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The Chancellor attempted to kickstart the ailing motor industry today by introducing a car-scrappage scheme.

Anyone with a car registered before December 31st, 1999, will get a cash incentive of £2,000 to trade in their old vehicle for a new one.

A total of £1,000 will come from the Government and the remaining £1,000 from car companies, with participants being able to buy any new vehicle, including small vans, rather than just low-pollution models.

About £300 million has been put aside by the Government to fund the scheme, which is expected to come into effect as early as mid-May and will last until the grant runs out, thus enabling 300,000 consumers to benefit.

The AA immediately hailed the announcement, saying drivers would be pleased with a “generous scheme”.

But car companies had been hoping that the Government would foot the entire £2,000-per-vehicle bill, while environmental groups had reckoned that those participating would be limited to choosing only “green” cars.

Only too aware of plunging new car sales and car plant shutdowns in recent months, Business Secretary Lord Mandelson and Transport Secretary Geoff Hoon had been pushing for the scheme to go ahead in the face of some opposition from the Treasury.

Today’s announcement smacks of compromise between the warring factions within Whitehall, with the scheme only costing the Government £300 million rather than the £580 million first envisaged.

AA president Edmund King said: “Drivers will be delighted that a generous scrappage scheme has been given the green light. The AA first raised this issue with Downing Street last September so are pleased that a scheme has finally been given the go-ahead.

“A £2,000 incentive from Government and manufacturers will help the economy, environment and employment. Cleaner, greener and safer cars will replace some of the older gross polluters. The pot of £300 million could benefit 300,000 drivers.”