The Government has cut the electric car grant from £3,000 to £2,500 and excluded models that cost more than £35,000.
It says grants will no longer be available for higher-priced vehicles, “typically bought by drivers who can afford to switch without a subsidy from taxpayers”.
Tax incentives, including favourable company car tax rates, will remain in place, however.
The changes are expected to allow the funding to last longer and be available for more drivers, reflecting the growth in the number of cheaper electric cars.
Transport Minister Rachel Maclean said: “We want as many people as possible to be able to make the switch to electric vehicles as we look to reduce our carbon emissions, strive towards our net-zero ambitions and level up right across the UK.
“The increasing choice of new vehicles, growing demand from customers and rapidly rising number of charge points mean that, while the level of funding remains as high as ever, given soaring demand, we are refocusing our vehicle grants on the more affordable zero emission vehicles – where most consumers will be looking and where taxpayers’ money will make more of a difference.
“We will continue to review the grant as the market grows."
The Government has announced a £20 million research and develoment competition to find solutions to the challenges associated with increasing the uptake of zero emission vehicles (ZEVs) and the necessary infrastructure
New Government legislation is also set to end the monopoly on electric car charging at motorway services, by ensuring chargers are reliable and accessible by all.
The plug-in vehicle grant scheme was renewed last year when plug-in hybrids and cars costing more than £50,000 were excluded. It was originally introduced in 2011 and has supported the purchase of 285,000 vehicles to date.
Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT), believes the decision is the wrong move to make. He said: “New battery electric technology is more expensive than conventional engines and incentives are essential in making these vehicles affordable to the customer.
“Cutting the grant and eligibility moves the UK even further behind other markets, markets which are increasing their support, making it yet more difficult for the UK to get sufficient supply.
"This sends the wrong message to the consumer, especially private customers, and to an industry challenged to meet the Government’s ambition to be a world leader in the transition to zero emission mobility.”
The number of electric cars on UK roads is expected to exceed that of diesel-powered models by 2030, research by The AA has found.
Plug-in van customers had been eligible for a 20% reduction on the vehicle purchase price, up to a maximum of £8,000. However, this has changed to 35% of the purchase price for small vans, up to a maximum of £3,000 and 20% of the purchase price for a large van, up to a maximum of £6,000.
The plug-in truck grant, which had provided funding of up to £20,000, has been cut by £4,000. The new grant covers 20% of the purchase price, up to a maximum of £16,000. It will be available for the first 250 orders placed. Grants at the £16,000 rate are also limited to 10 per customer. After the 250-order limit is reached, a maximum grant rate of £6,000 will apply.
The British Vehicle Rental and Leasing Association (BVRLA) also criticised the timing of the decision to cut the plug-in grant.
BVRLA chief executive Gerry Keaney said: “Given the surge in battery electric vehicle adoption, it makes sense for the Government to reconsider where and how it uses grants and incentives, but today’s move is poorly timed and will slow down the transition to zero emission motoring.
"Confidence in electric vehicles and their running costs is fragile, so slashing the grants and eligibility criteria will put a brake on the fantastic market momentum we have seen in recent months.
"This will come as a particular blow for the commercial vehicle sector, where BVRLA members have been working so hard to drive uptake of electric vans and trucks.
"Coming just months before the COP26 summit and as other countries are increasing their zero emission subsidies, this move could also have a big impact on the supply of electric vehicles coming into the UK.”