Disabled Motability scheme users face new charges after Government tax hikes

Disabled people using Motability are set to face higher costs as the car leasing scheme seeks to offset £300 million of new taxes following last year’s budget.

The Motability company said it is changing mileage allowances, charges for additional mileage and introducing charges if vehicles are taken abroad.

Users could also face an increase in advance payments worth up to £400 at the start of their new lease.

It comes amid a backdrop of fierce political scrutiny towards the scheme, which allows some people receiving disability benefits to direct some or all of their payments to lease a new car or accessible vehicle.

The scheme, which is only eligible for those with an entitlement for the higher or enhanced rate of the mobility component of disability benefit, is used by around 890,000 people.

However, the breadth and cost of the programme has led to significant criticism.

Last month, Reform UK said it planned to make sweeping changes to Motability to “end the abuse” of the scheme.

In last year’s autumn budget, the Chancellor announced that the scheme would no longer use “luxury cars” such as BMW and Mercedes-Benz vehicles.

Rachel Reeves also announced the Government would introduce VAT to advance payments for the scheme, and apply insurance premium tax to leases from July 2026.

Motability said this will hit the business with £300 million of additional taxes.

On Thursday, chief executive of Motability Operations, Andrew Miller, told people on the scheme that it will introduce changes to deal with the cost.

“Together, these tax changes mean it will cost significantly more to run the scheme,” he said in a letter.

“If we did nothing, the average cost of a new lease would increase by around £1,100.

“It was clear to me that simply passing all these costs on to customers was not an option.

“We had to carefully consider how to reduce the tax impact as much as possible but also, focusing on changes that reflect how most customers already use their vehicles.”

He outlined plans to reduce the annual mileage allowances, increase excess mileage fees, change tyre replacement limits and introduce a charge for taking cars abroad.

It is understood that customers taking new leases after July 1 will see an average increase to advance payments of between £300 and £400.

Nevertheless, many new vehicles on the scheme will not require an advance payment.