Chancellor’s reported plans to impose VAT on Motability could add £3,000 to even the cheapest cars

The chancellor’s reported plans to target the Motability car scheme for new taxes in next month’s budget by removing its VAT exemption could impose an upfront cost of at least £3,000 on even the cheapest cars it offers, the company has calculated.

Motability Operations spoke out after an article in the Times – which has strong contacts within Whitehall – suggested that Rachel Reeves would be “dramatically reducing an exemption by which cars leased under the scheme do not have to pay VAT or insurance premium tax”.

The Times said that VAT tax breaks “worth about £1 billion a year are set to be scrapped in the budget”.

But targeting the Motability car scheme in next month’s budget by completely removing its VAT exemption would add thousands of pounds every three years to the bills of some of the poorest disabled people in the country.

The potential tax-raising measure – which would be aimed squarely at disabled people – follows months of mounting hostility aimed at disabled people and the Motability scheme in the right-wing media and on social media.

But Motability Operations, the company that runs the scheme, said this week that removing VAT relief “would make cars unaffordable for most disabled people, leaving only the wealthiest able to access the scheme – a result that would fundamentally undermine its purpose”.

It confirmed to Disability News Service (DNS) that, if Reeves placed VAT at 20 per cent on all Motability cars – and assuming no changes elsewhere in the scheme – it would increase the overall cost of a lease over three years by £3,000 for the cheapest cars it offers.

This would mean disabled people would have to find an advance payment of £3,000 for even the cheapest models, on top of having to contribute all their enhanced mobility component of personal independence payment (PIP) to fund their monthly lease payments.

It would mean the scheme would instantly become unaffordable to tens of thousands of disabled people seeking independent mobility.

Motability Operations said the median household income of a disabled person using the scheme is just £18,500, half the UK average.

Graham Footer, chief executive of Disabled Motoring UK (DMUK), told DNS: “DMUK is concerned by the recent reports in the national media that the chancellor is considering making changes to the Motability scheme, including removing the tax breaks.

“The fact this is even on the table for consideration is a worry.

“If the chancellor goes ahead with the changes, it will have a significant detrimental impact on Motability customers and for many it will put the scheme financially out of reach.”

A Motability Operations spokesperson said: “The scheme operates at scale, allowing bulk purchasing and strong manufacturer discounts.

“Removing the zero-rating would erode this efficiency and undermine the social purpose of enabling independence and affordable mobility.

“There would also be a knock-on impact to jobs in the automotive sector.”

Motability Foundation*, the charity that oversees the car scheme, has described some of the “recent, misinformed commentary” about the scheme as “profoundly disheartening” and said that it “unfairly stigmatises disabled people”.

It said the scheme “provides a vital service to disabled people, helping them to overcome significant mobility barriers” and “a foundation of independence which also helps to address the transport equity gap”.

Earlier this year, Motability Foundation’s disabled boss hit back at months of “hostile”, “harmful” and inaccurate media reports and online comments about how the scheme is run and its disabled customers.

Chief executive Nigel Fletcher said then that he believed the “climate of stigmatisation” of disabled people “risks rolling back decades of progress in promoting disability inclusion and understanding”.

He told DNS: “It creates an environment where disabled people are scrutinised and made to feel they must justify their right to mobility and participation. This is unacceptable.”

Coverage has included reports of comments made by Conservative leader Kemi Badenoch, who claimed that new Motability vehicles were being leased by people with food intolerances.

Other reports have suggested that Motability vehicles are handed out “free” – rather than in exchange for most or all of the higher rate mobility element of PIP, and sometimes an additional advance payment – and with few if any checks on eligibility, misleading statements that were repeated today (Thursday) by Conservative shadow work and pensions secretary Helen Whately.

There have also been widespread reports in the media and on social media attacking Motability customers and accusing them of abusing the scheme.

*Motability Foundation is a DNS subscriber

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