The Prime Minister will have the final say on the introduction of a scrappage scheme designed to lift the gloom in the car and van retail market.

If the scheme, which would give customers a fixed, state-funded voucher, was to get Gordon Brown’s backing it would be introduced no sooner than June, following the Budget on April 22.

The plans have been discussed at the Treasury with Exchequer Secretary Angela Eagle and the Retail Motor Industry Federation.

Eagle is said to be “actively looking into the scheme”.
RMIF director Sue Robinson said: “We got the impression the Treasury was taking the issue very seriously. But Eagle made it clear no decision had yet been made and when it was it would be Gordon Brown who would have the final sign-off.”

The aim of such a plan would be to stimulate the demand for new and nearly-new cars and light vans. The RMIF and SMMT believe up to 250,000 cars and 30,000 vans could go through a scrappage scheme lasting no more than two years. 

It would apply to cars and light vans producing more than 150g/km CO2 and more than eight years old. The voucher worth £2,000 would be put towards a new or nearly-new vehicle.

The scheme would be sold to the public for its environmental benefits rather than a means to boost sales prospects for dealers who suffered a 27% fall in sales in the final months of 2008.

Fears of poor new car sales in March – traditionally the best of the two plate-change months – would also provide additional focus.

In a paper to the Treasury, RMIF chairman Paul Williams said: “The scheme would move the perception away from bail outs and would be seen as an initiative to help all the participants in the industry, including retailers, repairers, car manufacturers and component manufacturers. And at the same time it would remove older and more polluting vehicles from the road.”

Scrappage should appeal to ministers since it would help the Government achieve its target of a 20% reduction of CO2 emissions by 2020 and a market recovery would see an increase in tax from car sales. 

The RMIF’s proposal is based on analysis of scrappage schemes in other countries, including Germany, France, Ireland and Spain. China has a purchase tax cut and incentive scheme.

Robinson said the German scheme was the model for the federation’s plans. German motorists can receive €2,500 (£2,200) for swapping a car which is at least nine years old. 

The European Commission has approved the UK Government’s £2.3 billion of funding announced by Lord Mandelson in January. Reasserting his backing for a scrappage scheme, SMMT chief executive Paul Everitt said: “The clearance of state aid is an important step in sustaining the UK motor industry, but the need for short-term measures to kick-start demand remains critical.”