Motability Finances Heavily Critisized

MPs are calling for an overhaul of the finances at Motability, the body which provides access to vehicles for people with disabilities, after a joint Parliamentary committee report found its reserves of £2.4bn are ‘out of proportion’ to the risks it faces and branded the CEO’s £1.7m salary ‘totally unacceptable.

The Treasury and work and pensions committees stated: ‘Motability badly needs a new roadmap for how it manages the scheme’s finances. It is difficult to square the high levels of executive pay and significant financial reserves at Motability Operations with the scheme’s charitable objectives and the wider context of pressures on welfare expenditure.’

Motability operates as a monopoly and provides vehicles and scooters to disabled people, in return for some of their personal independence payment (PIP) benefit, under a leasing scheme which also covers insurance, tax, servicing and breakdown cover. Around 629,000 people have benefited since it was set up in 1997, and some 4.5m vehicles have been supplied.

Three organisations are involved in the scheme’s delivery and oversight: Motability Operations, a company which buys and leases vehicles; Motability, a charity, responsible for oversight of the scheme and making grants in support of its objectives; and Motability Tenth Anniversary Trust, also a grant-making charity.

The report highlighted that Motability Operations is the only private organisation entitled to receive welfare payments for the leasing of vehicles and receives this privilege from Motability without a competitive tender. No other car leasing company is, or can be, so heavily dependent on public funding.

Motability Operations also benefits from two types of tax relief: on VAT, providing a 20% discount on the value of the car, and insurance premium tax (IPT), providing a 12% discount on the insurance element of leasing the vehicle.

The committees found that Motability Operations has a monopoly on these reliefs which cost the government around £700m and said the government must explain why providing such state assistance in the absence of competition is an appropriate use of public money.

The report points out potential rivals cannot compete with Motability Operations, because they do not receive the same tax breaks, so there is no competitive pressure when tendering for the contract to run the scheme on behalf of Motability. Without any competitors on an equal footing, it is impossible to know whether disabled drivers would be able to access better loans elsewhere.

MPs were also critical of the size of the reserves at Mobility Operation, which have increased by 328% from £568m in 2008 to £2.4bn in 2017, and which they say are out of proportion to the risks it faces, in its privileged market position.

The four retail banks that own Motability Operations receive a return on their investment each year of almost £700,000, plus management fees and interest.

The report states: ‘This payment—guaranteed come what may—should be seen in the context of years of sustained pressure on the welfare budget, particularly on benefits for disabled people. It does not sit comfortably with the committees that the big four banks have made such significant profits from a virtually risk-free investment in a charitable scheme.’

In addition, the committees found the total remuneration package of Mike Betts, chief executive of Motability Operations, had increased by 78% from £954,000 in 2008 to £1.7m in 2017. Pay rates are determined based on a comparison with FTSE 250 companies, but MPs pointed out Mobility Operations does not face the same fundamental risks and stresses that FTSE 250 companies face.

Image: Mike Betts, CEO of Motability, has his £1.7m salary branded as ‘totally unacceptable.'

‘Given its existence as a taxpayer-supported monopoly, the zero competition it faces for customers, and the context of restrained welfare spending in which it operates, the level of Motability Operations’ executives’ pay is totally unacceptable,’ the report concluded.

Frank Field, chair of the work and pensions committee, said: ‘The levels of pay pocketed by its executives and the cash reserves it is hoarding are totally out of whack with reality of its position in the market. That one member of staff is paid over ten times what the Prime Minister earns, is one example of where Motability needs to get a grip of itself and realise the privileged position in which it trades.’

Nicky Morgan, chair of the Treasury committee, added: ‘It seems that Motability may have lost its way. DWP should ask the National Audit Office (NAO) to carry out a full inquiry into the value for money of the Motability Scheme. This could help ensure that those who rely on the scheme are able to access it on the best value terms.’

Motability Operations said that it had agreed to a review by the NAO and looked forward to engaging with the audit body.