Rachel Reeves expected to scrap £300m in tax breaks for Motability scheme

Rachel Reeves is expected to press ahead with scrapping about £300m in tax breaks for the Motability scheme that helps provide cars for disabled people, in a move likely to spark concerns among some Labour MPs. The Treasury was reported to have been considering axing tax breaks up to £1bn but savings will not be as high as that figure, with concerns among ministers that some policy options could have led to Motability’s collapse. At the budget, she is expected to end some tax reliefs for Motability cars, including imposing an insurance premium tax in a move that would make leasing a car more expensive and charging VAT on advance payments for higher value cars. However, the more drastic option of scrapping VAT exemptions on sales of former Motability vehicles will not be pursued, over worries about its impact on the scheme. A government source suggested that a reported ambition for £1bn of savings from the policy had never been 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, that buys new cars then leases them to claimants for three years before selling them on. The changes due to be announced by Reeves at the budget are on top of a move by Motability to remove premium brands of car, such as BMW and Mercedes, from being eligible for the scheme. A small number of claimants top up with an advance to get a more premium car. Luxury brands only make up 40,000, or about 5%, of the 800,000 Motability cars. The scheme has been the subject of hostility among rightwing politicians and within the right-leaning press and on social media, with critics claiming too many people are getting “free cars”. In fact, the vehicles are paid for out of a person’s benefits, with people eligible for Motability if they get the enhanced mobility element of the personal independence payment or some other benefits. Disability groups and some Labour MPs have raised alarm about any changes to the Motability scheme that would make running a car more expensive for disabled people. On the removal of premium vehicles from the scheme, Helen Whately, shadow work and pensions secretary, pushed for further changes, saying it was “window-dressing and it won’t save taxpayers a penny.” The chancellor is also set to announce a crackdown on fraud and error in the benefit system at the budget at the same time as ending the two-child limit on universal credit at a cost of about £3bn. Reeves has also said she wants to see wider reform of 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 do reform in the right way and take people with us.” However, any attempted reforms risk a revolt by Labour MPs who are already unhappy about the party’s position in the polls and the unpopularity of both Keir Starmer and Reeves, while they face a challenge from both Reform on the right and the Greens on the left.