Car scrappage scheme reaches the end of the road

The Business Secretary, Peter Mandelson, used a speech this week to announce the car scrappage scheme had run its course and it now seems highly unlikely that it will be extended in next week’s pre-Budget report.

“The longer you make any sector or industry dependent on government, the harder it will be to wean that industry or sector off,” he said.

The ‘propping up’ of the car industry in this way has despite criticism from environmentalists and financial experts alike.

The £400million scheme is credited with 270,000 new car and van sales, although it is impossible to say how many of these vehicles would have been bought anyway.

Environmental benefits of scrappage schemes

The new vehicles bought under the initiative emit 25 per cent less carbon than those that are scrapped, but the ETA has calculated that the scheme will cost the government £370 per tonne of CO₂ emissions avoided – the environmental cost of CO₂ is widely accepted as being nearer £80 per tonne.

Director at the Environmental Transport Association (ETA), Andrew Davis, said: “This is little more than a panicked way of propping up the industry as, given time, those cashing in the grants would most likely have bought the new car anyway.”

“Car scrapping initiatives are often mistakenly labelled as green because they subsidise the purchase of cars that are usually, more fuel-efficient than those they replace, but the schemes are by their nature wasteful and routinely fail to take into consideration the amount of energy required to build a vehicle in the first place.”

Economic benefits of scrappge schemes

An editorial in the Financial Times expressed a view similar to the conclusion reached by a study by a German economics institute, which criticised scrappage schemes for the way in which they distort competition, create the need for further state intervention and compensatory measures in other branches of the economy.

The Halle Institute for Economic Research says of the German scrappage scheme: “Behind these payments stands nothing more than the subsidising of an individual branch of the economy – with all the negative distorting effect that such favourable treatment brings…”