The car industry has welcomed the announcement of a car scrappage scheme in the Budget.

The Society of Motor Manufacturers and Traders said it was “encouraged the scheme was part of the Budget”, while The AA said: “A £2000 incentive from Government and manufacturers will help the economy, environment and employment.”

SMMT chief executive Paul Everitt said: “This is good news for consumers and will get people back into showrooms, kick-starting demand in the market. The scheme recognises the economic value of the motor industry and we are determined to make it a success.

“There is clearly a great deal to do and we look forward to discussing the finer detail of the proposal with Government in the coming days.”

AA president Edmund King said: “Cleaner, greener and safer cars will replace some of the older gross polluters. The pot of £300 million could benefit 300,000 drivers.”

The scheme will see the Government offering a £1000 grant to motorists buying a new vehicle up to 3.5 tonnes and trading in a 10-year-old vehicle. The manufacturer selling the new car will then match this figure.

King welcomed the simplicity of the scheme: “We are pleased that the scheme has been kept relatively simple without any CO2 restrictions on the type of vehicle to be purchased. If every 10-year-old vehicle were replaced with today’s equivalent we would see a 30% increase in fuel efficiency and almost 30% decrease in CO2 emissions.”

Manufacturers are not obliged to do contribute to the scheme as it is optional, but the Government discount will not be available without their matching the offer.

Motorists will only be eligible for the discount if they have owned the car they are trading in for longer than 12 months.

King also praised the inclusion of vans saying: “White Van Man is essential for the economy and is struggling in the current recession.”

Chancellor Alistair Darling also announced a 2p rise in fuel duty in his annual address to the Commons.