Skoda Citigo 1.0 S 3dr

You'll have to dig deeper in your pockets to buy the Skoda, but it’s worth every extra penny. Not only is it spacious inside and cheap to run, it has the refinement and comfort to rival cars that cost thousands more. The only real criticism is that the entry-level S model is so sparsely equipped.

If Renault-owned Dacia succeeds in the UK, it won’t be the first manufacturer from Eastern Europe to flourish under the stewardship of an established player.

Look at Skoda. After more than two decades of Volkswagen ownership, the old jokes and budget image are ancient history. Yet it hasn’t forgotten how to make a great low-cost car. In fact, our reigning Car of the Year, the Citigo, redefines what to expect from a sub-£10k car.

The simple, yet perfectly proportioned, exterior styling is hard to fault, and once you get inside, the tactile, high-quality switchgear and smart dashboard exceed expectations.

The model in our pictures is a more generously equipped Citigo SE, but even the entry-level S tested doesn’t feel like a cheap car and it makes the Dacia cabin look seriously low-rent and very old-fashioned.

Admittedly, manually operated windows and mirror adjustment are clues to the low list price, and you don’t get a height-adjustable driver’s seat or ‘tilt and slide’ access to the rear as standard – you have to specify the £350 Comfort Pack for these useful additions.

Yet even without it, the Citigo’s driving position is good; the seats are comfortable and there’s little about the cabin that leaves you feeling short-changed.

Even passengers fare well, because despite its compact dimensions, the little Skoda actually provides as much space for rear seat passengers as the Sandero. And while the Citigo gives away 69 litres of luggage space to the Dacia, its 251-litre boot is bigger than either city car rival’s.

What sets this car apart is the driving experience. All the controls are naturally weighted and the little Skoda feels like a far bigger and more expensive car.

It’s easy to drive and nimble, outhandling all its opponents in this test, plus it feels far more at home on the motorway. The ride is accomplished, the steering is accurate and there’s none of the day-to-day compromises you’d expect from a small city car.

The eager three-cylinder engine delivers its 95Nm of torque low down enough to ensure the Skoda doesn’t feel sluggish compared to its more powerful rivals in this test. Add in a snappy gearshift and strong brakes, and it’s hard to fault the driving experience.

And while it’s the second most expensive car here, strong residuals and a reputation for great customer service – Skoda dealers came second in our Driver Power 2012 satisfaction survey – make the Citigo a great ownership prospect. It looks a strong bet for victory.