Loopholes in the Government’s car scrappage scheme will allow wealthy drivers to trade in non-running wrecks and obtain £1,000 from the taxpayer towards a new sports car, 4x4 or luxury saloon.

Owners of cars that have no MoT certificate and are sitting rusting in backyards are eligible for grants if a statutory off-road notification (SORN) has been made.

This is a declaration that a car is not being kept on a public road and therefore does not need to have an MoT or be taxed. A SORN is free and can be made via the DVLA website. In the year to the end of March, 4.3 million were made.

This means that taxpayers are likely to be subsidising cars that would have been bought anyway, without the grants. Because many will be replacing vehicles already removed from the road, the environmental benefits of the scrappage scheme will be limited.

Meanwhile, drivers on lower incomes who want to buy small, fuel-efficient cars are struggling to take advantage of the scheme because, even with a £1,000 grant, they cannot obtain loans to cover the rest of the purchase price, says the AA.

The Department for Business, Enterprise and Regulatory Reform stated that the vehicle being scrapped must have been registered for at least a year to the driver seeking the grant and have a current MoT certificate but a department official admitted to The Times that if the driver completed a SORN, the car would not require an MoT certificate, tax disc or insurance.

Manufacturers must match the £1,000 grant with a £1,000 discount.The rules of the scheme are prompting makers to encourage drivers to buy bigger, more fuel-hungry cars.

Sales of small, fuel-efficient cars, such as the Fiat 500 and Ford Fiesta, have soared in recent months while the rest of the market has slumped. Ford said: “We don’t need the scrappage scheme to sell the Ka or Fiesta. We need it for larger cars for which we have excess stock. We are incentivising people under the scheme to go for bigger cars.”

Ford is offering £4,500, including the grant, off a Mondeo and £5,000 off a Galaxy. However, it is offering only £2,000 off a Fiesta and telling drivers they must wait at least three months for delivery. Professor Garel Rhys, of Cardiff University Business School, said that at least 100,000 cars bought under the scrappage scheme would have been purchased anyway.

Any driver can get a friend or relative with an old car to trade it in on their behalf for a new one and transfer ownership. The Enterprise department official said that this would be permitted.

Manufacturers will meet BERR officials today to discuss the scheme.

CUTTING CORNERS

— If you have an old car on the driveway that will not pass its MoT, complete a statutory off road notification on the DVLA website. Dealers will happily collect it, scrap it and give you the discount. The car must have been registered in your name for at least a year

— If you don’t have an old car to scrap, find a friend who does. Get him or her to go along with you to the dealer and sign the paperwork. When the deal is done your friend can transfer ownership to you

— Several dealers told a Times reporter, who posed as a buyer wanting to take part in the scheme, that they could arrange an MoT regardless of the condition of the vehicle. “It’s going to be scrapped anyway so the MoT won’t be a problem,” one said.