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."