Driving a really bad deal

Trust New Labour to snatch defeat from the jaws of victory! As always in politics, the detail matters more than the big gesture, and now the details are emerging of the much-flagged plan to stimulate car sales, they're worrying in the extreme.

First, Peter Mandelson (I'm uncomfortable using the 'Lord' honorific for someone whose conduct in public life has been so shameful) has announced that the scrappage allowance will apply to all cars aged nine years or more. This is unjustifiable, in fact damaging, on environmental grounds. The average lifespan of a car in the UK is 19 years, and the energy consumed in its manufacture and scrappage is roughly equal to that consumed in fuel in that time. So halving the operating life of a car is wasteful of energy - and, if you believe that the consumption of carbon-based fuels creates global warming, also damages the climate.

Second, relatively little progress has been made in the energy efficiency or pollution levels of cars in the past nine years, so there will be little environmental upside to counterbalance the profligacy of scrapping such young vehicles. In the past decade, cars have got more efficient, but also heavier - because of increased pressure for safety measures - and to compensate for this, more powerful. In my view, the scrappage scheme is wrng-headed in its entirety, but if it has to proceed, better to set the cut-off date in the early 1990s, a time when there were few diesel cars (which are inherently more efficient than petrol) and before local emissions were improved through the introduction of mandatory catalytic converters for petrol models.

Third, the scheme is indiscriminate, in that any car more than nine years old qualifies - from an ultra-efficient diesel hatchback to a gas-guzzling limousine. Had environmental concerns genuinely been at the forefront of Mandelson's mind, better surely to focus the subsidy on those scrapping the worst-polluting vehicles. As things stand, there's a risk that the initiative will result in the greenest decade-old cars being taken off the road and the worst polluters remaining in use. Nobody is going to scrap a car worth more than the allowance, so the cars most likely to be crushed are the small, economical hatches that cost the least when new.

Which brings me on to my fourth point: the £2000 taxpayer-funded bounty applies to all new cars, not just the most economical. And in the current climate, when it's very hard to get personal loans and only the asset-rich feel comfortable making a big capital purchase, the prospect surely exists of wealthy buyers of new Porsches and Ferraris scouting around the classifieds for a cheap secondhand supermini to present as a trade-in. Thus, one low-consumption car is taken off the road before its time, to facilitate the purchase of a new supercar.

The fifth drawback to the scheme as proposed is one I've raised before: most new cars (I believe it's 78 percent) sold in the UK are built abroad, so the scheme will largely stimulate manufacturing in the Far East, Eastern Europe, Germany, France and Italy. Mandleson's counter-argument is that many of the components used in new cars built abroad are made in the UK. This is true, though these represent a small proportion of the total value.

However - and this is the sixth drawback to the scheme - component suppliers will also suffer as a result of the policy because they will be deprived of the replacement parts business associated with keeping the cars scrapped under the scheme on the roads. It's a basic principle of the economics of car ownership that as a vehicle ages, maintenance bills grow as parts wear out, while depreciation - the scourge of new car ownership - diminishes.

Seventh, the transfer of revenue referred to above will also take income from the many independent mechanics dotted around the country who service and repair these older cars. Family-owned small businesses, they are locally owned and managed, and the money they earn is spent locally too. In contrast, new cars are sold and serviced by franchised dealerships that are nowadays owned overwhelmingly by large plcs, whose shareholders may be spread throughout the globe. Thus New Labour assaults small business, yet again.

Eighth, in a bizarre twist, it would seem they intent extending the scheme to 'nearly new' cars, not just newly registered ones. So taxpayers could be saddled with all of the costs of the scheme with none of the claimed, if doubtful, benefits to the UK automotive components industry.

My ninth, and penultimate, argument against the scheme, before I move on to the greatest craziness of the lot, is that, as is so often the case with New Labour schemes, is that it will disproportinately benefit a pampered elite, namely public sector workers. Most of those in the private sector have either lost their jobs or are too uncomfortable about their job security to want to make a major capital investment. The state of the economy, rather than the cost of cars, is the principal reason why new vehicle registrations are hovering around half their normal level. Those who feel best able to buy, who I suspect will disproportionately consist of the public sector workers whose jobs remain secure, may possibly bring forward purchases, but I don't see them buying more cars due to this measure - and if they did, how perverse it would be to see a supposedly 'green' incentive putting more cars on the road...

Finally, the real fruit loop: the £5000 incentive to buy electric vehicles. Thankfully, this measure has been deferred until April 2011 and includes only fully electric vehicles, not hybrids. But it's spin from start to finish: the product cycle for bringing a new car to market is such that there will be no significant enhancements to the viability, and hence popularity, of all-electric vehicles in the next tw years.

Of course, the case for encouraging the purchase of even much-improved pure-play electric vehicles is far from being a slam dunk. They're only as green as the means by which the electricity that charged them was generated. And the UK doesn't have a great track record in this area.

As always with New Labour, we've been presented with a headline-grabbing scheme that seems on the surface to address two problems - the state of the economy, and the environment - but which, in reality, achieves neither goal. Along the way, the scheme makes Brown and Mandelson look good with the EU, whose nations will build many of the cars purchased with the subsidies, and a few mainly public sector workers will save a few quid by bringing forward purchases they would have made anyway. But the cost to the rest of us, those who work hard to create wealth and pay our taxes, will be immense.