Expensive scrappage

March 31, 2010 10:35 AM

The car scrappage scheme has come to an end today leaving
government to justify its high cost for its supposed benefits. The government
claim that the scheme has saved 4,000 jobs - the cost of the scheme was £400
million – equating to £100,000 of public money per job saved.


And as Tim Worstall pointed out the cost benefit analysis for
these jobs saved is rather bleak:  


“So £100,000 per job saved. Given median incomes of
around £25,000 saving a job for a year costs four times what that job pays for a
year. So we have a multiplier of 0.25…..which really, really, isn’t the sort of
number which gives one confidence in the merits of Keynesian spending. For that
we want a multiplier of over 1.


And as for the idea that such Keynesian spending pays for
itself….well, the tax take on £25,000 is something like £8,000 (income tax plus
NI) so we’re spending £100,000 to get £8,000 back in tax……which again doesn’t
look like such spending pays for itself.”

The car scrappage scheme has come to an end today leaving
government to justify its high cost for its supposed benefits. The government
claim that the scheme has saved 4,000 jobs - the cost of the scheme was £400
million – equating to £100,000 of public money per job saved.


And as Tim Worstall pointed out the cost benefit analysis for
these jobs saved is rather bleak:  


“So £100,000 per job saved. Given median incomes of
around £25,000 saving a job for a year costs four times what that job pays for a
year. So we have a multiplier of 0.25…..which really, really, isn’t the sort of
number which gives one confidence in the merits of Keynesian spending. For that
we want a multiplier of over 1.


And as for the idea that such Keynesian spending pays for
itself….well, the tax take on £25,000 is something like £8,000 (income tax plus
NI) so we’re spending £100,000 to get £8,000 back in tax……which again doesn’t
look like such spending pays for itself.”

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