Motorists have been warned that car prices could be pushed up across the board if the Government makes radical changes to the Motability Scheme at the Budget.
Chancellor Rachel Reeves is said to be looking at imposing 20 per cent VAT on the cars bought and sold by the leasing scheme for disabled people for the first time.
Ministers are also thought to be keen on ending the availability of “luxury” models such as Audi, BMW and Mercedes on the taxpayer-funded scheme.
The potential reforms could have a huge and damaging impact on Britain’s struggling car industry, which remains “reliant” on Motability sales, according to auto experts.
Around 860,000 personal independent payment (PIP) claimants currently use the car scheme, according to Motability Operations, the company running it.
PIP claimants can choose to hand over their £300-a-month mobility benefit on a three-year-lease, along with up-front payments ranging from just a few hundred pounds to £7,999 for luxury cars.
Motability Operations has warned that a tax crackdown would hike costs for disabled drivers. The company says up-front payments would have to increase somewhere between £3,000 and £6,500, on average.
Disabled motorists previously told The i Paper they could be forced to quit the scheme, since they cannot afford such a big hike in advance payments.
‘Imposing VAT will damage the car market’
Stephen Latham, the commercial manager of the National Franchise Dealers’ Association, said people in the UK car industry were worried about the potential changes.
The sector has become “more reliant” on the scheme in recent years, he said, adding that car manufacturers were willing to sell to Motability at a discounted rate to get a bigger share of the fleet market.
The scheme is believed to have accounted for around 20 per cent of all new cars bought in the UK last year.
“Imposing VAT is going to damage the market,” said Latham, before warning of potentially higher prices for all new car buyers.
“Car manufacturers will be worried. If they are selling less, it could make cars more expensive to manufacture and could even lead to a higher price for customers.”
‘Second-hand prices could go through the roof’
Motability is also a major player in the used-car market, since it sells on its vehicles once benefits claimants come to the end of their lease.
If the supply from Motability dries up, Latham said: “It would mean less vehicles available to the second-hand market, thereby pushing up second-hand prices.”
Robert Forrester, chief executive of the Vertu Motors car dealership group, is also worried that imposing VAT would “likely lead to a substantial reduction” in Motability users.
Reeves is thought to be considering tax changes for Motability (Photo: WPA Pool/Getty)“It’s the biggest fleet in Europe,” said Forrester on the huge growth of the Motability scheme in recent years.
“If you see a decline in Motability sales, it does quite substantially reduce the new car market and therefore threatens jobs in both car manufacturing and car retail. Manufacturers are quite rightly worried about it.
“It will reduce the supply of used cars over time,” he added. “So it could increase the price of second-hand cars. Within a few years, second-hand car prices could go through the roof.”
Graham Footer, chief executive at the Disabled Motoring charity, said he would be “amazed” if the Chancellor took the decision to impose VAT on Motability.
“It would have a huge, detrimental effect on the scheme and, I suspect, the new car sales market,” Footer said.
“It would mean for many existing Motability customers that the scheme would be beyond their financial reach and the scheme would lose huge numbers of customers.”
Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT) – which represents major car manufacturers – warned Reeves that “changes to the [Motability] scheme must be carefully considered”.
‘Disturbing rhetoric around luxury cars’
Scotland’s Social Justice Secretary Shirley-Anne Somerville told The i Paper that she was “greatly concerned” at the idea of disabled benefit claimants being hit with a new tax burden.
The SNP minister said she was dismayed by the rhetoric at Westminster against “luxury” cars being available on the UK-wide scheme.
Labour’s Transport Secretary Heidi Alexander recently said she would be “comfortable” if the most expensive cars – such as BMWs and Audis – were stopped.
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Car industry experts previously told The i Paper the Government may be hoping that a new VAT burden could discourage users away from the premium cars because the advance payments would be so big.
The Treasury is thought to be concerned about the fairness of benefits claimants getting car models beyond what most working people buy. A Treasury source previously said high-end brands went “far beyond providing essential mobility”.
A spokesperson for the department said they do not comment on tax speculation.
A spokesperson for the Motability Scheme said tax changes were a matter for the Government.
The company previously warned that introducing VAT “would make cars unaffordable for most disabled people, leaving only the wealthiest able to access the scheme”.
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