The Commercialising Connected and Automated Mobility competition will offer grants to help roll out commercial use self-driving vehicles across the UK from 2025, creating thousands of skilled jobs over the next decade.
The types of autonomous vehicles that could be deployed include delivery vans, passenger buses, shuttles, and pods.
As a part of the competition, £1.5m will be used to study and explore using self-driving vehicles as a means of public transport. This includes using self-driving vehicles on routes separated from other traffic that could be cheaper and more flexible than new railway lines.
Following the announcement, Minister for Investment Lord Grimstone said: "Self-driving vehicles have the potential to revolutionise people's lives, whether it's by helping to better connect people who rely on public transport with jobs, local shops, and vital services, or by making it easier for those who have mobility issues to order and access services conveniently.
"This funding will help unlock the incredible potential of this new and growing industry, building on the continued development of self-driving technology, attracting investment, and helping make our transport cleaner, safer and more efficient."
SMMT CEO Mike Hawes said: "Self-driving vehicles offer major benefits to society – improving road safety, supporting new jobs and economic growth, and enabling greater mobility for everyone – so the UK is rightly seeking to be at the forefront of this technological evolution.
"Recent regulatory reforms have helped Britain establish itself as a leader in the rollout out of self-driving passenger vehicles, and today's announcement is a significant step towards self-driving public transport and goods delivery services becoming a reality."