Government scrappage scheme

The scheme announced by Alistair Darling in his budget speech on 22 April 2009 had been widely expected. What wasn’t known beforehand was the detail of how the scheme would operate and who would be entitled to take advantage of it.

The scheme has been in place since 18 May 2009 and early indications are that in the first month of operation, over 60,000 orders have been placed with retailers. At this rate, the total allocation of government subsidy of £300m will be fully utilised before the end of 2009.

There is no doubt that the increased level of interest from the buying public is welcome by retailers and manufacturers alike, but uncertainty remains as to who will be the real beneficiaries. Whether retailers will be able to generate sufficient profits from vehicles sold through the scheme to cover the additional associated costs remains questionable.

The evidence so far suggests that the scheme is providing little or no respite for UK-based manufacturers and their workforce. Indeed, in recent weeks LDV has entered administration and the future of Vauxhall remains in doubt following GM filing for bankruptcy in the US.

Finally, just how much is the scheme going to cost the government? The headline figure of £300m doesn’t tell the full story because on every sale of a new vehicle the retailer is required to account for VAT at 15% (17.5% from 1 January 2010). This means that sales of new cars costing in excess of £6,666.66 (£5,714.29 from 1 January 2010) will generate more in VAT to the Exchequer than the £1,000 subsidy being given.

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