Government urged to extend scrappage scheme

The leader of Britain's biggest business group has urged the Government to extend the car scrappage scheme until the general election to help the recovery from recession and boost employment. 

Richard Lambert, director general of the CBI, said the so-called "bangers for cash" programme had been a big success and had helped support manufacturing jobs across the country.

The Government has extended the scheme, under which motorists receive a £2,000 discount for trading in cars over 10 years old, by £100 million to £400 million. The cost is shared between the Government and the car industry, and analysts expect the money to run out early in the New Year.

Mr Lambert, speaking ahead of the CBI annual annual conference on Monday, said in an interview with the Press Association: "The scheme cannot go on forever, but the Government should think seriously about extending it until the general election."

Mr Lambert said car manufacturers were concerned that the ending of the scheme, coupled with VAT returning to 17.5 per cent in the New Year, will hit sales just as the industry recovers from the economic downturn.

"The scheme has had a big impact - distributors in particular have had a great few months."

The theme of the one day CBI conference is "roots to recovery", the issue at the heart of every sector of industry following a year of rising unemployment, the crisis in banking and the general state of the economy.

Mr Lambert said there was no doubt the economy was "stabilising", with business groups now predicting that unemployment will not reach three million next year, as previously feared. But there was still a lower level of economic activity, and evidence that firms cannot do any more to hold on to staff, he believed.

Workers had made sacrifices, such as accepting shorter hours or lower pay, said Mr Lambert, but he revealed that employees at one manufacturing firm on short time had asked to be made redundant because they needed the pay-off money they would receive.

"The switch from working overtime to short-time is leading some workers to say they would be better off being made redundant."

The CBI boss said he detected a feeling of "anxiety" among firms that if demand for goods and services did not pick up, they could have to make redundancies next year.

Mr Lambert said the Government deserved praise for some of the measures it had taken to stimulate growth, such as the car scrappage scheme, and deferred tax payments for smaller companies. But he added that some programmes had made "no impact", such as one aimed at improving trade credit.

Mr Lambert said the Government should have been putting more money aside for a "rainy day" when the economy was healthy, although he believed public finances were in a "pretty fair shape" before the recession started.

The CBI wanted the emphasis to be on public spending cuts rather than tax rises to tackle the public sector deficit, while Mr Lambert urged the next Government to turn its attention to tackling the pensions of public sector workers.

"We are developing a two tier workforce. Medium earners in the public and private sectors are pretty close, but pensions are much higher in the public sector, equating to benefits of up to 30 per cent. We are building up liabilities for future generations."

Mr Lambert said productivity in the public sector also had to be addressed because it had fallen over the past decade, compared with increases in private firms. Asked if the CBI regarded the Government as being particularly business-friendly, Mr Lambert replied: "Our members would probably say no."

A spokesman for the Department for Business, Innovation and Skills said the Government had no plans to extend the scheme. He said: "The scheme will remain limited and will close at the end of February 2010 or when the money runs out whichever is the sooner. We have no plans to extend the scheme further."

Related stories:
http://kn.theiet.org/news/aug09/scrappage-boost.cfm
http://kn.theiet.org/news/sep09/honda-british-jazz.cfm
http://kn.theiet.org/news/sep09/ford-ramps-engines.cfm

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