On January 1st 2010 the VAT rate will return to 17.5%, meaning a £10,000 new car purchased through the Car Scrappage Scheme will cost an extra £250. The tax was cut from 17.5 per cent to 15 per cent in November 2008.

High profile retail establishments including Selfridges, John Lewis and Bluewater Shopping complex in Kent have reported strong Boxing Day sales figures in big ticket items such as flat screens and fridges as the savvy British consumer prizes last minute deals and saves the VAT difference.

Car Showrooms may also continue this post Christmas rush as new car models are at the higher end of the consumer market. Potential car buyers will be reminded that there are now less than 4 days left to take advantage of both the Car Scrappage Scheme discount together with lower 15% VAT rate.

The Car Scrappage Scheme is set to end on the 28th February 2010, so car buyers now have only 3 days to save the 2.5% in VAT and just 2 months to take advantage of the £2,000 discount.

Homeowners are also starting to take advantage of the new Boiler Scrappage Scheme, where a warm £400 incentive is being offered for replacing old and existing G-rated boilers for a new energy efficient boiler model.

Of the 158,082 sales last month, 21.6% were attributable to the car scrappage scheme, which is due to end in February or when funds run out, whichever is sooner.

CEO of the Society of Motor Manufacturers and Traders (SMMT) Paul Everitt, said: “The increase in new car registrations in November reflects the positive impact of the scrappage incentive scheme, customers avoiding the VAT increase in January and the very difficult conditions that we experienced a year ago.”

After Business Secretary Lord Mandelson said last week that the industry would have to cope with returning to normal market conditions, Everitt urged the Government to consider extending the scheme in its Pre-Budget report on Wednesday, noting that there was just an estimated £125m of funding remaining.

The November figures took new vehicle sales to more than 1.84m for the first 11 months of year, but this represents a drop of 8.8% on the same period last year. Full year estimates are for 1.95m sales versus 2.13m in 2008.

RAC motorist strategist Adrian Tink said: “We are still concerned about what will happen once the scheme ends and the discount bubble burst.” 

Edmund King, president of the AA noted of the new cars purchased through the scheme: “These cars are cleaner, greener and safer”, whilst making reference to a recent poll suggesting 13% of drivers would consider buying a new car if the scheme was extended.

UK manufacturing leader at Deloitte, David Raistrick said: “We may see interest rates increase next year. Furthermore, car manufacturers may find themselves needing to implement price rises due to the low value of sterling increasing the cost of imported cars and parts. The automotive sector must be prepared to deal with these challenges in order to ensure a long-lasting recovery.”

Mandelson - No Promises

“If the scheme ends in October and is followed by a 2% increase in VAT in January it will be a serious blow to the British car industry that’s just getting back on its feet.” warns Paul Everitt, CEO – SMMT.

Executives from the motor industry met with Business Secretary Lord Mandelson last week and called for an extension to the Car Scrappage Scheme by increasing the Government provided subsidy by a further £200m. The initial Government sum which kick started the Scrappage Scheme in May was £300m and is forecast to run out in October.

The industry is warning that failure to provide further subsidy may result in workforces being forced back on to shorter working weeks with job security at risk.

Paul Everitt, Chief Executive of the Society of Motor Manufacturers and Traders (SMMT) was quoted to have said “Without an extension there’s a real risk of an abrupt slump in sales that will create further uncertainty for thousands of car workers with the likelihood of short-time working.”

A Department of Business spokesman confirmed a meeting was to take place, but said there were no plans to extend the Car Scrappage Scheme.

Since the Car Scrappage Scheme was launched in April 2009 around 200,000 new cars have been bought, which has helped to sustain employment within and connected to the motor industry.

The Sky News article highlighted some interesting pointers for potential consumers.

Business Secretary, Peter Mendelson confirmed the Government’s objective by saying he wanted to see all money put in by the Government ‘cleared out by the public’.

And despite this week’s VAT issues, Citroen are reported to be pressing on with their own deals. Parkers, the car price guide, confirms that there are even better deals to be had on ‘nearly new’ cars, which have no miles on the clock. A representative confirms that typically, there are plenty of family car deals offering £3,000 … £4,000 … £5,000 off the original asking price!

Could make for a busy bank holiday weekend.

Car Scrappage Panic

Car buyers planning on purchasing new cars through the Government’s Car Scrappage Scheme may find they’re unable to drive-off the forecourts when the scheme goes live on Monday 18th May, due to a VAT row between manufacturers and the Government.

Manufacturing bosses are claiming the Car Scrappage Scheme has plunged into chaos due to a Government error with the scheme’s details. Motor industry leaders are saying this weekend that some manufacturers may delay joining the scheme having failed to reach agreement with the Government. The dispute is apparently affecting all 39 carmakers who are signed up to the scheme.

The cost of the Car Scrappage Scheme is being split between the Government and the motor industry, however the Society of Motor Manufacturers and Traders said: “The dispute probably means some manufacturers will not be able to deliver vehicles to customers on Monday. We are seeking clarification about the VAT split between manufacturers and dealers, and how it is administered.”

The Department for Business insisted that manufacturers who had signed up to the scheme were made very clear of the terms and conditions.