The move is in response to the slower than expected introduction of more rigorous EU emissions testing, with the Treasury stating that from April 2016, the 3 percentage point differential between diesel cars and petrol cars will be retained until April 2021, rather than ending in 2016 as originally indicated.

At this point, the Treasury says it is anticipated that EU-wide testing procedures will ensure new diesel cars meet air quality standards even under strict real world driving conditions.

According to the Treasury, this will bring in £280m in tax in 2016/17, £275m for each of the next two fiscal years, and £265m in each of 2019/20 and 2020/21.

Jenny Powley, RAC Business head of corporate sales, said: ‘Company car drivers will clearly be disappointed by this announcement, as diesel engines have come a long way in terms of CO2 emissions since the supplement was introduced in 2002.

‘Many company car drivers will have chosen diesel vehicles this year with the expectation that the supplement would be lifted in April 2016.

‘Of course recent events surrounding diesel engine emissions and testing processes at VW have changed the perception of diesel in the market place. It seems that the chancellor has also been influenced by that as the reasons given for the supplement to remain until 2021, is that EU-wide testing procedures should ensure new diesel cars meet air quality standards by then, even under strict real world driving conditions.’

Details of the extension of the supplement will be included in Finance Bill 2016.