Scrap this

February 10, 2010 3:33 PM

Isn’t it ironic that the Government are increasing motoring taxes and punishing people for driving at the same time as introducing new policies to encourage us all to buy new cars? Well, in theory the car scrappage was meant to do just that. And there are some in Westminster who claim the scrappage scheme was a significant factor in the 0.1% growth that meant Britain was – finally- out of recession.

In fact the Government are so proud of the scheme that it is going to be extended an extra month until the end of March. Reports argue that poor January sales coupled with the end of the scrappage scheme have made ministers fear we may go back into recession. So fear not because our knights in brand spanking new cars won’t be gone just yet.

But - on the bright side – no more money is being ploughed into the scheme. The extension is merely to reach the 400,000 vehicles that could be scrapped under the scheme. So at the end of March car manufacturers who enjoyed increased car sales will likely feel the pangs of famine after the feast.

The reality is that this kind of stimulus spending rarely does much for economic growth.  Big deficits hurt economic confidence and threaten to mean higher interest rates.  And evidence from America suggests that similar car scrappage scheme merely brought car purchases forward and once it finished major car manufacturers’ sales – GM, Ford and Chrysler – began to plummet. And, of course, because Britain is no longer home to major automobile manufacturers the scrappage scheme has most likely helped firms abroad more than it has helped us out of recession. As the Economist noted 22% of the cars produced in Britain are sold here and only 14% of those bought in Britain are made here.

Amazingly the Government are going to extend the principle of paying people to scrap useful machines, they still think that is the path to a healthy economy.  Look out for the boiler scrappage scheme, announced in the Pre-Budget Report and coming soon!Isn’t it ironic that the Government are increasing motoring taxes and punishing people for driving at the same time as introducing new policies to encourage us all to buy new cars? Well, in theory the car scrappage was meant to do just that. And there are some in Westminster who claim the scrappage scheme was a significant factor in the 0.1% growth that meant Britain was – finally- out of recession.

In fact the Government are so proud of the scheme that it is going to be extended an extra month until the end of March. Reports argue that poor January sales coupled with the end of the scrappage scheme have made ministers fear we may go back into recession. So fear not because our knights in brand spanking new cars won’t be gone just yet.

But - on the bright side – no more money is being ploughed into the scheme. The extension is merely to reach the 400,000 vehicles that could be scrapped under the scheme. So at the end of March car manufacturers who enjoyed increased car sales will likely feel the pangs of famine after the feast.

The reality is that this kind of stimulus spending rarely does much for economic growth.  Big deficits hurt economic confidence and threaten to mean higher interest rates.  And evidence from America suggests that similar car scrappage scheme merely brought car purchases forward and once it finished major car manufacturers’ sales – GM, Ford and Chrysler – began to plummet. And, of course, because Britain is no longer home to major automobile manufacturers the scrappage scheme has most likely helped firms abroad more than it has helped us out of recession. As the Economist noted 22% of the cars produced in Britain are sold here and only 14% of those bought in Britain are made here.

Amazingly the Government are going to extend the principle of paying people to scrap useful machines, they still think that is the path to a healthy economy.  Look out for the boiler scrappage scheme, announced in the Pre-Budget Report and coming soon!

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