Rachel Reeves is expected to push to scrap almost £300 million of tax breaks for the Motability scheme, which helps provide cars for disabled people, which could raise concerns among some Labor MPs.
The Treasury is reported to be considering eliminating tax breaks of up to £1 billion, but the savings will not be as high as that figure, with concerns among ministers that some policy choices could lead to the collapse of Motability.
In the Budget, he is expected to scrap some tax reliefs for mobility cars, including imposing an insurance premium tax, which would make it more expensive to lease a car, and imposing VAT on upfront payments for high-value cars.
However, the more drastic option of eliminating the VAT exemption on the sale of ex-motility vehicles will not be adopted, given concerns about its impact on the scheme. A government source suggested that the stated ambition of saving £1 billion from the policy was never a target or a realistic level of savings.
The Motability scheme allows disabled people to use their Personal Independence Payment (PIP) benefit to lease new cars for three years. The scheme is run by a private company, overseen by a charitable foundation, which buys new cars and then leases them to claimants for three years before selling them on.
The changes to be announced by Reeves in the Budget come on top of Motility’s move to remove premium brands of car such as BMW and Mercedes from being eligible for the scheme. A very small number of claimants deposit the advance amount to get a more premium car. Luxury brands make up only 40,000 of the 800,000 Motability cars, or about 5%.
The scheme has been the subject of hostility from right-wing politicians, the right-wing press and on social media, with critics claiming that too many people are getting “free cars”. In fact, the vehicles are paid for out of a person’s benefits, with people eligible for mobility if they receive the enhanced mobility element of Pip or some other benefit.
Disability groups and some Labor MPs have raised concerns about any changes to the Motability scheme that would make it more expensive for disabled people to drive a car.
On removing premium vehicles from the scheme, Shadow Work and Pensions Secretary Helen Whiteley pushed back against further changes, saying it was “window-dressing and will not save taxpayers a penny”.
The Chancellor is also set to announce a crackdown on fraud and error in the benefits system in the Budget, as well as scrapping the two-child limit on Universal Credit at a cost of almost £3 billion.
Reeves has also said she wants to see sweeping changes to the system, telling Channel 4 News last month: “We can’t leave welfare untouched… We can’t get to the end of this parliamentary session and I’ve basically done nothing… We have to reform in the right way and take people on board.”
However, any attempted change risks a revolt by Labor MPs who are already unhappy with the party’s position in the polls and the unpopularity of Keir Starmer and Reeves, while they face challenges from Reform UK on the right and the Greens on the left.
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