The City minister has faced serious accusations of overlooking a substantial £2 billion tax loophole that could benefit major banks involved in the ongoing car finance scandal. This regulatory gap reportedly allows financial institutions to avoid paying tax on compensation settlements destined for victims of the massive £11 billion loans mis-selling debacle.
Parliamentary Pressure Mounts
City minister Lucy Rigby stands accused of snubbing taxpayers after receiving direct intervention requests from a member of the parliamentary Treasury committee. The controversy centres on a technicality that enables high street banks to sidestep established rules designed to ensure financial institutions pay appropriate tax on compensation linked to corporate misconduct.
How the Loophole Operates
According to Guardian reports, lenders may exploit this regulatory gap when they begin distributing compensation to victims of the £11 billion car finance scandal later this year. The mechanism involves their motor finance divisions being registered as "non-bank entities" despite being integral parts of larger banking groups, thereby placing them outside the scope of specific taxation rules.
Government Response and Consumer Concerns
A Treasury spokesperson addressed the situation, stating: "It is vital that consumers have access to motor finance to enable them to spread the cost of a vehicle in a way that is manageable and affordable. We want to see this issue resolved in an efficient and orderly way that provides certainty for consumers and firms."
Scale of the Compensation Scheme
Road users who entered into car finance agreements between 2007 and 2024 may be entitled to compensation through a large-scale redress scheme proposed by the Financial Conduct Authority. The mis-selling scandal affected approximately 14 million Personal Contract Purchase or Hire Purchase agreements, with millions of drivers potentially eligible for payouts.
Consumer Advocate Provides Timeline
Financial expert Martin Lewis has provided crucial updates for affected motorists awaiting compensation news. The BBC and ITV personality explained that while nothing is yet confirmed, indications suggest an announcement regarding the mass redress scheme could arrive in March.
Lewis elaborated: "I'm being asked all the time about car finance mis-selling redress. There is nothing firm at all, but the feelers I've put out tell me they are probably going to make the announcement on the mass redress scheme in March."
Compensation Process Explained
The consumer champion outlined the likely procedure, suggesting a 90% probability that regulators will implement a mass redress scheme allowing affected individuals to reclaim money without engaging claims firms. He detailed two distinct pathways:
- Opt-out claimants: Those who have already submitted complaints will likely receive compensation more quickly
- Opt-in claimants: Individuals who haven't yet complained will need to be identified by the scheme, potentially resulting in longer waiting times
Lewis expressed cautious optimism, noting: "I hope some people will actually get money in their pockets this year, I hope. It's not guaranteed. If you want to put a complaint in and you want to there's free help available online, you don't need to pay anyone to get a complaint in."
The unfolding situation highlights significant tensions between regulatory oversight, corporate accountability, and consumer protection in the financial services sector, with billions in potential compensation and associated tax revenues hanging in the balance.
