended beyond 2011/12 will only be confirmed after a review in early 2012.
Confirmation of the grant's future has been welcomed by the motor industry.
“This is great news for industry and a significant commitment by the new government to create UK jobs in the emerging market for ultra-low carbon vehicles,” said SMMT chief executive, Paul Everitt.
“The UK is well placed to exploit the global opportunities in the transition to low carbon technologies and is already making significant progress through R&D, the low carbon supply chain and vehicle manufacturing.
"The Automotive Council has set some ambitious objectives and today's announcement is an important step in helping to attract new investment and laying the foundations for thousands of new high-skill jobs.”
Duncan Aldred, managing director, Vauxhall Motors, also welcomed the news.
"Today’s announcement is good news for the UK. Stimulation of new low-carbon vehicle technology with incentives assures that the significant investment being made by both vehicle and infrastructure manufacturers will result in more buoyant sales and a fast track to the considerable impact low-carbon vehicles can make on our environment," he said.
"The recent tour of the Vauxhall Ampera in the UK has shown that an extended-range electric vehicle can be accepted as daily family transport, the sector of the market that can have the most impact on both sales and the awareness of the benefits of low carbon transport."
The Government agreed the announcement of this incentive ahead of the completion of the spending review to support the early market for ultra-low carbon cars.
"The Government remains committed to reducing the UK’s budget deficit, but understands the need for certainty for investors who are taking long-term decisions now on where to launch ultra-low carbon vehicles and where to locate future production," it said.
The grant will reduce the up-front cost of eligible vehicles by 25%, capped at £5,000.
It will be open to both private and business fleet buyers.
“The coalition Government is absolutely committed to low-carbon growth, tackling climate change and making our energy supply more secure," said Hammond.
“We are sending a clear signal that Britain is open for business and that we are committed to greening our economy. This will ensure that the UK is a world leader in low emission vehicles.
“We will review the level of the incentive regularly to ensure that the UK remains competitive and taxpayers get value for money. The first review will be in January 2012, at which point we will set the level for subsequent years.”
Business Minister Mark Prisk added: “The consumer incentive will help Britain become one of the leading centres for the design, development and manufacture of ultra-low carbon vehicles.
"It sits alongside public and private sector investment in innovation and infrastructure, leading to the creation of new highly skilled low carbon jobs.”
Energy and Climate Change Secretary Chris Huhne said: “Electric and low-carbon cars are fun to drive and essential to meet our climate targets.
"That’s why we’ll need a massive increase in the number of electric and clean green cars on our roads. Because this is new technology the Government needs to step in to kick start the market which is why today’s initiative is vital.”
The incentive will initially run until 31 March 2012.
The level will be reviewed in January 2012.
Any car eligible for subsidy will have demonstrated compliance against safety and performance criteria.
These criteria will be published shortly at www.dft.gov.uk/olev.