Government car scrap scheme imminent and a win-win scenario allied to VAT at 15%?

Monday, 13th April 2009 23:04 - by Resident IFA

With well over 100 Blogs written, I sometimes struggle for inspiration. I have just read a couple of interesting stories on the BBC TeleText (is it still called that?) service, providing food for writing here. The Government is considering implementing a scheme whereby older vehicles are scrapped in exchange for a decent payment, perhaps in the region of £2,000. The definition of how old an ‘older’ vehicle needs be to qualify would interest me. Unsurprisingly, this scheme is being mooted as a means of boosting the sales figures of our beleaguered car manufacturers, the recession now taking its toll on them and resulting in thousands of lost jobs. A similar scheme has worked well in Germany, with sales of new cars rocketing as a result. The other story that interested me seems intrinsically linked to the car scrap scheme initiative – the result of the Government’s 2.5% VAT (Value Added Tax) cut on 1st December 2008. The VAT cut was seen as toothless and heavily criticised, but it appears to have worked pretty well. According to the Centre for Economics and Business Research (EBR), the 2.5% VAT cut has resulted in an extra £2.1 Billion of consumer retail expenditure. VAT is due to return to 17.5% in January 2010. The EBR is calling for a 6 month extension to the 15% rate due to its success. When the VAT cut was originally announced, my reservation was that only people buying goods for, say £1,000 or more, would see noteworthy financial benefits. At that time, the car industry had yet to reach the perilous state I allude to above. So, it now looks like a great benefit when viewed in tandem with the proposed car scrap scheme. For example, let’s take a person scrapping their old car and receiving the £2,000 payment to then put down on a new £10,000 car (excluding VAT). They will have to pay £9,500 compared to £11,750 before the car scrap and VAT cut measures – saving £2,250 (19.15%). This sounds like a pretty good deal for the consumer, possibly providing the ‘shot in the arm’ the car industry clearly so desperately needs. Until next time…