New Car Grants Or Tax Relief on New Car Purchases

By Karl Lavery

The German experience has been mixed and raises some serious concerns.

Firstly; the typical owners of these older cars would usually be in the market for a 3 to 6 year old car on replacement. By incentivising these people to buy a 'new' vehicle, it has jeopardised the livelihood of many used car dealers. A number of whom have gone out of business as a direct consequence of the resulting loss of trade which has switched to the new car dealerships.

Secondly; this incentive is funded by 'all' of Germany's tax payers, yet many of the new cars being bought under the scheme are manufactured in other countries, thus the benefit to the German economy directly is marginal at best.

Thirdly; an incentive which requires the older vehicle to be scrapped is deeply flawed. Effectively a 10 year old car in very good condition could be scrapped, yet many similar aged or older cars will be left on the road in much worse condition and their owners will be deprived from being able to replace these cars with the 'superior' condition vehicles as they will have been scrapped.

So what is the alternative. I would suggest that for a limited period until the economy is back on its feet, it would be far more effective and far better for the cash flow of the public purse not to provide a grant. Instead, 'anyone' who buys a vehicle which meets certain eco standards, should be able to benefit from the same tax benefits afforded to business owners of vehicles. That is to say, an annual Income Tax offset of 20% of the value of the vehicle where the CO2 emissions are below 160g/km and 10% where the CO2 emissions are greater than 160g/km.

The above would have several advantages.

Firstly; the cost to the public purse will be spread over a longer period.

Secondly; rather than being restricted to those who own vehicles in excess of 9 yrs old and requiring them to scrap those vehicles, it would be more appropriate not to place a requirement to scrap a vehicle. Instead, let the older vehicles enter the used car market naturally. Then market will naturally dictate which vehicles will be popular for resale. By natural selection, it will be those vehicles which are less desire-able, in poorer condition or with greater running costs and punitive high emission road tax that will end up on an accelerated path to the scrap yard, without any cumbersome bureaucratic input.

Thirdly; it will favour any manufacturer who is committed to providing vehicles that meet the lower CO2 emissions.

Fourthly; it will reduce the risk of swinging the car market unfairly in the favour of new car dealers, as it will still leave a healthy, though transformed, used car market.

Fifthly; the system for such tax breaks are already in place at HMRC (for businesses) and would not require a completely new department to run it. Thus saving more money.

Finally; this methodology will not dictate as to which form the 'eco friendly' vehicles should take. For example, by not imposing blinkered incentives which favour electric or hybrid cars, it will leave the motor industry to use its skills to develop a wider range of technologies and forms of propulsion, including Hydrogen fuel cells, smaller supercharged and turbocharged engines, regenerative braking systems and stop-start technologies, to meet our needs in the future.

I have to say I do not hold out a great deal of hope on this, as I believe there is a lack of forward vision and the ability to think of the bigger picture amongst those whom we have charged with running our country.

For those of you who are approaching or in retirement, it is actually possible to use Pensions legislation to get the tax man to pay for your new car! If you want to know how, write to me or call me.

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