#car scrappage scheme
Should the car scrappage scheme make a comeback?
Mark Hooson. May 09 2013 at 1:23 pm
Back in March 2009, the government introduced a scheme which effectively slashed £2,000 off the price of a new car when you scrapped an old one.
If you had a car more than 10 years old and had owned it for 12 months, the government would give you £1,000 towards a new vehicle for scrapping it. Participating car dealerships also discounted new cars by £1,000.
The scheme ended in March 2010, but if it were still in place you’d now be able to buy a 13- plate Ford Fiesta for £7,995, rather than Ford’s current list price of £9,995.
Some have called for the scheme to be brought back, and say it would boost the ailing economy, while others say it was a never a great deal to begin with, and that it wouldn’t do anything for the nation’s finances.
So should the car scrappage scheme make a comeback? Read on and you’ll see there are some interesting arguments both for and against.
Bring it back
By the time the scrappage scheme ended, at least 330,000 new cars had been sold, accounting for a fifth of all new car sales in the year the scheme ran.
During this time, the average car buyer spent £9,000 for every £2,000 provided by the scrappage scheme. If my back-of-a-fag-packet calculations are correct, then this would have cost the government £330million.
That said, it collected 15% of each sale in VAT, which (based on an average of £9,000 per buyer) amounts to £1,350 per car and a whopping £445,500,000 in total. Given that the government set aside £400million for the scheme, its coffers received a boost of at least £45million.
Bear in mind that with VAT now at 20%, bringing back the scrappage scheme would bring in an extra £22million, if the scheme did as well as last time, hypothetically netting the government £77million.
The government also estimated that the demand created by the scrappage scheme supported around 4,000 jobs at manufacturing plants and dealerships.
Though disputed at the time, there may also have been an environmental benefit to the scheme as at least 330,000 older, dirtier engines were replaced with newer, cleaner and more efficient engines.
According to the Society of More Manufacturers and Traders (SMMT), the average scrapped car was emitting around 182g/km of CO2, and the average new car that replaced it emitted 132g/km.
Those in favour might argue that the boosts to employment, environment and the economy make a compelling argument for bringing the scheme back, but others would disagree…
It didn’t work
The scrappage scheme certainly wasn’t without its detractors, who cited a number of reasons why it wouldn’t be such a boon for jobs, the economy and the environment.
Research from What Car? found that manufacturers may have been increasing the prices of their cars to offset the £2,000 scrappage discount.
According to the research, the price of a Ford Fiesta 1.25 60 Studio three-door went up by just over 30% during the scheme, essentially wiping out the £2,000 scrappage discount. Ford said the increase was made to offset the increased cost of importing foreign-made goods, caused by the weak pound.
The most popular new car bought under the scheme, according to the SMMT, was the Hyundai i10. The Korean car maker has no manufacturing plants in the UK, prompting critics of the scheme to argue it didn’t do enough to support the UK’s manufacturing industry.
Some critics also said the scheme should have been limited to the most economical cars, i.e. those that emit less than 100g/km of CO2 and are currently exempt from road tax.
Others said the increased demand would lead to increased manufacturing. This, in turn, increases factories’ CO2 emissions and the emissions associated with transporting the new cars to forecourts – often from abroad. This, they said, rendered the whole exercise effectively neutral from an environmental perspective.
Given the CO2 emissions associated with building a transporting a new car, it’s estimated that it takes four years before that new car’s cleaner engine starts benefitting the environment.
There was also criticism from the used car sales industry, which wasn’t included in the scheme. Of course this wouldn’t have helped manufacturing, but there are still used cars with more efficient engines than those being scrapped, and the scheme would still have supported jobs in car retailing and maintenance.
Also, the fact that 330,000 potentially road-worthy cars were taken off the road and scrapped meant the used car industry’s stock was depleted by a significant amount. Environmental concerns were also raised about this being wasteful.
Should scrappage come back?
In my opinion, if the government could appease the scheme’s critics by including a focus on British-made, environmentally-friendly cars, and if the manufacturers didn’t try to offset their losses using price hikes, I can’t see why it shouldn’t be brought back.
What do you think? Would it do the economy and environment any favours to bring back the scrappage scheme? Or should it be consigned to the history books?
Sound off in the comments below!