David Prosser: Scrappage dosh will leave the country

Outlook: The VAT payable on each car sale generated more than pays for the cost of scrappage

The £2,000 scrappage incentive is now having a beneficial impact on small car sales, yesterday's figures from the Society of Motor Manufacturers and Traders suggest, with sales of models such as Fiestas up sharply.

That's good news, if you play a part in making Fiestas, of course, or if you earn a living flogging them. But what if scrappage has simply skewed spending, rather than prompting genuinely new expenditure?

If, for example, you run a large chain of furniture stores – most such shops in the UK are struggling right now – the fact that people have been encouraged to spend a few thousand pounds on a new car may mean they won't, after all, be popping in to pick up one of your cut-price sofas.

Nor will scrappage necessarily return the car sales market to health. For one thing, it's a temporary scheme with limited funding. For another, buyers of cars for business and fleet use can't access the scheme, which is why sales in these areas of the market are still slowing. Plus the incentive on offer isn't big enough to encourage sales of larger, more expensive cars.

Then there's the international dimension. Very few of the cars getting a boost from scrappage are made in the UK – and none of them by UK-owned companies. So while the scheme has beneficial effects for UK parts suppliers and the trader sector, most of that incentive dosh is going abroad.

It's a tricky business offering economic incentives. Still, one thing is worth remembering – the cost of scrappage to UK taxpayers is minimal. It's not just that the Government expects car manufacturers to pay half the £2,000 on offer, but also that, with the exception of the very cheapest cars, the VAT payable on each car sale generated more than pays for the cost of scrappage.