Grants to scrap old cars are not the answer
Do people who drive cars until they’re nine years old really replace their clapped-out bangers with brand new vehicles? That’s the theory of those advocating £2,000 grants to scrap old cars.
In reality, people who buy new cars trade them in after three years or so for another brand-new vehicle and it is people who buy second-hand that keep their cars until they are nine years old. Neither group would thus qualify for the scrap payment Alistair Darling is under pressure to introduce in his budget.
Payments for scrapping old vehicles and buying new were introduced by the French in the last recession and have revived the German motor industry in this slump, but they are not the easy answer to economic recovery that the carmakers and their fans claim.
The £2,000 voucher to cut the price of a new car would, in practice, merely allow motor manufacturers to raise their prices (or reduce discounts) so that the net cost to the purchaser is unchanged. Rather than raise wages or create jobs by increasing production volumes, much of the subsidy would merely boost the profits of badly-managed car companies.
And many of the jobs and car companies are overseas because so many new cars purchases are foreign models. Free-trade rules prevent the chancellor from giving the money only for UK cars.
Nor would a subsidy to UK buyers help exports from UK car plants – though those plants are, presumably, benefiting from German’s grants as well as the weak pound.
If Darling does hand out £2,000 grants he must ensure the car manufacturers pay at least half because they are the beneficiaries. But what is so special about the motor industry and its jobs that it alone should receive subsidies to stimulate demand? Why not fridges and TVs? Why not labour-intensive industries like catering or window-cleaning? What about a voucher for us all to have a subsidised haircut to keep barbers in business?
Even the green justification for replacing old cars with clean new ones is spurious. It is better to get an extra year or so from a gas-guzzler than to scrap a viable vehicle and waste resources on a new one.
A £2,000 voucher for anything – nevermind one connected with the motor trade – looks like an opportunity for fraud, but if Darling wants to revive demand for cars he would do better to make finance more freely available to buyers. Car companies invented 0% finance: the Bank of England has almost provided that for all, but removing obstacles for borrowing is the best way to stimulate sales.
