Rachel Reeves expected to scrap £300m in tax breaks for Motability scheme | Budget 2025
Rachel Reeves is expected to continue scrapping tax breaks worth around £300 million for the Motability scheme, which helps provide cars for disabled people; It’s a move that could raise concerns among some Labor MPs.
It has been reported that the Treasury is considering removing up to £1bn of tax cuts, but the savings will not be as high as this figure; There are concerns among ministers that some policy options could lead to the collapse of Motability.
The budget is expected to end some tax breaks for Motability vehicles, including introducing an insurance premium tax and applying VAT on advance payments for higher-value cars, in a move that would make renting a car more expensive.
But the tougher option of removing VAT exemptions on sales of older Motability vehicles will not be pursued due to concerns about the impact on the scheme. A government source suggested the claim of £1bn in savings from the policy was never a target or a realistic level of savings.
The mobility 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 charity, that buys new cars and leases them to beneficiaries for three years before selling them.
The changes Reeves will announce in the budget follow Motability’s move to exclude premium car brands such as BMW and Mercedes from being eligible for the scheme. A small number of applicants put down an advance to buy a more premium car. Luxury brands account for just 40,000 of the 800,000 Motability cars, or around 5%.
The scheme has been the subject of hostility among right-wing politicians, the right-leaning press and social media, with critics claiming too many people are getting “free cars”. In fact, vehicles are paid for based on a person’s benefits, and people are eligible for Motability if they benefit from Pip’s enhanced mobility element or other benefits.
Disability groups and some Labor MPs have raised alarm over any changes to the Motability program that would make it more expensive for disabled people to run a car.
Regarding the removal of premium vehicles from the scheme, shadow work and pensions minister Helen Whately pressed for further changes, saying it was “a show-off and will not save taxpayers a penny”.
The Chancellor is also set to announce action in the budget to crack down on fraud and errors in the benefits system, as well as ending the two-child limit on universal credit, at a cost of around £3bn.
Reeves has also said he wants the system to undergo a wider overhaul, 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 haven’t actually done anything… We need to get reform right and get people on board.”
But any attempt at change risks an uprising from Labor MPs already unhappy about the party’s position in the polls and the unpopularity of Keir Starmer and Reeves, while they face a challenge from Reform UK on the right and the Greens on the left.
