Some more popular spending cuts?

I detect a lot of support for my view that government should offer failing banks tough love, not large subsidies. Government should be the lender of last resort to stop untimely bankruptcy, but not the feather bedder of first choice. Government should not offer so much taxpayer cash as equity and easy terms loans so the banks do not have to wake up, shake up and sort themselves out quickly. Changing this policy could save us tens of billions. To those who say this is not public spending as counted by the government , I say “Oh yes it will be, and the bill is on you”.

The same should apply to the motor industry. We learnt on Saturday that Mr Mandelson is not giving up his battle against a reluctant Treasury to put in place a £2000 bounty on every old car more than 9 years old for someone buying a new vehicle. Mr Mandelson has been impressed by the German experience of such a scheme, and thinks the taxpayer could easily afford to help shift some of the surplus car stock out there in the car parks – and more importantly on the import wharves.

Mr Darling clearly worried about how affordable all this might prove. He may even have pointed out it has a different economic impact from Germany, where the majority of the new cars bought would be home built, to the UK where the overwhelming majority of new cars bought are imports.

A day later we read that Mr Mandelson appears to have won, and the Chancellor has come round to see the wisdom of such a scheme. Was he really working on this very point over the Easter week-end? Did he see the light on Saturday morning? Is it good practise to provide a running commenary like this on what could be in the budget, still more than a week away? All that this item can do is to put people off buying new cars until we know the contents of the budget. What happened to the idea that anyone in the know caught leaking the contents of a budget lost their job?

A scrappage scheme will be dressed up as a green measure, but this one draws the anger of the Greens. Apparently you can buy any kind of new car under it, however big and gas guzzling, and scrap any kind of old car, however small and little used. It should boost the prices of old wrecks to nearer the £2000 subsidy level and create a lively trade in old bangers. I hope if they do this they have the wit to demand that the subsidy attracting old vehicle has to be still in use and can be driven to the scrapheap under its own power with its own road tax.

A scheme like this is presumably for a limited time period only. It will bring forward some sales of new vehicles. How many of those will prove to be extra sales once the subsidy is removed is more difficult to tell.

This entry was posted in Blog. Bookmark the permalink. Both comments and trackbacks are currently closed.

34 Comments

  1. Blank Xavier
    Posted April 13, 2009 at 6:58 am | Permalink

    > We learnt on Saturday that Mr Mandelson is not giving up his
    > battle against a reluctant Treasury to put in place a £2000
    > bounty on every old car more than 9 years old for someone
    > buying a new vehicle.

    In economics tersm, this is clinically *insane*.

    An individual will expend some of the wealth he owns to obtain a car. The longer that car can be used, the he will get for the wealth he expended (and so the richer he will be, by having had to spend less).

    All good and well.

    But now the Government now comes along.

    The Government then takes a little bit of wealth from everyone (nice of them to help themselves, I thought), and gives 2000 UKP of that money to every person buying a new car.

    This, (over the whole of the economy, over all the people, over a reasonable period of time), will encourage people to buy a new car sooner than they would have done otherwise.

    So the upshot of this policy is to *reduce* the value people get from their car, because they own that car for a shorter period of time than they would do otherwise.

    It makes people buy cars more often – but buying a car, when you have one that works already, *is only a cost*. It simply consumes wealth for no return.

    The car industry loves it – we’re selling more cars! – but it’s bad for *everyone else*, because we’re all giving up more wealth to fund the subsidy and we’re getting less value from our cars.

    • Blank Xavier
      Posted April 13, 2009 at 8:34 am | Permalink

      > the he will get for the wealth he expended

      “the MORE he will get for the wealth he expended”

      Dropped a word…

    • Adrian Peirson
      Posted April 14, 2009 at 4:12 am | Permalink

      Excellent,

      We are being Farmed.

  2. Duyfken
    Posted April 13, 2009 at 7:05 am | Permalink

    One restriction on the vehicle due to be scrapped should be that it has been registered to the last owner for at least (say) 5 years.

  3. Stuart Fairney
    Posted April 13, 2009 at 7:24 am | Permalink

    You read this stuff with a sigh, it’s like they learned nothing from the speculation about stamp duty and how that froze the housing market for a while despite ludicrous statements to the contrary.

    So, do I now get the local paper and clutter up my drive with a rusting car for £100? And in truth, if you are driving a 9-year old car, can you really afford a new one (without going further onto debt?). Truly we are run by people of mind-numbing incompetence.
    Incidentally, will we now see a U-curve in the valuation of old cars? After six or seven years modest cars will be worth very little but as they approach 9 years, regardless of mechanical condition, (or CO2 emission come to that) perversely, they will start to escalate again?!

    Madness, absolute madness, (oh, and it will boost foreign car companies and further damage our balance of payments).

    • alan jutson
      Posted April 13, 2009 at 6:42 pm | Permalink

      Stuart
      You miss the point, the whole Labour Policy is about confusion and Tax greed, which will be left for someone else to clear up.
      First you increase the old Road Tax to make people pay more per year, then you put on a New Showroom Tax (up to £1,000 still in the pipeline).
      Then you wonder why used values fall, and so do new car sales.
      Then along comes the credit crunch (I hate that word) and new car sales suffer further.
      You talk about a scrappage scheme for months, so again no one buys a new car because they do not want to miss out.
      You then introduce a scheme which immediately raises the price of a banger to £2,000 in an attempt to increase sales of new cars.
      Result used car values are now all over the place,
      Cars that would have been scrapped, will still be scrapped but the Government pays out £2,000 for each of them.
      New car prices will rise due to the falling value of Sterling, so the difference in what you now get for scrapping, and what you pay for new, is still the same as it was before the scheme was introduced.
      Those who do not have a scrapper either purchase one to get the £2,000 or will have to pay more for their new car due to the falling value of Sterling and the inevitabvle price rises.
      THE PROBLEM
      Most new cars are bought either by Companies, by Fleet owners, or Rental and Leasing Companies who do not have very old cars to trade, any they do have go through the Auctions to be bought by the Trade and General Public.
      The cars which the Fleet, Rental and Leasing Companies purchase are already at a very, very high discount from the Manufacturers which is not applicable to this new scheme, so a very major part of the new car trade is not even in the equation.
      THE RESULT
      When this shceme ends new car sales will suffer another big downturn with the General Public again refusing to purchase for a good period of time.
      THE LESSON
      Whenever you interfere with market forces by subsidy, you create another set of problems which are sometimes worse than the original.
      THE THOUGHT
      Just leave the system alone, scrap Road Tax, scrap the Showroom Tax, scrap Car Tax, slightly increase the Tax on fuel (if neccessary), and people will look after themselves and buy a vehicle which they can afford to run.
      THE SAVINGS
      No jobs required for issuing Road Tax, enforcing Road Tax etc.
      No one escapes paying any Tax, as its all on fuel.
      Simple really, but then the Labour Party does then not have any control.
      The Policy here:
      We purchase a car usually about 2 years old and run it for as long as sensibly possible.
      Last car used by my wife, a Toyota Corolla GTI used for 17 years, purchased for £5,000, never let us down, sold whilst still going well last year in part exchange for another Toyota Pre-registered (Brand New), so about £250 per year depreciation on the last one.
      Expect this new one to last 15 years or more.

  4. BrianSJ
    Posted April 13, 2009 at 7:32 am | Permalink

    It would seem that most of the ‘real help now’ schemes have not actually been implemented, so there is the hope that this piece of lunacy will not affect more than about ten cars.

  5. Mike Spilligan
    Posted April 13, 2009 at 8:50 am | Permalink

    A completely barmy idea. Doesn’t Mr Mandelson (I know, but I just can’t write it) realise that the UK isn’t another Germany across the spectrum of our relative economies?
    Most of my points have been covered above, but this is also akin to riding a tiger – the difficulty is in getting off.

  6. Chris H
    Posted April 13, 2009 at 8:58 am | Permalink

    Why does Mandelson think people still have the financial capacity for buying new cars? Thousands of people out of work every day, the spectre of tax rises, maybe inflation as well, and he thinks we’re going to be dumb enough to go to the bank and get a loan for a new car?? The paltry offer of 2 grand wont buy anything on its own, so everyone who takes this up will be either forced into parting with savings or taking up debt (again) via a bank-loan.
    We would never buy new because of the depreciation as soon it leaves the showroom. We have two vehicles aged 9 and 17; both share the annual family mileage which is less than 18K and both have been with us for many years.
    If the point comes in life when they fail, and we havent got the money to buy anything, then it’ll be bicycles or Shank’s Pony. This is just a scheme to benefit the car-makers and loan sharks—er, I mean banks. Obviously some people will participate, particularly if they are struggling with their present car, but I think the “prestige” of new car ownership is currently something that people can well live without.

    • mikestallard
      Posted April 13, 2009 at 3:56 pm | Permalink

      Very well said!
      Actually, my son is facing the dole and we were thinking of giving him our car and buying a tiny little one for ourselves. £2,000 just is not in the equation.
      And, of course, when the money is gone, we go on our new bus pass!

  7. Pat
    Posted April 13, 2009 at 9:06 am | Permalink

    This idea rather implies that Labour don’t like the poor- because it will effectively prevent anyone from buying a car for less than £2000- and many on or near minimum wage need a car to get to work, get the shopping, transport the kids.
    The majority of cars for sale at these prices have lost their looks and are old fashioned but they are still servicable- it seems criminal to subsidise the destruction of a useful resource.
    Lets hope Brian is right.

  8. Brian Tomkinson
    Posted April 13, 2009 at 9:19 am | Permalink

    The Labour spin machine just goes on and on. Not content with having effectively two budgets a year the government wants to leak the contents in advance to the media. Parliamentary democracy has been continually eroded to the point where it is in terminal decline.

  9. Jim Pearson
    Posted April 13, 2009 at 9:23 am | Permalink

    Why not introduce a subsidy for MP’s that have been in seats for more than 9 years too. We could trade them in and get a new one should the electors so wish! That would be a better idea.

  10. Richard
    Posted April 13, 2009 at 10:06 am | Permalink

    The banks were provided with tax-payers’ equity due to a perceived need to force them to raise new capital, impossible in the market. Do you agree that the timing of the demand to increase equity capital was wrong & it wasn’t necessary? How can the next Govt get out of this mess?

    reply: Yes, I agree and said so at the time.

  11. Martin
    Posted April 13, 2009 at 10:22 am | Permalink

    Look on the bright side – after decades of of being ignored somebody has woken up to the fact that Manufacturing Industry matters. We have for too long tried to run an economy built on Banks, Supermarkets and the Council.

    The Banks have had Zillions of Pounds, the Council Tax speaks for itself and as for shops – groan – we have too many. I still wonder what some shops are for.

    Mr Cameron was right – the economy needs rebalancing.

  12. Ian Jones
    Posted April 13, 2009 at 10:59 am | Permalink

    Great, I’m moving back to the UK soon and will need to buy a car. This should depress the nearly new car market prices by say… £2000 since who would buy a nearly new when you can buy new for just that little bit more!

    The other question being will the cars sold be built now or is there a huge field full of them already in which case the initiative will have no impact on jobs and will just bail out the car makers balance sheet!

    As for a Govt minister resigning, I have come to the conclusion they will not resign for any reason at all. I bet even if Mandelson repeated his prior exploits he would get away with it now!

  13. Neil Craig
    Posted April 13, 2009 at 11:00 am | Permalink

    As Xavier says this is clinically insane but the lunatics have indeed taken over the asylum. This merely increases the already over 50% of the economy that is parasitic government spending. That is the real cause of the recession.

  14. Blank Xavier
    Posted April 13, 2009 at 11:59 am | Permalink

    That new Tata Nano – the 1 lakh car – is 1,365 pounds.

    So…buy up every old car you can find. Pop over to France on the ferry and start buying up old French cars. Bring them into the UK. Buy a Nano and trade in your old car.

    Cost of old car – say 500 quid.
    Bounty – 2000 quid.
    Cost of Nano – 1365 quid.

    Total profit: 135 quid…and a brand new Nano. Which you then sell, brand new, second hand.

  15. Lola
    Posted April 13, 2009 at 1:05 pm | Permalink

    And spare a thought for all the vendors of cars up to 9 years old who will the value of their cars drop.

  16. MG Roadster
    Posted April 13, 2009 at 1:12 pm | Permalink

    Less of the ‘old banger’ Mr Redwood, if you don’t mind.
    I’m 40 this year and still in fine trim AND can still turn heads as I drive by. My bodywork is as sleek as the day I was manufactured and there’s very little plastic about me…..real wood,steel and leather. With my insurance at £90 per year and free road tax I’m cheap to run. So please don’t write me off just yet, there’s plently of mileage left in this ‘old banger’ yet.

  17. James Strachan
    Posted April 13, 2009 at 1:44 pm | Permalink

    John,

    I have the following cars :-

    MGB GT V8
    Rover P6 3500S
    Morris Minor Traveller

    I think that the world is a better place for having these cars alive.

    I am certainly not going to scrap any of them for £2,000 !

  18. Alan Wheatley
    Posted April 13, 2009 at 1:53 pm | Permalink

    Support for the car manufactures is being spun as a measure in support of the environment. If trading in the old for new is truly beneficial for the environment, then account has to be taken of the capital environmental cost of manufacturing the new, not just the running cost. We should be told how long it takes for the running environmental cost benefit to offset the capital environmental cost penalty of production. If those who support the scrappage scheme cannot answer that question then their argument is not to be trusted.

  19. E Justice
    Posted April 13, 2009 at 3:36 pm | Permalink

    It is like the wicked uncle in Aladdin,new lamps for old,and we all know what happened to him.

  20. mikestallard
    Posted April 13, 2009 at 4:02 pm | Permalink

    You make two other points.
    One is that the banks are being feather bedded. So they are and it is now well past the time – as you yourself have so often said – to break them up and sell them ASAP before they lose even more money. Governments are no good at running banks: they are after votes: bankers handle money professionally. Let the professionals, under the Governor of the Bank of England, get on with restoring public confidence and start to handle our money properly.
    The second point you make is just as serious. Leaking Treasury Secrets just before the budget is an entirely New Labour phenomenon. It is wrong, as explained clearly above.
    And what hypocrisy! When a Conservative MP was suspected of leakages, his office was turned over by the Police and he was put into a cell for several hours.
    I do not think the public will have forgotten that episode which reflects very badly on the new Nasty Party.

  21. Mike Paterson
    Posted April 13, 2009 at 5:05 pm | Permalink

    I dunno. Since this plan comes from the second worst Chancellor of the Exchequer in history, QED it must be utterly flawed. But, as the owner of just such an old banger and ready to buy a new car, I find myself the beneficiary of a Labour policy for the first, and no doubt last, time ever. Of course, there needs to be some sort of rider to prevent all and sundry running out and getting themself a banger for a few hundred quid. Only those who’ve owned one for at least five and a half months should do it!

  22. David B
    Posted April 13, 2009 at 5:53 pm | Permalink

    Sorry, been too busy on Guido’s all weekend. Back to the fold at last.

    And this “subsidy”, will it be funded from the massive retrospective increase in Road Tax that started the collapse in car sales in the first place?

    Joined up government. Ha Ha Ha…

  23. Demetrius
    Posted April 13, 2009 at 6:28 pm | Permalink

    You got it in one. We largely import cars, so each £2000 will add to our overseas imbalances. It is almost as illogical as lending to banks to support them, and then insisting that they lend to you to support all the debts you are racking up.

    I would like to change my car, now getting near zero interest on savings, so does this mean that the government wishes to encourage both dis-saving by savers and for non-savers i.e. debtors increased debt levels? If someone can explain the logic of this, please mail me on my Bedlam address.

  24. andy dan
    Posted April 13, 2009 at 8:09 pm | Permalink

    I’ve been considering changing my 11 year old Vauxhall Combo van for some time now. It’s reliable, fairly straightforward mechanically and cheap to run (about 45mpg), but a bit slow and tatty. I always thought I was being “green” by not changing it for a newer vehicle. (As Alan said, you have to take into account the capital environment cost of manufacturing the new) However, if Mr Darling offers me £2000 off a brand new Combo, and tells me I’m being “green”, I might just take him up on the offer…. and call it “Mandy”

  25. Adrian Peirson
    Posted April 14, 2009 at 4:31 am | Permalink

    My Car used to run very well on Veg Oil bought from the supermarket, ( before they caught on to this and the price went from 52p per litre to 130p per litler)
    Acutlly I used to Dilute it with regular diesel 50:50 as it is a little more viscous.

    If they wanted to help the Environment they could encourage more people to do this.
    It would help our Farmers, CO2 released from burning Veg oil is simply reabsorbed during next years growing season, so Veg oil produces NO NET POLLUTION.
    Of course, the Petrochemical Lobby and politicians who tax us would never allow us to simply drive up to the local farm and fill up with Freshly pressed Rape seed oil.
    With a little engineering, this same oil could well be used in oil powered Powers stations.
    The Petrochemicals industry woudl never allow that either, or the people who own 85% of the Worlds Uranium supplies that Brown has just enslaved the Nation to by committing us to Nuclear.

    Can’t have Farmers and the masses being independant of the Worlds Elites.

    http://www.vegoilmotoring.com/

  26. David B
    Posted April 14, 2009 at 6:43 am | Permalink

    Your readers may care to read this article from Der Spiegel. Another great bonus of the net being that foreign perspectives are readily available.

    http://www.spiegel.de/international/0,1518,618389,00.html

  27. Andrew Duffin
    Posted April 14, 2009 at 7:43 am | Permalink

    They’ll have a job selling this as a “green” measure.

    Anyone who pays attention knows that it is far more efficient in terms of total emissions/pollution to keep on running your old vehicle as long as possible, rather than take more resources in building a new one. This is especially true when you consider that newer vehicles have a far higher percentage of plastic, electronics, and other hard-to-recycle/dispose materials in them.

    But as usual, NuLab is banking on the fact the most people do not pay attention to details or facts.

  28. Andrew Duffin
    Posted April 14, 2009 at 10:38 am | Permalink

    @Adrian Peirson, you want to be careful doing that. The engine may appear to run perfectly OK, but veg oil don’t have the lubrication properties of the real thing, which means you slowly destroy your injection pump. Seen the cost of those? New engine time…

  29. MarkE
    Posted April 14, 2009 at 12:03 pm | Permalink

    Onre hardly knows where to start but fortunately others have noticed most of the flaws; the proposal isn’t green, using energy to manufacture replacements for perfectly serviceable, if unfashionable, vehicles is the reverse of green; it won’t benefit Brirish workers as there are so few employed in the British motor industry; the motor industry can’t even claim to be a victim of the credit crunch caused by Brown, because ten years ago there were twelve cars built for every ten buyers, and there has been no reduction in manufaturing capacity since then. All we will see is the sort of reverse Darwinism that so appeals to Labour, where manufacturers of cars no one wants will be subsidised while those making decent cars will be unable to compete with dirt cheap (but still over priced) cars.

    Labour were lected in 1997, 2001 and 2005 which demonstrates that there is no shortage of gullible people who will believe anything they are told, in the face of infinite evidence of the truth. Let’s just hope Brown doesn’t invoke civil contingencies to deny us the opportunity of humiliating him and the party that seems to exist solely to damage Britain in 2010.

  30. Prof Pat Pending
    Posted April 14, 2009 at 8:50 pm | Permalink

    This policy could only be devised by people who do not buy their own cars.

    And has anyone notice that the VAT discounts seem to be disappearing…..

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

  • John’s Books

  • Email Alerts

    You can sign up to receive John's blog posts by e-mail by entering your e-mail address in the box below.

    Enter your email address:

    Delivered by FeedBurner

    The e-mail service is powered by Google's FeedBurner service. Your information is not shared.

  • Map of Visitors

    Locations of visitors to this page