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.'
Everitt also said that the message a scrappage scheme would send out to car buyers would be as important as the scheme itself.
'The proposals we have put forward are for a targetted, time-limited incentive for people who don't normally buy a new car,' he said. 'But the wider implication of introducing the scheme would be to tell people that now is the time to buy a car. It would lure people back to showrooms, irrespective of whether they have a car to scrap.'
However, scrappage plans have already come under attack from environmentalists, who say that the government money should be spent on developing greener public transport alternatives, and car industry officials, who argue that the Government is not moving fast enough to help them.
The budget will be announced on April 22.