Scrappage scheme puts money in Government's pocket

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The Government's car scrappage incentive scheme offering £2000 towards the cost of a new car to owners of 10-year-old bangers was launched in May earlier this year. There was mixed opinion about the scheme's effectiveness, as you'll see if you read the comments from our previous post about car scrappage, but now, 4 months on, figures reveal that someone is certainly enjoying success.

  • According to the latest figures, what the Government makes in VAT on a scrappage deal is greater than the £1,000 subsidy it gives to the owner
  • With VAT currently at 15%, the Treasury is in profit whenever a scrappage customer pays more than £7,600 for a car including tax
  • This means the Treasury is on course to net £405m in VAT receipts, £105m more than is being invested in the scheme, if the government ceiling of 300,000 deals is reached
  • Therefore the Government is set to make at least £100 million profit
  • More than 200,000 cars have been sold under the scheme and ministers are being called on to extend the scheme. Not a bad idea considering and increase in VAT is scheduled for January 1, 2010 - good news for the government, bad news for car manufacturers
The manufacturers didn't do too badly out of the deal either considering there has been a 20% increase in car sales. So does that mean the only one that's losing out would be the taxpayer? Leave a comment and share your thoughts.