WE'RE all looking to save a few quid these days. Across the world drivers are trading down, especially in the UK where the soaring cost of fuel is accelerating the trend towards smaller cars.

But downsizing needn't mean taking a step down in quality, refinement and technology.

The MINI established a viable market for premium-priced small cars nearly ten years ago and BMW's baby has reigned supreme ever since.

But, with all due respect to Fiat and Citroen, the car BMW must fear most of all is the Audi A1 – a pint-sized package of Audi goodness that arrives in the UK on a wave of great expectations.

BMW has good reason to be worried. Audi has gone from third place in the prestige German league to top of the table in a little over a decade. If the company can distill the qualities that make the A3 and A4 so popular it will be on to a winner.

But Audi has tried – and failed – with small cars before.

The Audi 50 launched in 1974 offered unprecedented quality, and such hedonistic features as fitted carpets and a radio, in the supermini class but it didn't sell. Within a year it was withdrawn, rebadged and put back on sale as the VW Polo.

Ironically, the new A1 shares its floorpan with the current Polo and critics will no doubt sneer that it's nothing more than a VW in a party frock – but they would be wrong.

The A1 redefines the class in several respects but nowhere more so than in the cabin. The plastics are top quality – and Audi doesn't cheat with cheaper stuff where the eye doesn't see – while the knurled metal switchgear and the soft damped handles are a tactile delight.

The colour screen multi-media interface is the real McCoy – taken directly from the Audi A8 luxury supersaloon – and the coloured air vent surrounds (picked out in “Wasabi Green” on the test car) have been designed to look like mini turbines. There’s a real sense of occasion that rivals cars costing several times the asking price of an A1.

The view from the driver's seat - quality instrument pack, colour screen and panoramic windscreen - is top notch. Provided, of course, you don't look round. If you do, you'll clock the tight back seating arrangement and the sparse headroom, although, to be fair, it's no worse than a MINI's rear accommodation. It's fine for kids and small adults but anyone over six foot will have trouble.

At least the A1 has a decent boot capacity which, at 270 litres, improves on the MINI by almost 100 litres, but large families would do well to wait for the 5-door Sportback version due later this year.

In a nod to practicality, the door bins have moulds capable of accommodating a bottle of pop and there are twin cup holders in the centre console. An iPod connector can be found in the glovebox – handy for hiding your precious player particularly if, like me, you forget to take it with you.

The wheel adjusts for height and reach and there's a larger than usual degree of front seat height adjustment.

It looks great, too. The single front grille and cut out corners are a couple of other A8 hand-me-downs. Wraparound front lights merge into what Audi calls the A1's “tornado line” - a line which cuts around the whole body and gives it Audi’s trademark one third glasshouse, two thirds body, proportions.

Surprisingly for a small car these days, Audi offers a full range of 1.2 and 1.4 TFSI petrol engines and just the one diesel.

The 1.6-litre oil burner is likely to prove popular with private buyers but the usual diesel grumbles are incompatible with the A1's aura of urban sophistication. I'd be tempted to forgo the extra mpg and opt for the extra smoothness and refinement of the 1.4 TFSI.

As it is, the 1.6D is fine when it's warmed up and the extra weight of the diesel doesn't unduly upset the handling which feels safe and secure – like a bigger car, in fact, which is exactly what Audi set out to achieve.

Is it enough to dislodge the MINI from the top of the premium tree?

The Audi has the better cabin quality (the MINI's interior is nice, but look beyond the retro switches and dials and you'll soon spot where the money has been saved), exclusivity and rock solid residuals. A MINI - even a MINI One - feels sportier so if driving enjoyment is your bag the Brit still has lots to recommend it.

I suspect they will carve up the premium market between them. Drivers who want the genuine big car quality feel will opt for an A1, anyone with a yen for sharp steering and lightning fast reflexes will still look to a MINI. As for the rest? Well, there’s always next time.

The Audi’s certainly more than a cynical marketing ploy. Sure, it shares components with both the SEAT Ibiza and the Polo, but the SEAT has a cheap interior and the Polo isn't cheap enough to make a difference.

The MINI has enjoyed a good run but its reign as the undisputed class champion is coming to an end.

SPEC CHECK: Price: £17,865 Engine: 1,598cc Max power: 105bhp @ 4,400 rpm Max torque: 184 lb/ft @ 1,500 rpm Max speed: 118 mph 0-62 mph: 10.5 seconds Official combined fuel cons: 70.6 mpg CO2 emissions: 105 g/km Road tax band: B Boot: 270 litres Equipment: Electric windows, alloy wheels, alarm, air conditioning, cloth/leather seats, MP 3 connectivity, Bluetooth, CD, split/fold rear seat.