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 Governmemt, would go ahead.
However, while the previous amount put aside was £230m to fund the scheme, a spokesman at the Department for Transport has confirmed that just £43m has been made available up to the end of March 2012.
A decision on whether more money will be provided to extend the scheme beyond 2011/12 will only be confirmed after the spending review.
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.