Carmakers warn UK crackdown on Motability scheme will hit sales

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Carmakers have privately warned the government against a proposed crackdown on the Motability scheme that helps fund vehicles for people on disability benefits and is responsible for one in five new car sales in the UK.

Among the changes, which officials say will be announced by chancellor Rachel Reeves in this month’s Budget, is an end to the purchase of luxury car brands such as Mercedes and BMW through the programme.

Two people with knowledge of the situation said several carmakers have voiced their frustration to the Treasury, arguing that the clampdown would have a detrimental impact on manufacturers already struggling with the costs of shifting to electric vehicles. The Treasury declined to comment.

One industry executive, who spoke on condition of anonymity as the government has not formally announced the changes, warned that the shake-up, combined with other government proposals to cut car-related tax benefits, would “send the market backwards”.

Robert Forrester, chief executive of Vertu Motors, one of the largest car dealers in the UK, pointed to broader consequences for the car industry, estimating that “a Motability tax” would raise prices by an average of £6,500.

The increase “would reduce the numbers ordered, which would reduce the numbers manufactured in the UK, costing jobs and also leading to a reduction in cars entering the second-hand market later”, he added, while also highlighting a knock-on effect on the price of used cars.

An ally of the chancellor said Reeves wanted to make the Motability scheme “fairer and fit for purpose”, claiming the initiative had lost sight of its original goals.

The three most popular brands on the Motability scheme are Vauxhall, Nissan and Ford. But about 50,000 of the existing stock of 700,000 vehicles purchased through Motability are considered luxury brands, for example.

Other planned changes include a clampdown on the purchase of overseas breakdown and insurance cover for up to three named drivers as part of an attempt to save hundreds of millions of pounds, officials have said.

Ministers are also examining the tax breaks under which cars bought through the scheme are exempt, such as VAT and insurance premium tax.

Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, said fiscal policies that hampered industry efforts to boost the sector would ultimately “deter investment, put jobs at risk and reduce social mobility while actually costing the Exchequer revenue”.

Motability Operations, a private company overseen by a charitable foundation, is Britain’s largest car buyer through which people can use government-funded disability allowances to finance a car or van.

But the scheme has become increasingly controversial as ministers grapple with the ballooning cost of the welfare state.

The group spent over £2.8bn last year and a sharp rise in incapacity and disability benefit saw Motability’s user base grow by 14.7 per cent.

Heidi Alexander, transport secretary, on Monday signalled that she would support the removal of luxury cars from the scheme.

“We need to make sure we are offering the taxpayer value for money,” she told LBC radio. “If that means really high-end cars [such as] Mercedes and BMWs aren’t available on that scheme, then that’s something I would be comfortable with.”

Mercedes and BMW declined to comment.

But the chief executive of Motability has defended selling luxury cars, saying the premium segment only represented about 7 per cent of its fleet. The company has also pledged to crack down harder on potential misuse of the scheme.

A recent research paper by the Adam Smith Institute, a free market think-tank, pointed out that the Motability scheme’s expenditure was higher than the £1.8bn school maintenance and repairs budget. It recommended ending tax relief on Motability vehicles to save more than £1bn a year.

The cuts to the Motability scheme come as the government is also proposing a removal of the Employee Car Ownership Schemes, which gives tax benefits to workers at car companies to purchase new vehicles at significant discounts.

“The manufacturers are very worried,” Forrester said. “It will increase the cost base of the manufacturers and it will probably reduce the size of the new car market.”