Driverless cars will be allowed on motorways for test drives as early as next year, chancellor George Osborne will announce in tomorrows budget.
The chancellor and transport secretary Patrick McLoughlin said they wanted to attract investment and enable manufacturers to introduce new technologies to make roads safer and boost UK jobs and productivity.
Trials will take place on a small number of local roads this year, then on motorways and strategic roads next year, to ensure safety before they are permitted for widespread sale and use.
Osborne said: "At a time of great uncertainty in the global economy, Britain must take bold decisions now to ensure it leads the world when it comes to new technologies and infrastructure.
"Driverless cars could represent the most fundamental change to transport since the invention of the internal combustion engine. Naturally we need to ensure safety, and that's what the trials we are introducing will test."
The chancellor is also expected to announce that the government will bring forward proposals this summer to remove regulatory barriers with the technology.
The project will be funded by the £100m Intelligent Mobility Fund, a pot of money set up to support a range of programmes developing driverless technology.
Highways England will run the trials and be responsible for safety. It is expected that individual lanes will be closed for the trials, though roads will remain open.
According to the Treasury, engineers suggest that driverless cars could eventually eliminate 95% of crashes. They will alert drivers of accidents and traffic jams ahead, and interpret information about hazards, increasing the safety of drivers, passengers and pedestrians.
Trials are currently under way on local roads in Bristol, Coventry, Milton Keynes, and Greenwich.
RAC chief engineer David Bizley said: "Trials such as those proposed will be essential in proving the capability and reliability of autonomous vehicle technology. Inevitably, however, motorists will be apprehensive about the idea of sharing road space with driverless vehicles.
"For this reason it will be essential to keep other road users well informed about these trials so they are not surprised or distracted by the presence of a driverless car."