UK car industry pushes for scrappage scheme to help buy new petrol and diesel vehicles

The UK automotive industry has been in confidential talks with the government over a possible £1.5bn scrappage scheme or “market stimulus package” that it insists should encourage the purchase of diesel and petrol cars on an equal footing with cleaner vehicles.

The plans under consideration by industry and government would take £2,500 off the price of a car and put a further 600,000 new vehicles on the road.

Although many campaigners and business leaders have demanded that post-coronavirus industry bailouts be linked to environmental goals, the UK car industry said a key principle was that the incentive scheme is fair to all types.

In correspondence with the government seen by the Guardian, the Society of Motor Manufacturers and Traders (SMMT) said the scheme must “support the entire market, not just disproportionately favouring specific segments or technologies, recognising the diverse nature of UK automotive manufacturing”.

While government has been pushing the industry to rapidly adopt greener technologies to help meet net zero-emission climate change targets, more than 90% of cars sold last year were purely petrol or diesel. The biggest manufacturers in the UK, such as Jaguar Land Rover, currently remain committed to diesel – although diesel’s market share has dropped from about half of new car sales to just over a quarter in the wake of the VW emissions scandal, public health fears and changing tax rules.

In a letter sent to the chancellor, Rishi Sunak, and the business secretary, Alok Sharma, in May pushing for “confidential discussions”, the SMMT’s chief executive, Mike Hawes, admits that the 600,000 new cars would mainly be “additional in an otherwise moribund market”. While the SMMT claimed that the scheme “could also support wider government ambitions in terms of climate change and improved air quality”, it said the “primary benefit would be in jump-starting the market, the sector and the economy without further drain on the public purse”.

The SMMT said the scheme would bring a net benefit to the exchequer of around £3 for every £1 spent, through tax receipts from VAT and vehicle excise duty; get manufacturing workers off the Treasury’s Covid-19 job retention scheme; and help avoid “looming redundancies in a depressed market”.

The letter said that business minister Nadhim Zahawi had been “extremely helpful” in earlier talks and had acknowledged that a scheme would also have “the intangible benefit that such a boost to consumer spending would do for consumer confidence”.

A car scrappage scheme introduced after the financial crisis in 2009 led to hundreds of thousands of extra vehicle sales.

The UK car industry has been hit hard by the coronavirus lockdown. Production was halted at plants across the UK during April, when just 197 vehicles came off production lines and sales collapsed by 97.3%, making it the industry’s worst month since 1946.

The primary demand of a previous SMMT letter from 24 April– the reopening of car dealerships – was granted early last month by the government, with specific permission for showrooms to open ahead of other non-essential stores from 1 June.

However, a scheme that would incentivise the purchase of new diesel and petrol cars would run counter to government net-zero commitments and plans to phase out fossil fuel vehicles over the next two decades. Earlier this year the transport secretary, Grant Shapps – who appears not to have been copied-in on the correspondence – mooted bringing forward the target date for banning sales of new diesel and petrol cars from 2040 to as early as 2032.

Lockdown has resulted in major improvements in air quality in many cities, but there are signs that car use and ensuing pollution could soar as businesses reopen and people return to workplaces. While passengers on rail, bus and other public transport are a small fraction of pre-crisis numbers – between 5% to 20% – road traffic is already back at around 70% of normal levels.

Richard George, head of oil at Greenpeace UK, said: “If the government is going to bail out the car industry, then every penny should go to supporting the transition to clean electric vehicles. People have noticed and enjoyed the cleaner air we’ve seen during lockdown. Ditching petrol and diesel for electric cars and vans would improve air quality for good, with huge benefits to our health and environment, as well as pulling Britain’s car industry into the 21st century and securing a future for its workers.”

The SMMT plan has emerged while other industry leaders have agreed that any bailouts should have green conditions attached. Earlier this week, about 200 signatories – including the bosses of BP and Heathrow – wrote to the government to say that efforts to repair the economy “can and should be aligned with the UK’s legislated target of net-zero emissions by 2050 at the latest”.

Asked about the SMMT proposals by the Guardian, Hawes said: “Like many sectors, we have been in constant communication with government, highlighting the situation and what support might be needed when the immediate crisis eases.”

He said that while there appeared to be a positive response to the opening of car showrooms on Monday, and some pent-up demand, “the effect on underlying consumer confidence will be unclear and we may need to work with government to identify ways of boosting demand, especially given the contribution this sector makes to the economy and jobs. That time is not now but industry, and government, need to be prepared for all eventualities”.

The government was approached for comment.