Car scrappage scheme to be extended

Business secretary Lord Mandelson has announced the government will extend its controversial car scrappage scheme to cover an extra 100,000 vehicles.

Addressing the Labour Party Conference yesterday, Mandelson said the scheme had proved so popular it was now running out of money. The initiative started in May and gives consumers £2,000 off a new car if they trade in one at least 10 years old.

The £300m scheme was due to end in February, or when the limit of 300,000 vehicles being scrapped was reached. So far, more than 227,750 orders have been placed through the scheme and at the current rate of take-up the limit could be reached before February.

Mandelson said that the February deadline would be kept, but the number of vehicles that can be included will be extended to 400,000, taking the government's potential outlay on the scheme to £400m.

Mandelson told the conference: "This is not a blank cheque to the auto manufacturers but recognition that there is still a short-term challenge to boost demand and confidence in the sector."

The scheme's criteria will also be amended so that vans up to eight years old can be included and any car registered before 29 February 2000 is now eligible.

The Government scrappage subsidy is matched by equal funding from manufacturers.

Car sales figures for August showed that the scrappage scheme had started to boost demand with one in three cars built in the UK last month sold in the home market – a 28 per cent rise on figures from a year ago.

Paul Everitt, chief executive of the Society of Motor Manufacturers and Traders welcomed the news. "Lord Mandelson's announcement of an extension to the car scrappage scheme is an extremely important decision that will inspire consumer and business confidence," he said. "It will help to stimulate demand, give more consumers access to it, and create a bridge to a period when economic growth is strengthened and more sustainable."

However, the government is likely to face further criticism from green groups for again failing to adjust the incentive scheme to promote the most fuel-efficient vehicles.

The government had originally argued that the scrappage scheme would deliver environmental benefits by encouraging motorists to trade in old models for more fuel-efficient versions.

But while the scheme has boosted sales of smaller, more fuel-efficient cars, incentives are not targeted to promote low-carbon vehicles. As a result, people have been able to claim the £2,000 handout even when purchasing the most inefficient models on the market.