Two things caught my eye: A vehicle scrappage scheme and investments in green technology.

In the UK Budget presented yesterday there were two things that caught my eye: A vehicle scrappage scheme and investments in green technology.

One bad thing and one good.

Let me start with the good.

At last the UK government has realised that green technology is the future and that we all have to get used to and live with low carbon emissions.

And we will find out that it is not even difficult or more expensive. We just have to further develop the existing technology and mass produce it. It will bring down costs and also have the benefit of the West becoming less dependent on the oil producing countries that we usually don’t regard as our close friends.

However had a good laugh when I read the opening paragraph in chapter 7 of the budget: “The UK has led the world in taking a strategic and long-term approach to the problem of climate change”. The UK is far behind most western countries in reducing carbon emission and building a future based on renewable energies. But at least now something is being done, even though I wish much more would be done.

Included is £60 million to fund engineering and design studies for carbon capture and storage. However I don’t believe carbon storage will work in the in long run, sooner or later the CO2 that was ‘captured’ will escape and we haven’t solved anything just postponed it. We should stop producing CO2 in the first place; not trying to deal with it once we have made it.

The bad bit

But let me get to the really bad point in the budget: The value destroying vehicle scrappage scheme. Germany has had ‘success’ with their “Abwrackprämie” that has been running for a few months now. Customers are queuing up at the car dealers to hand in their old cars to get 2.500 Euro for their more than 9 years old car, and producers of small cars cannot keep up with demand. Originally 1.5bn Euro was reserved for the scheme, but it has already been used up and been increased to 5bn, but it is a really really bad idea for several reasons.

It destroys value, is environmentally bad and plays havoc in the car industry.

Why destroy perfectly good cars that can still run? Completely crazy. It will just reduce the number of 2nd hand cars available and increase the price of the ones still available thus making it more difficult for people on low income to buy a 2nd hand car.

In Germany they even often refer to their scheme as an ‘environmental bonus’ scheme because new cars use less fuel than an old car. That might be true but it also costs a lot of energy to produce a new car. It would have been much better, seen from an energy reduction point, to drive in the old car for some more years and then buy a new car, once the old could not drive any more.

Further, once the schemes are over we will see the demand for small cars drop off the edge of a cliff. Most of the people now trading in their old cars would have got rid of their old car in the next few years anyway so no real new demand has been created. This year the car workers may have to do overtime, but in one year’s time they will be sitting idle, which of course is very bad for the car industry trying to adjust the production capacity to long term market demand. No new value has been created you have just moved some demand with lots of negative economic consequences.

Laughable

And the amount the UK government puts aside for this is laughable. If the German example is anything to go by you would need much more.

The first 1.5bn euro the Germans set aside was used up in a few months and has now been raised to 5bn euro. So to reserve just £300 for this is just a joke. I am sure this will be popular among people and the reserved amount will be used up in just a few weeks. Surely the UK government will be forced to increase this amount 10 fold to keep up with demand. With elections just a year away the UK government cannot afford to stop a scheme that is popular and seems to create a lot of demand and jobs in the UK. The German government has just learned that lesson where they face election later this year and therefore had to raise the reserved amount for the popular scheme.

The alternative

The money should rather be used to encourage people to insulate their houses better and replace single glazing windows with double glazing windows. That doesn’t destroy value, but creates lasting value and at the same time reduces the CO2 emission and cuts future heating bills. Yes maybe some people would have done it anyway, just like buying a new car, but I would accept this to get the economy moving again.

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