End of the road for car scrappage scheme

The government’s Car Scrappage Scheme which aimed to support the car industry comes to an end today with a reported loss to the Treasury and a large boost to the South Korean motoring industry.

From the beginning the scheme has had its critics, many of them within the UK car industry itself.  Following the announcement of the scheme in March 2009 Brian Spratt, chief executive of the Automotive Distribution Federation said:

“It’s a misuse of taxpayers’ pounds to purchase and crush perfectly serviceable vehicles and it’s a nonsense to think it will meet any long-term economic goals for UK plc. As a sensible idea it is a non-runner.”

However, the scheme pressed ahead on a promise of UK job creation and economic stimulus that has changed over time.

At the outset Department for Business, Innovation and Skills (BIS) officials thought that the £400 million scheme, which provided consumers with a joint Government and industry subsidy worth £2,000 towards a new car or van, could create a short term boost for the economy. It is reported today that the scheme “saved 4,000 jobs“. But the scheme has not resulted in additional tax receipts. Last autumn, the National Audit Office published estimates putting the loss to the taxpayer at £18 million over the long-term.

The National Audit office outlined that the two factors that made the car scrappage scheme a loss leader:

• a prediction that most sales through the scheme would have happened anyway; and

• some 85 per cent of vehicles sold in the UK are imported.

This investment into putting 400,000 new cars onto our roads couldn’t come at a worse time. Car traffic increased by 85 per cent between 1980 and 2008, with resulting congestion on our roads estimated by the Cabinet Office to cost the wider economy over £10 billion per year in English urban areas alone.