Chancellor Rachel Reeves is poised to abolish approximately £300 million in tax breaks for the Motability scheme, a key programme that helps disabled people lease vehicles using their welfare benefits.
Budget Details and Scheme Changes
The Treasury had reportedly considered cuts of up to £1 billion, but the final savings are expected to be significantly lower. Government ministers were concerned that more drastic options could have risked the collapse of the Motability scheme itself.
In her upcoming budget, Reeves is anticipated to end specific tax reliefs. This will include imposing an insurance premium tax, making leasing a car more expensive, and charging VAT on advance payments for higher-value vehicles. However, the government will not pursue scrapping VAT exemptions on sales of former Motability cars due to fears over the scheme's stability.
Impact on Disabled Users and Political Reaction
The Motability scheme enables over 800,000 disabled people to use their Personal Independence Payment (PIP) to lease a new car for three years. This change comes on top of a recent decision by Motability to remove premium brands like BMW and Mercedes from eligibility. These luxury vehicles constitute about 5% of the scheme's fleet, or 40,000 cars.
The move has already sparked alarm among disability groups and some Labour MPs, who fear it will increase the financial burden on disabled individuals. The scheme has faced criticism from right-wing commentators who mistakenly label the vehicles as "free cars," despite being funded directly from individuals' benefits.
Helen Whately, the shadow work and pensions secretary, criticised the removal of premium vehicles as "window-dressing" that fails to save taxpayer money.
Broader Budget Context and Political Risks
The chancellor is also expected to announce a crackdown on benefit fraud and error, alongside ending the controversial two-child limit on Universal Credit at a cost of around £3 billion.
Reeves has signalled her intent for wider welfare reform, stating that the system "can't be left untouched." However, these proposed changes risk a backbench revolt from Labour MPs, who are already concerned about the party's polling numbers and the popularity of both Keir Starmer and the chancellor herself.
