LONDON, April 22 (Reuters) - Britain announced plans on Wednesday to boost the ailing car industry with a scheme to give motorists a 2,000 pound ($2,914) discounton purchasing a new vehicle when they trade in one over ten years old.
Finance minister Alistair Darling said in his annual budget the government would contribute 1,000 pounds to a new purchase, with the remainder funded by car companies.
The move was welcomed by motoring organisations, although car manufacturers had hoped the government would finance the entire scheme and environmental groups had hoped it would be limited to the purchase of less polluting vehicles.
The AA also said it was disappointed by the government's plans to increase fuel duty by 2 pence a litre in September.
"Drivers will be delighted that a scrappage scheme has been given the green light, however motorists will be furious that he (Darling) has landed a fuel duty bombshell to pay for it," said AA President Edmund King.
The government has put aside about 300 million pounds for the scheme, which will last until March 2010 and potentially allow around 300,000 consumers to benefit.
"The loss of consumer confidence and credit crunch has led to a sharp fall in vehicle sales around the world. In order to help the car industry and retail trade, I can announce that a scrappage scheme will be implemented next month," Darling said in his budget speech.
Sales of new cars have plunged in the economic downturn, requiring government bailouts of major manufacturers such as General Motors and Chrysler and leading to big share price falls in car dealers such as UK-based Inchcape.
Many other European countries have introduced car scrapping schemes. New car sales in March jumped 40 percent in Germany after a scheme was introduced there, while in the UK they fell 30 percent.
"This is good news for consumers and will get people back into showrooms, kick-starting demand in the market," said Paul Everitt, chief executive of the Society of Motor Manufacturers and Traders (SMMT).
The car industry supports around 800,000 jobs in Britain, with 27 car and commercial vehicle manufacturers producing around 1.75 million vehicles a year and generating turnover of about 51 billion pounds, according to the SMMT.
Shares in car dealers were mixed following news of the scheme, which had been widely anticipated.
At 1310 GMT, Inchcape shares were up 11.5 percent at 17 pence, Pendragon was up 3.2 percent at 16 pence, but Lookers was down 0.6 percent at 40 pence.
The SMMT calculates that about 9.5 million cars and just under 1 million commercial vehicles will be eligible for the scheme. ($1=.6863 Pound) (Reporting by Mark Potter; editing by Simon Jessop)