Since April 2015, businesses have been able to deduct 100% of a vehicle's value from their profit before tax, provided they emit 75g/km or less – itself a lower threshold than the 95g/km cap which preceded it.

The new banding will mean vehicles emitting between 51g/km and 75g/km will fall into the main rate allowance, which means only 18% of their value can be deducted.

This is likely to have the biggest effect on plug-in hybrids, particularly luxury and SUV models where the value of the car is high and CO2 emissions are typically not below 50g/km, though ertain versions of new Toyota Prius and Yaris Hybrid will also be affected by the new threshold.

The Budget also sets a lower threshold for main rate capital allowances, down from 130g/km today to 110g/km in 2018. A lower rate of 8% will apply to vehicles emitting 111g/km or more.

The adjustments are said to reflect the falling emissions of new cars, and predicted to raise £155m in revenue by the end of the 2020/21 tax year. It means company car tax will continue to be based on CO2 emissions, and consultations will take place before 2021 to devise new bands which incentivise the cleanest vehicles.