As part of its aim to reduce carbon dioxide emissions to 80% less than 1990 levels by 2050, the government has offered 25% off the price of a plug-in electric car capped at £5,000 (€6,220).
Plug-in cars, such as the Chevrolet Volt, Nissan Leaf, Toyota Prius and Vauxhall Ampera, typically cost above £20,000 (€24,883).
The government expects to see tens of thousands of plug-in vehicles, which have a longer driving range than all-electric vehicles but which still need to be charged, on the roads by 2015. But demand has been weak, said a report by the Transport Select Committee.
In 2011, 1,052 vehicles eligible for the plug-in car grants were registered. The committee said consumer demand was lagging behind and that the subsidy was ineffective because the purchase price was still too high.
"So far, Department for Transport expenditure on plug-in cars - some £11 million (€13.7 million)– has benefited just a handful of motorists," said Louise Ellman, chair of the committee.
"Ministers should not sit back and hope that the government's policy on plug-in cars will reduce transport carbon emissions. Far more work is required to ensure that this programme is a good use of public funds."
Emissions from domestic transport account for around a quarter of the UK's total carbon dioxide emissions, with car emissions accounting for over half of that amount.
There is also uncertainty over the number of charging points being installed across the country.
"It is unclear whether the provision of public charging infrastructure encourages demand for plug-in cars. Indeed, the government does not even have a register of all the charge points installed at public expense," Ellman said.
The government should set milestones for the number of plug-ins it expects to see on the roads so the success of its low-carbon vehicle strategy can be assessed, the report said.