The government will make more than £100 million profit from VAT revenue on cars sold under scrappage, according to initial reports.
Under the scheme, the government and car makers split paying the £2000 subsidy between them. With VAT at 15 per cent, that means the Treasury makes a profit whenever a car costing more than £7600 is sold.
According to the motor industry the average price of cars bought under the scheme has been £9000. This means that the Treasury is on course to net £405m in VAT receipts, £105m more than is being invested in the scheme.
The revelation comes as the government is put under increasing pressure by the car industry to extend the scrappage scheme into next year. The initial £300 million is projected to run out at the end of October.
However, critics argue that many of the cars bought under scrappage would have been sold regardless of the scheme.
Garel Rhys, emeritus professor at Cardiff Business School, said: "The Government is getting a lot in VAT. But the money is being given to the car owner, who is being subsidised by the taxpayer."
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Re: Treasury's scrappage 'profit'
I find it hard to believe that the averavge scrappace car costs £9000
Re: Treasury's scrappage 'profit'
Used car values have shot up in the last months due to 2 main factors, lack of nearly new stock (new cars not being sold and nearly new being snapped up instead resulting in a dominoe effect through the rest of the used car market) and also because used car values fell so sharply this time last year. My CR-V was losing around £600 per month on a good month and is now worth £300 less than it was just over a year ago all its done is bounce back thankfully.
New cars went up in price but as far as I'm aware all price increases I know of were known about even before even VAT was brought down to 15% and an aghe before the scrappage scheme was brought in.
Re: Treasury's scrappage 'profit'
The scrappage scheme has made little real impact on the value of used cars. Any car that qualifies for the scheme entitles you to £2000 discount on a new car. Most of the time, you can get more than this anyway.
It does not mean that a £600 runabout suddenly becomes £2000.
Perhaps the only downside is that there will be 300,000 fewer 10 year old cars to choose from. Given the amount of cars on the market at any one time, this is unlikely to make much of a difference.