The Government's New Car Scrappage Scheme

In the last Budget, the Chancellor Alistair Darling announced the government’s new £300 million 'car scrappage scheme' – a financial incentive designed to encourage drivers to buy new cars.

What is The Story Behind The Car Scrappage Scheme?

The scheme was introduced on 18 May 2009, in the hope that people would trade in their ‘old bangers’ and decide to buy brand new cars instead. The scheme is intended to boost the new car market, prevent more job losses in the car industry, help improve road safety, and help to reduce CO2 emissions.

The car scrappage scheme is available to the first 300,000 eligible claimants - or will run until the end of February 2010, whichever is soonest.

Criticisms of the Car Scrappage Scheme

While the government is hailing the scheme as a success already, saying that 35,000 new vehicles had already been ordered under the scheme by the end of May, the car scrappage scheme has attracted criticism from car manufacturers who have been saying that it has actually failed to make any impact on overall sales, and in fact attracts extra hidden charges for the consumer.

Researchers from the price comparison site uSwitch.com told Which magazine that motor insurers are cashing in on the car scrappage scheme by charging what they call a mid-term adjustment fee if customers change their vehicle before their motor insurance policy is due for renewal. It's said to be costing the average driver around £20 a time, although some insurers charge up to £35.

Finance companies are also making money out of the scheme - it pays to do your research if you're thinking of buying a new car on credit. Some finance firms are charging a much higher interest rate for anyone who takes advantage of the car scrappage scheme, in fact some companies who are offering interest free credit on non-scrappage sales are charging up to 10% on deals that involve the scheme.

A recent survey also seemed to suggest that most people who have looked into the scrappage scheme decided not to take advantage of it. Researchers from car price guide Parker's surveyed 600 people, and found that 81% of respondents didn’t plan to use the scheme, and that 70% of them felt that it just wasn’t generous enough.

How Does the Car Scrappage Scheme Work?

The car scrappage scheme gives you the incentive to buy a new vehicle, by giving you a total of £2000 towards the purchase of a new vehicle if you buy it through the scheme.

To qualify for the scheme, you must trade a vehicle in that is either a car or small van weighing up to 3,500 kilograms. The vehicle must have first been registered in the UK, on or before 31st August 1999.

The vehicle you are trading in must have an up to date tax disc, or a tax disc and a Hackney Carriage Licence if appropriate, or an MOT certificate which expired no earlier than 14 days before the date of the contract between you and the dealer. It must have been continuously registered to you for at least one year.

You must have a UK address on the registration certificate which is in the same name as the new vehicle, and a current MOT certificate which is dated before the date of order for the new vehicle.

Which Vehicles Are Eligible For Purchase Under the Car Scrappage Scheme?

To qualify for the £2000, the vehicle must be:

A car or small van weighing up to 3,500 kg, which was first registered in the UK on or after 18th May 2009. It must be declared new at first registration in the UK and have no former keepers.

Business Vehicles

You can buy business vehicles under the car scrappage scheme, but the scheme affects any claim for capital allowances. The £2000 discount reduces the capital cost of the vehicle for tax and VAT purposes. The vehicle you part exchange, or scrap, is then considered to be written off for tax purposes. The £2000 discount will not be treated as ‘taxable proceeds of sale’.