New motability vehicles cost more than the entire school repairs budget, says think tank

• New research from the Adam Smith Institute shows how Motability, a government-backed scheme to improve the mobility of disabled people, has become so expensive. 

• By supplying brand-new vehicles rather than second hand options, Motability spent £3.4 billion more last year - higher than the school maintenance and repairs budget.

• This waste is encouraged by VAT and Insurance Premium Tax reliefs worth £1.2 billion per year. 

• But, it's not just overspending on new vehicles that's a problem.

• In just 5 years, enhanced-rate PIP mobility claims, the gateway to Motability, have increased by 80%, driven in large part by new mental health claims.

• And, unlike other government-backed monopolies, Motability, the overall revenue of which is the same size as the prisons budget, faces virtually no oversight and sets its own governance rules.  

• As we approach the 50th Anniversary of the creation of Motability, this paper proposes ending tax relief on Motability vehicles, tightening the criteria for eligibility and breaking its monopoly on provision.

A new paper from the Adam Smith Institute reveals that the Motability scheme, a government-backed monopoly designed to improve mobility for disabled people, is costing £3.4 billion more each year than necessary. This waste is equivalent to the entire school maintenance and repairs budget.

The primary source of this overspend is Motability's insistence on supplying only brand-new vehicles. While three in four private motorists buy second-hand cars, Motability continues to provide brand-new vehicles, locking taxpayers into unnecessary costs. 

The waste is encouraged by Motability's VAT and Insurance Premium Tax (IPT) reliefs, worth £1.2 billion per year. These tax breaks incentivise expensive, three-year leases and discourage the use of second-hand cars.

Separate reliefs for wheelchair-adapted vehicles make sense. But, the vast majority of Motability cars are standard models, meaning the bulk of this cost is unnecessary. Providing cars at the average age of UK vehicles, which is around ten years, would immediately save £3.4 billion annually without undermining the purpose of the scheme.

Spiralling costs are also driven by eligibility creep. In the last 5 years the number of enhanced-rate PIP mobility claims have gone up 80%. Much of this growth comes from mental health claims, such as for anxiety and depression, despite PIP rules being explicitly designed to exclude such cases. This is because judicial interpretation of reliability criteria has widened access, stretching the scheme far beyond its original intent.

Additionally, Motability lacks accountability. Its monopoly on the provision of vehicles for disabled people means it enjoys a £7 billion turnover and £4 billion in reserves. Its CEO is paid a total package of £748,000. Yet, unlike regulated monopolies such as rail or utilities, it faces virtually no government oversight and does not tender for its monopoly position.

The paper outlines several recommendations to fix Motability:

• End VAT and IPT reliefs on standard cars, saving taxpayers £1.2 billion per year while protecting wheelchair-adapted vehicle exemptions. 

• Tighten PIP mobility criteria, particularly for mental health claims, to prevent further eligibility inflation.

• Break Motability's monopoly by opening the scheme to competition from private leasing providers, giving more choice to its disabled customers.

• Restore government oversight, including DWP representation on the board and publication of anonymised internal statistics for transparency. 

As Motability approaches its 50th anniversary, it is time to reassess this bloated and efficient scheme. With the UKs welfare spending set to rise to record levels, such a wasteful scheme can no longer be justified. Urgent reforms are needed to ensure taxpayer money supports genuinely disabled people rather than subsidising the purchase of brand-new cars.

Zia Yusuf, Head of Reform UK Department of Government Efficiency, said:

“Motability spending has spiralled out of control. The Motability schemes were designed to support those with genuine, life-limiting disabilities and many of those exploiting these schemes are not even physically disabled. Targeted support must only go to those who truly need it.

“The fact that taxpayer money is being spent on subsidising BMWs is totally unfair on those struggling to make ends meet.

“This paper sets out a bold framework to cut waste, improve public spending and restore trust in our welfare system.”

Helen Whately MP, Shadow Work and Pensions Secretary, said:

“These are shocking, and disturbing, figures. A scheme that started with good intentions has gone very wrong.

“The British taxpayer should not be stumping up for new cars for people with conditions like tennis elbow and social phobia - that is a scam.

“The ASI's report is a hugely important step in exposing this to the British public. We need urgent action to tackle the spiralling welfare bill.”

Matt Ryder, report author and former head of Motability policy at the Department for Work and Pensions, said: 

“Giving disabled people a car is a good idea, but taxpayers shouldn't be paying extra for a new one. The Treasury should consider if Motability's £1.2 billion in tax subsidies are giving genuine value for money”.

“Motability spends billions of pounds of public money without any real oversight. The government needs to open up Motability's monopoly and give disabled people more choice”.

Max Tempers, Motability-focussed journalist, said:

“No better monument exists today to the sprawling and overindulgent British welfare state than the Motability scheme. A once well-intentioned programme for the physically infirm now stands as a burgeoning monolith, capturing nearly a fifth of the new car market in Britain, as expanded eligibility and a contemporary class of claimants - of the social-media age - equip themselves with modern tools against a legacy state apparatus.”

Mitchell Palmer, report editor and Economist at the Adam Smith Institute, said: 

“This paper, written by an expert formerly on the inside, reveals how Motability is over-generous, under-scrutinised, and over-used. The scheme was born of noble intentions; it should be refocused to live up to them.”

ENDS

Notes to editors:

Matt Ryder is the author of this report. Matt was the head of Motability policy at the Department for Work and Pensions, where he also worked on wider PIP reform. This report is written in a personal capacity.

For any further details on the methodology, or to arrange an interview, please contact press@adamsmith.org / +44 7584778207

The full paper is available here.

 Methodology:

“Motability would cost £3.4 billion less last year if it purchased cars at the same age as the average UK vehicle”.

We take the capital cost of a vehicle to be the purchase cost minus the sale cost.

Cost under the status quo

Motability currently buys cars new and sells them after three years (Motability offers a three-year lease as standard; we have ignored for simplicity that Motability customers can choose to extend a lease for another two years). Data from webuyanycar.com shows a 51% drop in price in this period. Therefore, the cost can be taking to be 51% of the purchase price.

The financial statements for FY23/24 for Motability Operations Group (the latest available) show £8,128 million in fixed asset additions under the category of “assets held for operational leases”, i.e. purchases of new vehicles. We can therefore anticipate a future depreciation of £4,145 million on Motability's purchases this year.

Cost under a second-hand business model

The average UK car is ten years' old. Given Motability's standard 3-year lease, this means they would need to purchase these cars in year 9 and sell in year 11. Using the same data from webuyanycar.com, we can say that a 9-year-old car can, on average, be purchased for 17% of the cost of a new car. Therefore, assuming the same number of cars, the total purchase cost would have been 17% of £8,128 million, or £1,381 million.

Their data shows a further 19% depreciation between years 9 and year 10. Assuming that this stays constant, we can assume that after three years the car will have depreciated by 47%, making it worth 9% of the original purchase price or 53% of the actual purchase price.

Therefore, the actual cost would be 47% of £1,381 million, or £649 million.

Difference between the two business models.

This can be given as the cost of buying new versus the cost of buying second hand, in other words, £4,145 million minus £649 million, or £3,496 million, which we have rounded down to £3.4 billion.