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Will Lord Mandelson extend the car scrappage scheme?

As expected, Lord Mandelson will come under greater and greater pressure to extend the UK government's car scrappage scheme which encourages older vehicles to be scrapped in exchange for discounts of up to £2000 on new and more efficient vehicles. As we have covered on numerous occasions, the government's multi-million pound offer has been taken up by many car owners up and down the country and led to something of an "Indian summer" for the car retail sector.

However, many people believe that the funding for the scrappage scheme will run out towards the end of 2009 or possibly early 2010 and could precipitate a significant reduction in car sales in the UK. The industry itself is only now starting to get back on its feet, and a reduction in business could well push many over the edge and reduce competition and choice in the sector. Whether or not the UK government has funding available to extend the car scrappage scheme remains to be seen but there are real concerns that the sector will struggle if this support is taken away.

Over the next few months the UK government will need to end a number of fiscal policies including the car scrappage scheme and the reduction in VAT on the high street. Whether this will push the economy into a period of stagnation or in fact prompt another recession remains to be seen.

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