Car scrappage scheme still makes my blood boil

by Ed Bowsher on 21 September 2009  |  12 comments
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Claims that the car scrappage scheme pays for itself are self-serving nonsense.

"Because scrappage sales are purely incremental, the VAT earned on them has made it a self-funded scheme. To say the scheme has been successful since its introduction would be a massive understatement. But with the retail economic climate still fragile, an extension of the initiative is vital"- Paul Williams, chairman of the RMI National Franchised Dealers Association. 

Nonsense!

The quote comes from an article in Saturday's Independent. It's a good article, not just because it includes a quote from me, more importantly because it makes the point that the car scrappage money is probably going to run out in October. So if you want to take advantage of the scheme, you should head off to your local car dealer very soon. 

So why did the quote from Paul Williams annoy me so much? 

Well, I think it's self-serving nonsense. He says that scrappage sales are 'purely incremental.' I say: How on earth does he know? 

It's at the very least theoretically possible that a beneficiary of the scheme might have bought a car regardless of the £2000 incentive. Who's going to turn down £2000 if the money is there? 

And it's not just people who would have bought a car regardless in 2009. I suspect there are some people out there who have brought forward a purchase from 2010 so that they could take advantage of the scheme. 

In other words, the scrappage scheme might have boosted VAT receipts now, but at the expense of lower VAT receipts next year. 

So it's impossible to prove that the scheme is 'selif-funded.' It's also highly unlikely. Williams' comment is special pleading from a molly-coddled interest group.

Don't get me wrong, I've been a supporter of the government's fiscal stimulus and I think it should continue for a while yet. I just think the scrappage scheme is a particularly stupid form of stimulus. That's because a large part of the money is leaking to manufacturers outside the UK. So the only real beneficiaries of the scheme are car dealers and I see no reason why they should receive special favours. 

When it comes to a fiscal stimulus, I much prefer tax cuts that help a larger number of people or public spending on infrastructure. 

One final point: the scrappage scheme is not environmentally beneficial. Sure, newer cars tend to emit less carbon than old bangers. But large amounts of energy are also consumed when cars are manufactured, so the equation is much more complicated than car scrappage fans would have you believe. 

If you really want to help the environment, get the bus.....