Government not keen to scrap scheme

A brief follow-up from Thursday's post. Today Lord Mandelson announced the extension of the UK government's car scrappage scheme to include a further 100,000 vehicles above and beyond the scheme's original target of 300,000 vehicles. The scheme gives any motorist scrapping a car that is more than 10 years old £2,000 off a new car, half funded by government and half funded by the car manufacturer themselves. This move will extend the cost of the scheme to government to £400m, up from £227m. Mandelson argued that it was important to help the car industry through difficult times. While keeping businesses going and workers in jobs may be important in the short term, the long run benefits are unclear; arguably government subsidised the price of British Leyland cars through the 1970s, as well as buying its products for government use (such as post office vans) this did not help British Leyland sustain itself in the long term. And indeed at present the scrappage scheme is only increasing the proportion of UK production sold in the UK market rather than increasing total car sales, which in August this year were down 31.5% compared to August 2008. And this at a time when the pound is extremely weak which should help the competitiveness of UK exports. Like many other government interventions in industry, this one is just intended to make politicans look good rather than improve competitiveness and profitability in industry, which is what will keep the jobs in the UK in the long run.