Volkswagen is replacing one of its most popular engines with a smaller, but more powerful and frugal version.

But it comes at a price.

The 1.6-litre FSI petrol engine is found in the Golf, Golf Plus, Jetta, Eos and Passat ranges, but will be replaced with a new 1.4-litre TSI unit.

The original TSI engine combined a supercharger and turbocharger to boost output from the reduced engine capacity.

This new unit, however, dispenses with the supercharger and uses a sophisticated new turbocharger to produce 122bhp. The outgoing 1.6 FSI produced just 113bhp.

Torque figures are also boosted substantially. The 1.6-litre makes 114lb-ft at 4,000rpm, while the new TSI makes 155lb-ft, delivered from 1,500rpm to 3,000rpm.

And, perhaps most importantly for fleets, the new unit brings with it fuel savings.

The claimed combined consumption for the Golf hatchback has gone from 42.2mpg for the outgoing 1.6 to 44.8mpg with the new TSI unit.

Carbon dioxide emissions are reduced from 161g/km to 149g/km, dropping it three benefit-in-kind tax bands.

The incoming engine is available now with a six-speed manual gearbox or, from 2008, Volkswagen’s new seven-speed DSG automatic. Using the DSG ‘box reduces carbon emissions still further.

Of course, there is a catch – the new unit is £150 more expensive than the outgoing 1.6, and £175 more in the Passat range.

However, the rise includes the addition of an autohold function for the parking brake, which was previously a £50 option.