Scheme begins that gives govt discount if you part-exchange a 10-year-old car for a new one.

The Chancellor has, as expected, backed a cash-for-scrap scheme for old cars. The announcement came in today’s Budget statement and means that owners will get a £2000 contribution when they exchange old for new.

The good news is that the scheme is due to begin operating as soon as mid-May – far earlier than the industry hoped for. The intention behind it is to give the car industry a much needed helping hand. Where last year we bought over 2 million new cars, sales in 2009 are well down and it was predicted that, without such a boost, the total by December would fall to as low as 1.6 million, putting many more car industry jobs at risk.

However, the scheme will allow for the cash to be paid only on cars at least 10 years old. Advance speculation was that cars would only need to be nine years old to qualify as is the case in Germany, where a similar scheme already operates. Similarly, it was hoped that the scheme would also help purchase cars up to a year old, but the Government has made it clear that the scheme will be good only for brand-new vehicles.

There are further catches, too. It’s no good rushing out now to buy an old banger for a few hundred pounds, hoping to cash it in for £2000 within a few weeks and so turn a quick profit. To claim the cash, you’ll have to prove that you’ve owned the car you’re swapping for at least a year.

What’s more, the Government will not, as first thought, be footing the entire bill for the scheme. The Treasury will pay £1000 and expects the motor industry to contribute the other half. But it's up to car manufacturers whether they pitch in and help – though it is expected that most, if not all, will. The Govt has put £300m into the kitty for the scheme and has given a closing date for the scheme of March 2010 – although it could end sooner if uptake is fast, and all the Govt's money is spent.

Will the scheme as it’s proposed harm your chances of selling a nearly-new car for a decent price – because year-old cars will suddenly look dear against similar new examples once the discount is available? Industry sources don’t seem bother that this may happen, reasoning that, by and large, few of those who buy nearly-new have older cars to swap.

Which cars will be eligible? Any car first registered on or before July 31, 1999 will qualify, provided it has a current MoT test certificate. So most T-registered cars and all with registrations older than that will be good.

Elsewhere in the Budget, the Govt announced that fuel prices will rise by 2p per litre from September, with annual rises likely until 2013.

Cash for scrap: your questions answered