The Government has given the most encouraging signals yet that electric car subsidy will survive the cuts.

The subsidy, which is due to come into force in January 2011, will allow buyers – retail and corporate – to claim up to £5,000 off the price of an electric car.

However, since the new coalition government began reviewing all spending commitments made by the previous administration, the future of the subsidy has been uncertain.

Now the secretary of state for transport, Norman Baker speaking at the LowCVP conference on low and zero-emission vehicles that the government is committed to not only “sorting out the country’s financial problems” but also continuing the transition to a low-carbon economy.

“We are taking urgent action to manage our debt and transport will play a crucial role in that,” he said. The Department for Transport is already being forced to find £683m in savings – and that is before the findings of the spending review are published in the autumn. The review is expected to propose budget cuts of up to 25% from many government departments.

Despite this, Baker said that the country can’t “sit back and wait” for electric vehicles.

“We are well aware of the need for Government support for electric vehicles,” he said. “We are considering this very carefully and with some sympathy.”

A decision will be made shortly, he said, indicating that potential buyers will know before the autumn spending review whether they will get their electric vehicle subsidy.

A subsidy is desperately needed, say carmakers. Jerry Hardcastle vice president of vehicle design and development at Nissan, which is about to launch its Leaf electric car, said the current price of a battery pack – about the price of a small car – means an EV would not be price competitive without the subsidy. “We do need an incentive,” he said. At least until the price of the technology begins to fall.