I guess the other angle I was coming from, and what some on here have also mentioned is that if you are going to buy a new car anyway (and there are some people who will always buy a new car!), do you:
1) go to the dealer and pay the full (or negotiated) price
2) buy a secondhand car for £300, scrap it, and claim a £2000 discount on the new car?
Also, not everyone who has a sub-£2000 10+ year old car is necessarily poor! My partner's parents last year sold their R reg freelander and bought a brand new Pug 207 estate. My partner has a 12 year old 306 which is in almost mint condition, but we could probably afford to get a new one if we wanted.
Whilst it is not the cleverest idea to get a car on finance right now, some (many) people will still do it! My sister is a case in point. She has my old car - a 1998 Peugeot 306 Meridian TD. It's in good nick, no rust, runs well, is economical and comes with loads of extras like alloys, leccy windows and air con. She has been going on about getting 'her new Ka' for ages, and will probably eventually get one on finance despite our objections. If she sold the pug, she would get £1000 tops second hand. But if she scraps it - a perfectly good, reliable car, the government will put almost a third towards an new entry level Ka.
In Germany, the scheme has boosted the low-mid end of the new car market considerably, but the top end hasn't seen any significant sales rise. I would expect to see a lot more new small-engined, economical city cars on our roads soon - perhaps this is the effect the government intended?