The Government’s “cash-for-bangers” scheme drove the year’s biggest monthly increase in new registrations in October, when sales jumped by 31.6 per cent.

Some 168,942 new cars were registered last month, up from 128,352 the year before, as sales of vehicles to private buyers increased by 86 per cent to 89,532, according to The Society of Motor Manufacturers (SMMT).

Sales of fleet cars decreased by 2 per cent to 74,445 because company cars are rarely old enough to qualify for the Government scrappage scheme, where owners of vehicles that are more than ten years old receive a £2,000 discount on a new model by trading in their old one.

Paul Everitt, chief executive of the SMMT, said the scrappage scheme was responsible for more than a fifth of October’s sales.

He said that customers wanting to avoid the VAT tax increase planned for January, when the rate will revert back to 17.5 per cent from 15 per cent, had also helped boost demand.

Last month’s increase followed rises of 11.4 per cent in September, 6 per cent in August and 2.4 per cent in July, as the Government’s vehicle scrappage scheme, introduced in May, gathered momentum.

The scheme had looked likely to run out as soon as November but it should now last through to the start of 2010 after the Government extended it by a further £100 million to £400 million towards the end of September.

Howard Archer, chief European and UK economist at IHS Global Insight, said: “While the further pick up in car sales in October was clearly driven primarily by the scrappage scheme and a desire to beat January's VAT hike, it may also be a sign that a significant number of consumers have greater scope and willingness to step up their discretionary spending. This is due to their purchasing power being lifted by sharply reduced mortgage interest payments, lower utility bills and a moderation in inflation.

Ford’s Fiesta was the best selling model in the month, for the eighth time this year.

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