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The grant is designed to stimulate demand for low carbon vehicles.

Mr Hammond addressed the press at the Society of Motor Manufacturers and Traders' (SMMT) offices in Victoria, London.

From next year, motorists will be entitled to a 'Plug-In Car Grant' of up to £5,000 when buying an electric, plug-in hybrid or hydrogen fuel cell car.

The vehicle must meet safety, reliability, performance and warranty standards set by the Office for Low Emissions Vehicles (OLEV) in consultation with industry.

Mr Hammond said, "The coalition government is absolutely committed to low carbon growth, tackling climate change and making our energy supply more secure.

"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."

Said SMMT chief executive, Paul Everitt: "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.

"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."

Under the terms of the grant, motorists will be entitled to a 25% discount from the list price of the eligible car, up to the value of £5,000.

There are a myriad of plug-in cars in development at the moment from major manufacturers including Renault, Toyota and Vauxhall.