According to an article in todays' Times Online , plans to give drivers £2,000 to trade in an old car for a new one will help to prop up car plants in France and Germany but do very little to protect British jobs.
The article, based on an interview with Professor Rhys, of Cardiff University Business School, points out that the plan which is currently at an advanced stage, would fail to help British businesses because only 4 per cent of the cars bought u0nder the car scrappage scheme would be made in Britain.
Lord Mandelson plans to spend up to £500 million on the scheme after being impressed by the success of scrappage grants elsewhere in Europe.
But Professor Rhys points out that such a move would ignore a unique feature of the British car industry: 78 per cent of cars made here are exported and 86 per cent of cars bought here are imported.
The situation is quite different in other countries that have introduced scrappage schemes. In Germany, where drivers receive €2,500 (about £2,300) for scrapping a car that is at least nine years old and buying one less than a year old — more than 65 per cent of cars bought are made in German factories.
French factories account for 62 per cent of cars sold in France, where the Government is offering €1,000 for trading in an old car.
Professor Rhys said that any potential benefit of the scheme to the British car industry was further eroded by the absence of small, cheap models made in this country. Experience on the Continent shows that almost all drivers taking part in the scheme would spend their £2,000 grant on a small, highly fuel-efficient car.
Professor Rhys is quoted as saying : “A person who has been driving a nine-year-old car is not going to be able to afford a Jaguar, a Land Rover or even a Toyota Avensis (built in Derby). “We only make two cars that they are likely to buy: the Nissan Micra and the Mini, and these account for 4 per cent of the British market. A scrappage scheme would result in the British taxpayer subsidising vehicle factories in other countries.”
British car dealers would benefit from the scheme, Professor Rhys said, but were likely to take advantage of the grants to reduce the discounts they were currently offering.
“The scheme is almost certain to push up the average retail cost of cars,” he said.
“If people try to say it’s got anything to do with rescuing the British motor industry they either don’t know what they are talking about or they are being disingenuous.”
The Treasury is understood to doubt the benefits of Lord Mandelson’s plan but is under pressure to approve it because the Government thinks it would be popular with motorists. The scheme could be introduced as soon as next month’s Budget.
Last month Angela Eagle, the Treasury Minister, told the Commons Environmental Audit Committee: “Not everybody can afford to buy a new car, even if they have a government grant for scrapping their old one. That is one of the difficulties.
“We are not ruling it out at all but we are still quite sceptical that it is a good use of taxpayers’ money.”
A note from the Treasury to the audit committee said: “Those who are able to purchase new cars after scrapping an old car may have planned to do so anyway. A scrappage scheme is likely to have a large deadweight cost.”
Analysis by the Department for Transport challenges the claim that a scrappage scheme would help the environment. The emissions savings from taking older, fuel-hungry cars off the roads early would largely be cancelled out by the environmental cost of manufacturing new cars.
The Treasury note said: “Initial analysis demonstrates that the costs outweigh the benefits even when the replacement vehicle has better-than-average fuel efficiency.”
Philip Gomm, of the RAC Foundation, said: “Research shows that the optimal trade-in age, from an environmental perspective, is about 18 years.
“We would not want to see any old vehicle being scrapped, irrespective of age, without fully assessing the carbon emission implications of building a new one. Nor is there any point in spending public money on such a scheme where individuals might scrap the vehicles of their own accord.”
The Society of Motor Manufacturers and Traders said that the scrappage scheme would help to protect 600,000 jobs involved in car retailing, servicing and the insurance industry.
Paul Everitt, the society’s chief executive, said: “The scrappage incentive scheme is a popular way for the Government to support the automotive industry and provides good value for money for the taxpayer.
“The increased VAT revenue to government largely offsets the cost of the scheme, yet the positive impact it could have on building consumer confidence and boosting the new vehicle market are extremely valuable to the UK automotive sector.”
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