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Motorists will be offered subsidies of up to £5,000 to encourage them to buy electric or plug-in hybrid cars under plans announced by the government.
The strategy also includes plans to provide £20m for charging points and other necessary infrastructure.
The available funding would only be for electric and plug-in petrol-electric hybrids. As such, currently commercially available hybrids, such as the Toyota Prius, would not be eligible.
...they are gunning for a new generation of all electric or plug-in petrol-electric cars, which are expected to go on sale in two years time.
Jay Nagley, an analyst at Spyder Automotive, said the announcement was very significant for the car industry.
"The big problem is that the next generation of electric cars will initially be very expensive to make - manufacturers say about double the price of a petrol car," he told the BBC.
"Without subsidies, nobody will buy them so manufacturers won't be able increase production and get the price down."
In a separate initiative, Chancellor Alistair Darling is expected to reveal an incentive scheme for motorists to trade old cars in for new ones in next week's Budget.
The government is also expected to announce a car scrappage scheme in the Budget on 22 April.
This will provide £2,000 for car owners to trade in their old cars to buy new ones.
The plan is designed to boost demand for new cars and help struggling carmakers who are suffering during the recession.
Similar schemes have proved successful in continental Europe. In Germany, for example, car sales increased by 40% in March compared with a year earlier.