Honda, the automaker which once entered the market reluctantly saying it hated diesels, now claims an industry leading turbocharged I4.

The 1.6-litre 'Earth Dreams Technology' unit, available in the English built Civic hatchback next month, develops 118bhp and offers potential fuel economy of 78.5mpg with CO2 emissions of 94g/km.

That combination of performance and fuel efficiency betters anything on offer from any rival, claimed Honda. And it could lead to Civic sales being trebled in the UK next year, led by a huge surge in fleet business.

Low CO2 emissions results in a company car tax rate of only 13% for business drivers and, currently, exemption from annual road tax. Owners who drive in central London will also not have to pay the GBP10 weekday congestion charge.

Until now the only diesel available in the Civic has been a 148bhp 2.2-litre I4. But Honda admitted there was a "mental block" about engines of two-litre-plus in Civic-sized cars.

"Diesel takes 80% of corporate sales in this sector and 64% are engines of 120bhp or less," the company said. "That market is now open to us."

Three of every four customers for the new Civic diesel are expected to be fleet drivers and Honda hopes to capture business from more than 100 fleets. It has already concluded a deal to sell 40 cars to the Motor Neurone Disease Association.

"This is the most important new engine from Honda in a decade. In time, 25% of all the new cars we sell will be powered by this engine," said a Honda UK spokesman.

The engine is also due to go into the Swindon-built CR-V exported mainly to Europe.

Honda plans to replace every engine in its range with new units under the 'Earth Dreams Technology' branding within three years and is targeting fuel efficiency leadership.

There will be further versions of the 1.6-litre diesel with lower and higher power outputs, five new petrol engines and a small capacity petrol turbo to rival Ford's Ecoboost line which includes a one-litre I3.