Budget 2009 - UK gets £2000 scrappage scheme

By Ben Pulman

Motor Industry

22 April 2009 15:15

Chancellor Alistair Darling has announced a £2000 car-scrapping incentive, and a surprise 2p per litre increase in fuel tax in the latest budget. Darling delivered his Budget speech at 12.30pm GMT today.

Scroll down the page to see our edited highlights of the 2009 Budget, read in-depth details of the scrappage scheme and see how the motor industry has responded.

UPDATE: VW, Mercedes and Smart are the most recent manufacturers to signal their intention to join the scrappage scheme. BMW, Volvo, Ford, Renault, Toyota and Hyundai have all also signalled their intention to join. The scrappage scheme in Germany saw Hyundai i10 sales leap 662% (and 354% for the i30) in the first quarter of 2009.

• £2000 scrappage scheme introduced and jointly funded with car manufacturers
• Surprise 2p per litre increase on fuel duty
• Confirmation of £250m funding to allow £2k-£5k discounts on electric and plug-in hybrid cars from 2011
• Increase in the number of VED bands from seven to 13 to 'provide a greater incentive for drivers to choose a lower carbon version of car within their preferred class'
• Further separation of the 13 bands from April 2010, with differential first-year VED rates
• A change in company car tax, with the threshold for the basic 15% band reduced by 5g, so it becomes 121-129g/km CO2. The percentage of the list price subject to tax will continue to increase by 1 percentage point with every 5g/km increase in CO2 emissions, to a maximum of 35%.
• Cap on car list prices used to calculate taxable benefit abolished
• From 2012, scrapping of 10% band for cars emitting 120g/km or less – more details will be announced in future budgets
• Government considering abolishing the diesel supplement for company cars that meet future Euro 6 regulations

Darling: 'In order to help the car industry and retail trade, I can announce that a scrappage scheme will be implemented next month.

'It will provide motorists with a £2000 discount on new vehicles bought when they trade in cars over ten years old. It will be a time-limited scheme until March 2010.'

Taking the lead from Germany and France, the Chancellor announced the new scheme, which will offer consumers a £2000 discount when they buy a new vehicle to replace one that is more than ten years old and which they have owned for more than 12 months. The Government has set aside £300m for the scheme, and it will run until March 2010, or earlier if the funding is used up sooner.

The government will provide £1000 in discounts, and manufacturers that agree to the scheme will provide another £1000. Eligible vehicles must have been first registered in the UK on or before 31 July 1999 and have a current MOT test certificate. The DVLA will audit the scheme and the saving will apply to commercial vans (up to 3.5 tonnes) as well as cars.

Comments on scrappage scheme:

Director of the RAC Foundation, Professor Stephen Glaister commented: 'Currently the vast majority of cars are still on the road at ten years old. The scrappage scheme announced today risks consigning a lot of perfectly good, and relatively clean, vehicles to the dustbin.

'However if the scrappage scheme leads to a reduction in the average age of the national car fleet then this has to be good for road safety as more modern cars will have a wider range of safety features built-in.

'And whilst the announcement is good for motorists and the motor industry, if it does not encourage people to buy green vehicles it is a missed opportunity as far as the environment is concerned.'

Retail Motor Industry Federation chairman, Paul Williams commented: 'The introduction of a vehicle scrappage scheme will boost the new car market, encourage consumers to get back into car showrooms, and reduce the likelihood of employee downsizing in this sector.’

Managing director of Kia Motors UK, Paul Philpott commented: 'Kia welcomes the Government’s positive response to the difficult times facing the new car market but I am personally disappointed that our Chancellor is only going half-way compared to other European governments. The reality is that the Government is shifting a large part of the cost of this programme onto the shoulders of the manufacturers.

'Until full details of the programme have been revealed it will be impossible to say exactly what the scheme will mean for motorists scrapping a ten year old car to buy a brand new Kia – but a 1.0 Picanto could be on the road for £4,195.'

Darling: 'I am presenting the world’s first ever carbon budget, which commits Britain to cut carbon emission by 34% by 2020.

'To support the public finances, while also driving the move to a low-carbon and resource-efficient economy, I am announcing an increase in fuel duty of two pence per litre on 1 September 2009, and of one penny per litre in real terms each year from 2010 to 2013. This will contribute to medium-term fiscal consolidation, and save two million tonnes of carbon dioxide (MtCO2) per year by 2013-14.'

Darling’s annoucment means there will be a 2p per litre increase on fuel from this September, and then a 1p per litre increase above inflation for the next four years.

Comments on fuel duty increase:

Director of the RAC Foundation, Professor Stephen Glaister commented: 'The Chancellor continues to unfairly burden motorists with extra taxes. Already the average household spends 14% of its income on running a car. And that already large amount is just about to get even bigger. Today's move will only penalise the unemployed who in future will increasingly have to travel further to find jobs and training. The Government knows the majority of journeys on the roads are not made out of choice, but because there is no alternative way of people getting from A to B, yet ministers continue to punish a captive market.' 

Retail Motor Industry Federation director, Sue Robinson commented: 'Yet again the government is set to hit the lower paid hardest with the fuel duty rise of two pence per litre in September and the reintroduction of the fuel duty escalator in 2010.'

Other announcements in today's budget include a higher 50% tax rate for those earning over £150,000, an increase in alcohol duty by 2% and the continuation of the stamp duty holiday on properties under £175k under the end of 2010.

By Ben Pulman