As the tight fist of the Chancellor of the Exchequer puts the squeeze on noxious gas-producing vehicles, the motoring world is starting to divide into the haves and have-nots: vehicles that have high, planet-warming CO2 figures...and those that haven’t.

Already there is a certain smugness emerging among the latter and, instead of filling glossy advertisements for their products with boasts about alloy wheels, iPod-compatible systems or Etruscan-style flower vases on the dashboard, they are now able to consider including the sort of information that sounds more like a primary school chemistry lesson.

No longer will it just be the “greens” who might be imagined chatting away merrily about comparative CO2 g/km figures over their Sunday lunch-es of nut roast and lentils; we’ll all be at it because less CO2 out of the exhaust pipe will mean more pounds in your pocket.

And that is why Smart believes that its new, improved little ForTwo nipabout should cheer the Chancellor. At 112-116g/km — depending on engine power — its output of CO2 is certainly not to be sniffed at when the European target for 2012 looks set to be 130g/km across a manufacturer’s range.

But the Smart ForTwo Mk II (on sale from September) is still only a two-seater. So that needs to be taken into consideration when doing carbon footprint sums. Smart’s attempt at a four-seater failed commercially. Despite distinctive styling and a comfortable interior, it was basically a conventional car, sharing most of its mechanical components with the Mitsubishi Colt.

Although the new ForTwo may look much like the Mk I, it is greatly improved without losing the cheeky chirpiness of the original. It has a bigger petrol engine — 1,000cc against 700cc — extra power and an acceptably smooth five-speed (instead of six-speed) robotised manual/auto gear-box, which does not have driver and passenger nodding with every gearshift like a couple of well-mannered visitors from the Far East.

There are three engine power levels — 60, 70 and 83bhp — and Smart is certainly missing a trick by not bringing a diesel version into the UK, which would be congestion-charge and road-tax exempt, so low are its emissions. I tried the 70bhp car in Madrid city centre; it was brisk, responsive and threaded its way through traffic with ease. Visibility is outstandingly good and the driving position near to ideal.

Out of town, the 83bhp version cracked on with great gusto, reaching 62mph in a little less than 11sec. Top speed of all Smart ForTwos is limited to 90mph.

Motorway stability has been improved but the Smart remains short, high and susceptible to side winds. General handling is better than the previous model, although the Mk II still understeers too much.

Longer by 7.5in overall and with a stretched wheelbase, parking is still a doddle, although leaving it nose-on to a kerb is not quite the option it once was; the original was designed to be as long as a big truck was wide. Top city market for Smart sales is Rome, where finding a parking slot at all is often a talking point for days and a fine excuse for an evening celebration.

For its modest growth in size, the ForTwo has more interior space, and luggage room expands by 50 per cent. Interior design is tidier, air conditioning efficiency improved and a GPS system optional.

Price spread for the coupé is likely to be from £6,800 to almost £9,000 for the 83bhp version. There is also a very attractive cabriolet ForTwo, with fully electric opening roof at a hefty £2,000 more.

In the past as the novelty has worn off, some buyers have tended to own the Smart ForTwo for relatively short periods. Now a little bigger and better but retaining the original clever design concept, its added practicality should make it more attractive. And its city car “greenness” would also make it a fine piece of transport from 11 (or even 10) Downing Street, for the daily commute to the House of Commons.

Specification

Car Smart ForTwo 83bhp

Engine Rear, three-cylinder 1.0 litre, max torque 120 Nm at 3,250rpm

Transmission Five-speed robotised manual

Performance 0-62mph in 10.9sec, top speed 90mph

Fuel consumption combined 58mpg

CO2 emissions 116g/km

Price About £9,000

On sale September

Alternatives: Toyota Aygo/Peugeot 107/Citroën C1: Four seats, handy, noisy interior.

Mitsubishi I-Car: £8,999, four seats, agile, roomy, with a 660cc engine, on sale July, could become a cult car — or might just be an oddball.

Ford Ka: The old faithful four-seater is still fine value, fun to drive, easy to park, and always an extremely good secondhand buy.