Government officials have given the strongest indications yet that a car scrappage scheme will be announced in April’s budget.
Under the scheme, owners would receive payments of up to £2000 in return for swapping cars at least nine years old for either a new car or a nearly-new car less than a year old.
The system has been successfully used in Germany already, helping to stimulate the car market and get cleaner cars on the roads.
Estimates suggest it could stimulate 250,000 car sales a year in the UK.
Car makers have put the UK Government under pressure to introduce a similar scheme for months, and there are now growing indications that it will get the go-ahead.
Lord Davies, the Trade Minister, told The Times newspaper, "The scrappage scheme has potential. It's been tried in other countries ... we're looking at it very closely."
The Times also quotes a senior government source as saying talks are at an "advanced stage".
Paul Everitt, the chief executive of the Society of Motor Manufacturers and Traders, said: 'I don't know if there will be a scrappage scheme, but if it it is not announced by the time of the budget then I don't think we will see it at all.
'Obviously we have been talking about it for months, but we have to be pragmatic about its implementation. It must be the right scheme at the right time, and ensuring that is not a quick process.'