The Treasury is blocking plans to give motorists £2,000 towards the cost of a new car, The Times has learnt.

The decision is a huge blow to Lord Mandelson, the Business Secretary, who has staked his reputation on rescuing the beleaguered car industry.

It has caused a deep rift between him and Alistair Darling, damaging relations between two government departments at the centre of efforts to lift Britain out of recession.

Lord Mandelson wants the Chancellor to make his scrappage scheme the centrepiece of the Budget on April 22. However, Mr Darling and some Treasury officials have expressed deep anxieties about the cost and terms of the programme, which would encourage drivers to scrap old vehicles for new, cleaner cars. It would also give the motor industry a sales boost.

Under Lord Mandelson’s plan, motorists who owned cars more than nine years old would scrap their vehicle and obtain a certificate. This could be presented at any car dealership in Britain to claim a £2,000 discount on the price of a new car or one less than a year old. The scheme is based on one in Germany that has been hailed as a huge success.

The deadlock is a sign of growing differences between the Treasury and Lord Mandelson’s Department for Business, Enterprise and Regulatory Reform and is likely to reinforce the perception that Lord Mandelson is a potentially divisive force within the Labour Party.

He has already expressed publicly his frustration at the speed with which the Treasury is addressing the crisis facing the car industry. In private, he has also let his increasing irritation with Mr Darling and the Treasury be known. According to officials, the Business Secretary has been heard openly to ask: “When was the last time we had a successful Budget?”

The Society of Motor Manufacturers and Traders (SMMT), which represents the motor industry, handed its scrappage proposal to Lord Mandelson in February. There has been no formal response from the Treasury, which must sign off the programme. Officials are understood to be concerned that the scheme will prove expensive to implement and that drivers will spend most of the money on imported vehicles.

The SMMT has blamed part of last month’s 30 per cent fall in new car sales on uncertainty about scrappage. A spokesman said: “Motorists have held off from buying a new car until they know whether the scheme is going to happen. You wouldn’t buy a car today if you thought you could get £2,000 off in a few weeks.”

March and September, when new car registrations are released, are traditionally the busiest months for new car sales. It is estimated that the British car industry supports about 800,000 jobs, including car factory workers, mechanics and salesmen.

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