Prime Minister, Gordon Brown is expected to sign off plans to introduce a £2,000 old-car scrappage incentive within the next few days.
The scheme, which is tipped to give owners of cars 9 or more years old £2,000 to upgrade to a new, cleaner vehicle, is expected to be announced in the budget on 22nd April. The plans are designed to boost demand for new cars and help struggling carmakers who are suffering during the recession.
However, they have also proved controversial with chancellor of the exchequer Alistair Darling and business secretary Peter Mandelson reportedly at loggerheads over whether the scheme should be introduced.
Darling is reportedly concerned at spending £160 million on the scheme at a time when the government's finances are being stretched by a series of other economic stimulus packages. He is also worried about supporting one struggling industry over another and that many of the new cars that will be bought will not have been built in Britain.
However, Mandelson has pledged to help the car industry and believes the benefits to the entire car supply chain make the investment worthwhile. Brown is reported to now side with Mandelson, having been concerned by a year-on-year sales drop of new cars of nearly 30% in March, and job losses, plant closures and pay cuts at Nissan, Jaguar, Land Rover, Mini, Honda and Toyota. Manufacturers claim that in this country it could generate demand for up to 250,000 new cars.
"Our position on this is that we continue to look at the possibilities of such a scheme but no decision has been taken," Brown's spokesman said today.
However, it is not clear how the deal will be funded. Reports suggest Darling wants the car makers to provide half of the incentive, with the government providing the rest of the money. Some environmentalists have opposed a scrappage scheme, saying it is better to keep old cars running because building new ones uses more energy. However, Friends of the Earth has supported the plan, insisting it would encourage drivers to switch from thirsty cars for more fuel-efficient models.
"This scheme won't create jobs and it won't help the environment. All that you're going to get is a switch to more polluting, bigger vehicles. And that's not going to help anyone," Peter Cranie of the Green Party.