Rachel Reeves plots £1bn cut to Motability scheme which lets disability claimants access cars

Rachel Reeves is planning to restrict disabled people’s access to cars through the benefits system in a bid to save £1bn, it has emerged.

The chancellor is reportedly considering reforming the Motability scheme in a bid to save money and boost public confidence in the welfare system.

She is said to be ready to axe tax breaks worth around £1bn each year in next month’s Budget, cutting an exemption which lets cars leased under the scheme avoid paying VAT or insurance premium tax.

And, in another change, luxury cars including Mercedes and BMWs could be removed from the scheme, The Times reports.

It comes as the chancellor has been warned by the Institute for Fiscal Studies that she needs to find at least £22bn of tax hikes or spending cuts in her November Budget in order to avoid a “groundhog day” scenario of facing another black hole in the public finances next year.

The Motability scheme provides cars to around 815,000 users, including around 40,000 luxury vehicles. It is open to people that claim a qualifying mobility allowance, most commonly through the Personal Independence Payment (PIP).

But it has come under fire in recent months, and formed a major part of Kemi Badenoch’s speech at the Conservative Party conference, with critics claiming online so-called “sickfluencers” are teaching people to game the system in order to claim free cars.

In her speech in Manchester, Ms Badenoch said: “Those cars are not for people with ADHD.”

While her shadow work and pensions secretary Helen Whately said: “Millions are getting benefits for anxiety and ADHD, along with a free Motability car.

“TikTok videos tell you how - and some people even pay for VIP services to boost their chances of a successful benefits claim.”

Disability groups slammed the proposed changes, saying they would make life more expensive for those with serious health conditions.

But sources told The Times the changes are about fairness, not simply cost-cutting. One pointed out that the Motability Foundation, which oversees the scheme, paid its chief executive £658,000 last year, while it made a £748m profit in 2023. That fell to a £565m loss last year.

It currently costs taxpayers £2.8bn, and sees a portion of a claimant’s disability benefits spent on a new car.

Emma Vogelmann, co-chief executive of the Transport for All disability group, said public transport is “often unusable” for disabled people, with broken pavements and “non-existent bus routes”.

“A Motability car changes that – it allows us to work, shop, and do the school run. Scaling back the scheme would lock disabled people away from daily life. Does the chancellor want to take away our freedom?” she said.

Meanwhile charity Scope warned the changes could “heap extra costs onto disabled people all over Britain”.

“Restricting eligibility to Motability could hit disabled people on lower incomes hard,” strategy director James Taylor said.

Reform UK has also attacked the Motability scheme, with policy head Zia Yusuf saying spending on the scheme 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,” he said.

The former head of Motability at the Department for Work and Pensions, Matt Ryder, has also called on the chancellor to reassess whether the subsidies given to the scheme are “giving genuine value for money”.

The Treasury was asked to comment.