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Government makes millions from scrappage

The Government looks set to make at least £100 million profit out of the new vehicle scrappage scheme.

It will increase the pressure being put on ministers by manufacturers and trade associations to extend the scheme.

Scrappage has fufilled its goal of boosting a significantly depressed new car and LCV market, leading to an estimated  20% boost in sales.

However, the VAT the Government can take from a scrappage deal is greater than the £1,000 subsidy it gives to the owner of a 10-year-old car to buy a new model.

With VAT currently at 15%, the Treasury is in profit whenever a scrappage customer pays more than £7,600 for a car including tax.

The average price of cars bought under the scheme has been £9,000.

This means the Treasury is on course to net £405m in VAT receipts, £105m more than is being invested in the scheme, if the Government ceiling of 300,000 deals is reached.

The scheme looks likely to end in November.

According to the latest figures, more than 200,000 cars have been sold under the scheme and there is mounting pressure on the Government to extend the project.

"To say the scheme has been successful since its introduction would be a mass understatement," says Paul Williams, chairman of the National Franchised Dealers Association.

"But with the retail economic climate still fragile and an increase in VAT scheduled for January 1, 2010, an extension of the initiative is vital."

His call for an extension is shared by the Society of Motor Manufacturers and Traders and a number of manufacturers including Ford and Mazda.

But Prof David Bailey, motoring expert and professor at Coventry University Business School, said: "Much more could be done to help the industry - for example by making support available for the finance arms of car companies, and supporting exports through export credit guarantees. And the support for credit insurance has been heavily criticised.


"Given the fragility of the industry still (we're still a long way off recovery), it amazes me still that the Government has not done more. Remember that we have seen over 35,000 job losses in the car industry so far in the Uk this year.

"Meanwhile, not a penny of the Auto Assistance Programme has yet to reach a single UK based producer."

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