Apr 2009 22

Car Scrappage scheme leaves Government open to huge financial exposure12

Following the release of further details, please see comments below this blog.

Today, the Chancellor announced plans to compensate owners of vehicles over 10 years old who scrap those cars with £2000 toward the purchase of a new vehicle.  The number of cars over ten years old in the UK is about 7 million.  That has the potential to cost taxpayers £14 billion if everyone cashed in on the option.  If only 40 per cent of these car owners scrap their car, the cost would be a staggering £6.6 billion.

While we do not know the exact details of the scheme, i.e. how the scrapped cars are reused or the intended benefits to the industrial sector, the raw data suggests that the scheme could impose a huge burden on the British taxpayer.  Purchasing new cars will inevitably pump money into foreign car companies without guaranteeing any consumer support of British car parts manufacturing.  According to the Economist, only 14 per cent of cars purchased in the UK are made here, clearly indicating that the scheme will benefit foreign firms first.  This means that of the potential £14 billion in credits to new car buyers, there is a chance that as little as £2 billion would go towards the UK car industry.

Again, the full details of the scheme have not yet been released.  When the plan comes into action, the Chancellor may find that the scheme he intended to benefit the UK car industry has done little to help it.  Speculation aside, the potential £14 billion bill is cause for concern.

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  • Simon W

    As always when the chancellor ‘gives’ money back read the small print; the government will pay £1,000, the other £1,000 should come from the car industry. On many deals you can negotiate up to a couple of grand off the price of the car – so this 2k will just go to the dealers.

  • http://www.carmarthenplanning.blogspot.com jacqui thompson

    Very few people who drive a car which is over 10 years old could afford to buy a new one anyway, myself included. Do they live in the real world?

  • David

    The foreign manufacturers who produce small fuel-efficient cars and the dealers who sell them in the UK must be rubbing their hands with glee! As you rightly say, there is very little benefit for the British car plants or their component suppliers.

  • http://twitter.com/MarkFulford Mark Fulford

    The scheme was capped at £300 million. Didn’t you read the detail?
    However, I think it is naughty that the car industry — which agreed to fund £1k of the incentive — has been putting up prices by roughly… £1k.

  • http://peteslettersfromlimbo.blogspot.com Peter North

    As an owner of a clapped out banger I can tell you there is no incentive to take this scheme up. Y’see even with 2k off the ticket price of a new one I still cant buy one as I’m skint. Thats why I have a ten year old banger and thats why everyone with a ten year old banger has one. This is smoke and mirrors.
    But you didnt bother reading the policy anyway so why blog it?

  • http://profile.typepad.com/1223543103s20073 Maria Fort

    Thank you for all your comments so far. The figures above were based on the information in Alistair Darling’s speech itself, in which specific details of the scheme were omitted. In light of further details released since the speech, and helpfully posted here, it seems the scheme is yet more superficial than we orignally thought. The £300 million cap will limit the intended benefits, and the £1,000 subsidy from taxpayers will likely go to dealers before industry. We await further details of the plan and welcome any further comments.

  • Graeme Pirie

    I’m not so sure it’s a bad thing. If it does promote additional sales then on a 10K car, Darling will get £1304 in VAT. Plus he’ll get corporation tax from the car dealers. He can’t lose.
    Quids in – why complain.

  • Cally

    Just typical. I have a car, over 10yrs old, owned for 7 years, registered to me, meet all the criteria EXCEPT the M.O.T. ran out 9th Feb 2009 – No, I didn’t bother spending hard-earned cash to put it through an MOT – coz I was waiting for this scrappage system to come in, hoping it would apply to new or nearly new (e.g. one year old, or even ex-demo garage etc) even though I can’t really afford a brand new car – yes am willing to try & hel[p myself and the ailing car market…. now I suppose I’m stumped. Great. What the hell does it need to have an MOT for if it’s going in the crusher?!!!!! As per usual anything from our Government comes with string attached or small print. Why oh why didn’t we emigrate to Australia like my brother 7 his family – they just said the Oz government is GIVING every tax-payer and student AU900 dollars each – they’ve been there 3 years & qualify for AU4500 dollars; mum, daid, daughter at Uni & tax-payer with part-time job, & younger daughter just in senior school. Now THAT’S what you call helping your citizens. This country sucks.

  • Martin Turvey

    I have just been told by my dealer that the car being scrapped must be currently road taxed and that you cannot get a refund for the unexpired tax. Has anyone else been told of this?

  • Tony

    What a scam! When I heard about it on the radio the minister said that the £2000 scrappage allowance would be on top of any negotiated discount from the dealer. Yeh right! Look at all the ads on TV – the ‘special’ prices all include the scrappage allowance. All that has happened is that the dealers/manufacturers have pocketed the money. One garage was offering a £2000 discount if you scrapped your car and £3000 if you didn’t! Go figure!!!

  • lianne

    well i have actually benefited from this and scrapped my car and got a brand new corsa for 6k, i think its a fantastic incentive to buy a new car, and i feel that no one has cashed in on me, i think its a fab idea, scrap all the old bangers and get nice new ones that are easy on the pocket and better for the environment, Big thanks Mr Darling!!!

  • http://www.bill-save.co.uk Money Savings Expert

    The problem with this is that if like most people who have cars in the uk (me included) and use them on a regular basis then there is no way the car will last 10 years…
    I had to replace me car last year after 6 years due to break down and the fact it started to cost a lot of money for repairs..
    If you do have an old car though and are looking to replace it then the scheme is good if your buying one of the cheaper brands of car…