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Government grants for pure electric vehicles (EVs) are to be reduced, while those for currently available plug-in hybrids will be scrapped altogether.
The government has announced that the grant for what it calls category one cars - with CO2 emissions of less than 50g/km and a zero emission range of at least 70 miles - will drop from £4,500 to £3,500.
Grants for category two cars - with CO2 emissions of less than 50g/km and a zero emission range between 10 and 69 miles - and category three cars - with CO2 emissions of 50 to 75g/km and a zero emission range of at least 20 miles - will be stopped.
In practice this means buyers of plug-in hybrids currently on sale, including the likes of the Mitsubishi Outlander PHEV, will no longer get grants, having previously been eligible for up to £2,500.
The new grant rates come into force on 9 November, although the government has warned that they may come into force earlier than this if sales are higher than expected.
The government claims the lowering of the category one grant is due to reductions in the price of EVs, while plug-in hybrids will continue to be supported through lower tax rates, grants for charging infrastructure, and local incentives such as free parking.
Reacting to the news, John Pryor, chairman of fleet operator organisation ACFO, said: "The government's decision to reduce financial support for plug-in vehicles is, quite frankly, bonkers.
"Demand for plug-in vehicles is already extremely limited and the decision to reduce the amount of financial support available through the Plug-in Car Grant is likely to reduce demand still further.
"ACFO, in its 29 October budget 'wish list', called for the government to remove uncertainty around the Plug-in Car and Van Grants by pledging that they would remain in place for the long term.
"The government's announcement not only cuts financial support but gives no certainty to fleets as to how long any cash support will be available if they choose to introduce plug-in vehicles to their fleets in the future."
Pryor said ACFO believes whole life costs for plug-in vehicles will increase as a result of cuts to the financial support available.
He added: "At a time when the government is desperately trying to encourage the take-up of plug-in vehicles to achieve its environmental objectives, it is a decision that is difficult to understand."
Mitsubishi, whose Outlander has long been the bestselling plug-in hybrid in the UK, said it was 'surprised and disappointed' at the government's decision, which it said was 'completely at odds' with the government's stated objective of making the UK a world leader in green mobility.
In a statement, the firm added: "As motorists seek a low-emission, fuel efficient alternative to diesel vehicles, now should be the ideal time for the government to incentivise plug-in hybrid technology, not pull its support, because such technology forms the perfect segue between conventional petrol and diesel powered and full EVs, particularly as the charging network is nowhere near evolved enough to support widespread full EV use.
"A further frustration of the decision is that with the new WLTP regulations coming into effect, only those plug-in hybrids that offer real-world efficiency and a usable EV range would qualify for the grant anyway.
"The Mitsubishi Outlander PHEV is only one of a small number of plug-in hybrids still on sale thanks to its WLTP economy figure of 139mpg, emissions of 46g/km and an EV range of 28 miles."
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