Gordon Brown will make the final decision within days on whether to offer motorists a taxpayer-funded incentive to trade old cars for new.

Lord Mandelson, the Business Secretary, supports proposals to give owners of old cars about £2,000 towards the cost of greener models. At a meeting last week of senior ministers Alistair Darling, the Chancellor, refused to give the scheme the all-clear for inclusion in next week’s Budget. Instead he insisted that Lord Mandelson’s department do more to prove it would work.

The car industry wants Britain to match other so-called scrappage schemes undertaken in Europe. It cites Germany where sales of new cars have soared after owners were offered incentives of about £2,250.

It is resisting attempts to halve the bounty placed on cars more than nine years old and to restrict the scheme to more expensive, British-made cars.

The Treasury, concerned over the cost, is understood to have suggested that the industry match a taxpayer bonus of £1,000. Since most new cars are manufactured abroad it is also looking at whether to slant the scheme towards costlier models, which are more likely to be made in the UK. The Society of Motor Manufacturers and Traders said that any attempt to dilute the scheme would condemn it to failure: “To be effective any incentive has got to be attractive to buyers around the £12,000 mark.”

Mr Darling is thought to have asked Lord Mandelson’s department to produce further evidence backing up claims that a scrappage scheme would help to revive Britain’s car industry through benefits for component manufacturers and others. He also wants to be reassured that it could be set up quickly and efficiently.

One senior figure close to the Chancellor told The Times that he thought Mr Darling was inclined to drop his remaining objections. “He’s not negative. He just wants to be convinced that it can deliver.” His aides conceded last night that the final decision would be taken by the Prime Minister in consultation with Mr Darling and Lord Mandelson.

The Business Secretary has long been sympathetic to the car industry, which first approached him in November. As the credit crisis engulfed the economy, all types of lending — including for cars — dried up.

He pushed through credit guarantees intended to comfort lenders to car manufacturers, and then asked experts in the car industry for proposals that could be used as the framework for a debate on scrappage. Those plans were handed to him in February, and are believed then to have been sent to the Treasury for consideration.

e-Poll: would you scrap your old car for a £2,000 incentive?

THE EUROPEAN SCHEME

The German scheme, introduced this year, offers a €2,500 (£2,250) incentive to consumers who buy a new fuel-efficient car and at the same time scrap a vehicle that is more than nine years old. German car sales have risen 40 per cent

Slovaks who own a car that is more than ten years old now receive a €1,000 state subsidy towards the purchase of a new car costing no more than €25,000. The Government will match a further €500 contribution from the vending garage

French motorists may scrap cars that are more than ten years old and claim a €2,500 subsidy towards a replacement as long as emissions from the new car’s engine match the Euro 4 rating

In Spain there is a 0 per cent loan of up to €10,000 towards the purchase of a new car that is less than €30,000 in value and has C02 emissions of less than 140g/km

In Greece, the Government will pay between €400 and €800 for the car to be scrapped and a further €1,500-€3,400 if the motorist buys a new car with ecological credentials.

Source: European Automobile Manufacturers' Association

Money Central: Five things to fear from the Budget

Explore UK News

• Crime News

• Education News

• Health News

• Scotland News

Times Recommends

• Fern Britton: 'I still can't see that I was wrong'
• Extreme cooking
• Easy French: Tarte Tatin