How do you solve a problem like Motability?
4 min read
Motability is based on a badly designed tax break and removing it would improve the system. It would also be an act of grave political self-harm, writes Tim Leunig
Every minister has an angel on each shoulder: one guiding towards making the world a better place, the other urging survival at all costs. When it comes to Motability, Rachel Reeves’ angels are in violent disagreement.
Motability, a charity that provides cars to people on disability benefit, is VAT exempt. That means it undercuts its rivals and supplies over 250,000 cars a year. This is a double distortion. It is distortive that disabled people don’t pay VAT on a new car, even one with no modifications. And it is doubly distortive that the VAT exemption only applies if they lease their car from Motability.
The VAT rules are full of weird distortions – from the famous test “proving” that a Jaffa Cake is indeed a cake, to rules on Tibetan goat skins, to the differential treatment of bike, horse-riding and skateboarding helmets.
In each case, one angel will tell the Chancellor to get rid of the exemption, simplify the tax system – and, in the case of Motability, raise around £1bn a year.
But heaven help the Chancellor who listens to that angel every time – as George Osborne can attest. He harmonised the treatment of different types of hot food, putting Greggs’ sausage rolls and pasties on the same VAT footing as fish and chips. Who could object to ending a tax break that favoured big business over the little guy? The answer turned out to be “everyone” and the 2012 budget is known as the “omnishambles” budget as a result.
The omnishambles budget should make any Chancellor pause. Indeed, this is why she employs special advisers. Some of them know nothing about either economics or policy: their job is to tell her whether something will blow up in her face. They are the other angel – and they are just as important in any system of good government.
If Reeves ends the Motability VAT exemption, no disabled person will be able to get a new car without an upfront payment running into the thousands. That seems fine to me – I have always bought nearly new cars, and they have always been reliable. But I am able-bodied – I can take the (small) risk of a flat battery or a breakdown much more easily than someone who has a disability, or who looks after a disabled child or relative.
Without the VAT exemption, Motability may not survive in its current form. That prospect might lead its chief executive, paid a remarkable £747,000, to worry about his own future. Perhaps he can easily earn that sort of money elsewhere, but I sense he has a really big incentive to whip up a “don’t tax the disabled” campaign among his 800,000 customers – over 1,250 per constituency, disproportionately in Labour seats. He might suggest that they lobby their MP explaining how “Rachel Reeves’ £1bn disability tax bombshell” will hit them hard.
Lots of bad publicity and little or no money saved is the worst of all possible worlds
Labour backbenchers have been pretty rebellious over welfare cuts, and I see no reason why this time it will be different. The Chancellor would, in effect, be telling her backbenchers to reply to letters from disabled constituents saying, “The Labour Party thinks you will be fine with a second-hand car. Don’t forget to vote Labour next time!”
Such a campaign, led by any charity working with disabled people, will surely be able to stir up discontent among Labour backbenchers to the point where – as last year – the Chancellor has to back down.
Lots of bad publicity and little or no money saved is the worst of all possible worlds. It is a spad’s job to understand that sort of political reality, and to save the Chancellor from her tax purist angels, however right we always are on the substance.
