UK To Extend Car Scrappage Scheme: Reports

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The UK business secretary Peter Mandelson is set to announce the government's decision to extend the car scrappage scheme, British media reports said on Monday.

The BBC and Sky News reported that Mandelson is expected to make the announcement in his Labour Party conference speech. Carmakers have been calling for an extension of the scheme to support sales and save jobs.

The existing British car scrappage scheme offers an incentive of GBP 2,000 to motorists who buy a new car, scrapping their old vehicles, which are used for more than ten years. The scheme that was introduced in May 2009 is set to last until the end of February 2010, or until government funding of GBP 300 billion runs out. The funding is available to scrap up to 300,000 vehicles.

The Sky News reported that the government is set to announce that an extra 100,000 will now be eligible. Further, Mandelson is also expected to say that vans need only be eight years old before they can be traded in.

In a recent letter, various industry associations led by engineers' group EEF urged the Chancellor to extend the car scrappage scheme or run the risk of undermining any nascent recovery and sending UK manufacturing into a double dip recession. The trade associations pointed out that the UK scheme, together with those in other EU countries, has been successful in stemming the decline in production in a key industrial sector, whilst helping to retain significant numbers of skilled employees directly and in key supply chains.

"It is far from certain that consumer demand for motor vehicles can be sustained in the near future at these levels without government and industry providing incentives to replace older vehicles," the EEF said in the letter dated September 27. "As such, there are clear risks that the recent upward trend will go into reverse once the current scrappage scheme expires."

The scrappage incentive scheme has had a positive impact on car production with one in three cars built in the UK last month for the home market and total volumes starting to stabilise, the Society of Motor Manufacturers and Traders chief executive, Paul Everit said on September 25. However, underlying demand remains weak and the recovery is still extremely fragile, he said. "A continuation of the scrappage incentive scheme through to the original close date of 28 February 2010 would help to sustain growth and bridge uncertainties associated with the ending of VAT discount."

France was the first country in Europe to implement the scrappage scheme in December last year. On September 2, Germany ended its EUR 5 billion scrappage scheme. The U.S. closed its $3 billion "cash for clunkers" scheme late August.

(Market News Provided by RTTNews)