We\’re going to see this all over the place:
Scrappage has led to an estimated 20pc boost in sales, and is turning out to be a money spinner for the Treasury. This is because the amount of VAT the Government recoups on many of the deals is greater than the £1,000 subsidy it gives to the owner of a 10-year-old car to buy a new model.
With VAT currently at 15pc, the Treasury is in profit whenever a scrappage customer pays more than £7,600 for a car including tax. According to the motor industry the average price of cars bought under the scheme has been £9,000.
This means that the Treasury is on course to net £405m in VAT receipts, £105m more than is being invested in the scheme, if the government ceiling of 300,000 deals is reached.
That only works if you count all cars that are sold under the scheme and do not subtract the number of cars that would have been sold without the scheme.
Economics, as has been noted, is something which happens at the margin. We want to know what are marginal sales and what has been the cost (and tax revenue received from) those marginal sales.
Sceptics argue that at least some of the deals would have taken place without the subsidy. This view is held in Whitehall, which is resisting calls to extend the programme.
Someone with some sense down there then. Hurrah!
So, if you see someone touting this idea that we taxpayers have all made a profit by subsidising new car purchases and they don\’t mention marginal numbers, only gross, you\’ll know that they are simply ignorant.
Do report back if you see examples….