Key Theme 7: Car Scappage Scheme

Introduction

During the credit crunch the significant slowdown expressed itself in terms of rising unemployment and falling incomes.  The car industry was hit particularly bad making as new vehicle demand could be consider income elastic thus responded negatively to the rise in uncertainty.

Labour in derived demand as the demand for new cars fell so did the demand for labour leading to layoffs. 

With these events concentrated in particular unemployment black spots such as the Midlands the Government decided to offer an inducement for buyers, £2,500 for any car over 10 years old when trading in for a new car.  This can be considered to be a subsidy which encouraged a higher level of demand and thus supported employment in this key industry.

The government also argued the policy was environmentally sound as it took older less efficient cars off the road and replaced them with newer more environmentally sound models.  This dealt with some of the negative externalities of car travel

One could argue the policy was one of the successes of the governments response to the credit crunch, investment in the UK car industry continues and the UK is set to become a net exporter of cars later this year. BBC News