SOARING fuel prices look likely to steer even more drivers toward cars powered by diesel engines in future.

With a gallon now costing nearly £4 – the level that set off nationwide protests four years ago – operating economy has come into even sharper focus in the business transport world.

Add the additional burden of the fresh tax hike announced in the Budget and due to be introduced in September and mpg takes on still greater significance in overall running costs.

Thanks to its inherent efficiency, diesel has always made the most of the fuel it uses, but recent advances in technology, plus turbochargers that deliver huge amounts of torque at relatively low engine speeds, are starting to make it the preferred choice for driving pleasure.

As the world's most prolific diesel producer, PSA Peugeot Citroen has played a leading role in giving fresh appeal to the least attractive power source, and the group's talent gets a good showing in the 307, which is proving a popular challenger to the Ford Focus, Vauxhall Astra and Volkswagen Golf.

And the workhorse unit has put in a refined performance in the 10,000 miles it has powered the Estate S version on our long-term test fleet – so good, in fact, that I'm wondering if there's any worthwhile benefit to be gained from the latest trend toward smaller-capacity diesels.

I've always appreciated the relaxed demeanour of diesel over long trips and this was particularly noticeable aspect of a recent 2,500-mile Continental trek, when the 2.0-litre, 110bhp HDi unit cruised effortlessly at 80mph and returned excellent 48.6mpg economy.

Yet the unit in our car will soon give way to a 1.6-litre HDi of similar output. I've yet to try it in a Peugeot, but I found the smaller motor noisier and less refined at motorway speeds in the Citroen Picasso I drove recently. As the current 2.0-litre engine returns more than 50mpg in more normal driving, it remains the better all-rounder in my book.

I've mentioned the estate's usefulness in previous reports and the tall and wide design of the 307 creates an impressively large load capacity – a feature that was exploited fully when our journey home resembled a booze cruise. Significantly, the extra weight had little effect on the car's lively performance and neat handling characteristics.

With all its components now bedded in, the 307 is running better than it did when it arrived six months ago.

This is a model as well suited to the fleet sector as it is to the family motorist, so it's no surprise that it is already a favourite with UK buyers.

Mileage - 10,209

Company car tax bill 2004/05 (22% tax-payer): £50 per month

Figures based on three-years/60,000-miles