The Government’s car scrappage plan hit a bump in the road on its first day when three big manufacturers suspended the scheme.
Automotive giants Ford, Fiat and Honda told dealers not to register any new vehicles after issues with VAT payments emerged late in negotiations between the industry and the Government.
Business leaders have criticised the last-minute hitch to the “cash for bangers” scheme, under which owners of cars more than ten years old will get £2,000 off the price of a new vehicle when scrapping their old vehicle.
The Government and manufacturers plan to share the cost of the initiative, which will last until the end of February 2010 or until the Government’s £300 million funding runs out, but Midlands manufacturers Aston Martin and Jaguar Land Rover are not expecting a massive boost.
A spokesman for Ford said: “Based on details which have only become apparent late in these negotiations, Ford is working to resolve some outstanding administrative issues but is confident it can begin sales within a few days of the official start date.”
A Honda spokesman said its dealers had been told not to register any cars under the scheme until there was “clarity” on a number of outstanding issues.
Birmingham Chamber of Commerce and Industry (BCI) expressed dismay over reports that the scheme had been suspended by manufacturers.
BCI spokesman John Lamb said: “We had hoped the scheme would have a trouble-free transition in the light of lethargic government action on other promised areas of help for the automotive industry.
“With Ford, Fiat and Honda reportedly suspending deliveries of cars ordered under the scheme in a row over who pays the VAT, this looks like another case of the Government shooting itself in the foot at the expense of the carmakers. It seems incredible that the question of who pays VAT was not resolved before now.
"We had feared that the scheme would not be a ‘magic bullet’ for the British car industry because of the high proportion of cars the country imports. This stalling of the scheme seems to be the ultimate irony for hard-pressed carmakers in the West Midlands, who employ 100,000 people.”
A Society of Motor Manufacturers and Traders spokeswoman said the problem was a technical tax issue which was preventing some manufacturers from putting the new systems into place.
She said: “Some manufacturers are urgently seeking clarification from the Business Department regarding the treatment of VAT on new cars being sold through the scrappage initiative.”
AA president Edmund King said it was “ludicrous” that the matter of VAT had still not been sorted out.
He said dealers had been told this month that VAT of 15 per cent would be added on to the list price of a car and then the £2,000 reduction would be made.
This would mean that a car costing, say, £10,000 would have VAT of 15 per cent put on to take the price to £11,500 and the £2,000 reduction would lead to a final price of £9,500.
Mr King went on: “Even then some dealers were not sure about the arrangement and it’s absolutely ludicrous that the scheme has started with this lack of clarity. The AA fully supports the scheme but it is disappointing that there there is confusion over this vital question of VAT.”
A Business Department spokewoman said the Government had made it quite clear to manufacturers that the scrappage scheme agreement was between the Department and manufacturers and VAT of 15 per cent is added to the price of a new vehicle before the £2,000 reduction is made.
The spokeswoman added: “We are confident the manufacturers and dealers will get the arrangements and paperwork sorted quickly. Many companies are ready to go – for example, Nissan, Vauxhall, Toyota, BMW. We understand Ford is already taking many orders, it just needs a couple more days to finalise arrangements before it can start deliveries.”
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