by Trevor Sturgess

An extension to the “bangers for cash” scheme may not be as generous as it seems, according to one Kent car dealer.

Business Secretary Lord Mandelson this week pledged a further £100m to the scheme, working out as £1,000 for every car. Dealers are required to chip in a further £1,000.

Bosses were concerned that if it ended when the initial £300m - or 300,000 cars - ran out, the car market would slump. But the latest cash injection ensures it should continue beyond the original February deadline.

Paul Barrett, managing director of Barretts of Canterbury, said he was pleased with the decision but thought the Government was not as generous as it liked to appear. The VAT paid by buyers for cars that would not otherwise be bought was roughly equivalent to the £1,000 subsidy and the scheme was therefore “cost-neutral.”

“I think it’s self-funding,” he said. “The maths that I’ve done is the VAT they get is enough to pay for the £1,000 the Government put in. If you assume that those cars wouldn’t have been bought, then the VAT is enough to pay for it.

"It’s a win-win for all. We’re very pleased because another 100,000 cars will be funded which should take us through to March next year and it’s got to be welcomed.”

The scheme had made a big difference to sales and achieved the aim of encouraging drivers to swap their old banger for greener motors.

Mr Barrett added: “We’ve probably had the best month’s trading in 18 months. It’s the first time that sales through the showrooms feel a little bit like normal. Whilst we don’t make huge sums of money out of the car scrappage scheme, it nevertheless generates footfall and interest.”

Richard Miller, director at Harbour Garage Kia, Whitstable, said: “Harbour Garage Kia welcomes this extension. With VAT expected to rise from the current rate of 15 per cent, an extension to the scrappage scheme will help to soften the blow to customers in Kent and help maintain momentum across the motor industry.”

David Seall, South East Region director for EEF, the manufacturers’ organisation, welcomed the decision “as a recognition that Government understands the need to underpin such a key sector, protect vital supply chains and skilled jobs.”