The UK's largest business organisation, the Confederation of British Industry (CBI), has joined calls to introduce a scrappage scheme for older cars to help kick start the economy, saying that the cost to the government would be outweighed by the benefits.
The proposed scheme could involve drivers of cars over nine years old being offered a £2000 incentive towards a new or nearly new car when they scrap their old one.
There has been growing support for the scheme recently, with both Ford and the SMMT calling for its implementation.
The CBI said today that a scrappage plan would cost the Exchequer around £500m, although it believes this is good value for the potential benefits.
However, in the same Budget submission the lobby group said the government should avoid any further costly fiscal stimuli.
In a statement the CBI said: “The short-term effectiveness of any plausibly affordable fiscal package must be doubtful, while the long term costs would be very real.”
A spokesman said the danger was in multi-billion pound fiscal stimulus projects, but that a scrappage scheme would be a “scaled-down, targeted activity that is beneficial for keeping people in their jobs”.
He added that the financial benefits would far outweigh the initial spending to set up the scheme.
Supporters of scrappage schemes say that similar systems have been successful in other parts of Europe.
Germany says it has reduced the decline of new car sales to half that of the UK by offering drivers £2200 to trade in their old cars.
Last week the SMMT revealed that UK car production fell 59% year-on-year in February.
John Cridland, CBI deputy director general, said: "Scrappage schemes, at a relatively modest exchequer cost, would encourage consumers and businesses to replace old inefficient cars and vans, fridges and washing machines with the latest efficient models.
"Not only would this bring forward consumer and business spending, it would also help reduce carbon emissions."