Imagine someone taking away your old clunker and then the government handing you a nice fat cheque to put towards a new car. It may sound too good to be true, but it's happening in several European countries right now.

What is a car scrappage scheme?

The UK car scrappage scheme, as proposed to the government by the Society of Motor Manufacturers and Traders (SMMT), would mean owners of cars or vans that are at least nine years old could scrap them and receive £2,000 towards the cost of a new (or up to one-year-old) car. A proviso is that the car you trade in must be taxed and tested and have been owned by you for at least one year.

Economic benefits

There are plenty of reasons why such a scheme would be good for the UK. For starters, the car market is suffering more than most (March 2009 sales fell by nearly a third compared with March 2008), and a hefty deposit courtesy of the government would make buying a new car that much more affordable, thus stimulating the car industry, and by extension, the wider economy. More sales in any sector will boost the economic situation in the UK. Increased demand for cars could mean production lines heading back towards capacity and fewer lay-offs. Add to that the fact that the government could reclaim VAT on sales, the rise it could have on consumer confidence in the car market and the extra cash and jobs it could bring in, and we're all likely to have a smile on our faces thanks to car scrapping.

European schemes

A similar scheme in Germany, for instance, increased new car sales dramatically, even with the general economic malaise. France and Italy also have successful schemes, and Spain has just launched its own version. Most of the European schemes allow you to trade in your car if it's over a certain age (around 10-years-old in most countries), or over a certain mileage. In return, you get a substantial amount of cash towards the cost of a new, greener car: anything between €1,000 and €2,500.

The green benefit

As new cars are generally more environmentally friendly than older ones, the environmental impact could be huge. A 10-year-old car emits, on average, 15% more C02 than a new model. Multiply that over 100,000 new cars covering 10,000 miles a year and it could prevent 240,000 tonnes of C02 from entering the atmosphere. Many of the European schemes insist that your new car is fairly green and emits less than a set amount of C02 - somewhere around 140g/km is commonplace.

Would car scrappage schemes work in the UK?

Figures say it certainly would: Brits are big fans of shiny new cars, and a recent survey by the SMMT concluded that 76% of consumers are in favour of a scheme, while over 60% would take up the offer if the government went ahead. The research also suggests that a majority of people who would take up the offer would be opting for smaller cars, too. That would mean less C02, less fuel consumption and lower running costs as a result. There are indications that a UK car scrappage scheme is on its way, with any announcement likely to be made in the April 22nd Chancellor's budget. Will any such scheme boost the UK car industry? Only time will tell, but one thing's for certain, whether you drive a smoky old banger or brand new eco-friendly model, you're still going to need car insurance.