The Department for Work and Pensions (DWP) is overhauling the Motability Scheme for Personal Independence Payment (PIP) recipients, with official warnings that the changes could lead some participants to abandon the programme entirely.
What are the key Motability Scheme changes?
The shake-up, detailed in the Commons by Treasury minister Lucy Rigby, involves two major tax adjustments set for July 2026. The VAT relief on top-up payments for leasing more expensive vehicles will be scrapped for new leases from 1 July 2026. Simultaneously, Insurance Premium Tax will be applied at the standard rate to new insurance contracts within the scheme.
Ms Rigby stated these reforms, announced at Budget 2025, are projected to save the government over £1 billion across the next five years. She emphasised that the tax changes will not affect vehicles specifically designed or permanently adapted for wheelchair or stretcher users.
Who will be impacted and how?
According to the government's own Tax Impact and Information Note, the individuals facing the greatest impact are those who currently opt to pay more upfront for a higher-value lease. The document outlines that some will pay more to renew a similar vehicle, while others will be forced to lease a smaller or lower-specification model due to the additional costs.
The note warns: "These costs could reduce their disposable income. While tax changes will reduce the purchasing power of eligible welfare benefits for the Motability Scheme, the value of the benefit will not be impacted."
Risk of claimants leaving the scheme
The most significant concern raised is that some users may feel they have no choice but to withdraw. The briefing explicitly states: "a minority may choose to leave the scheme altogether in response to tax related price increases."
For those who leave, access to a scheme vehicle would cease. They would then need to find alternative means to lease or purchase a vehicle through other providers, or rely on different forms of travel altogether. The government acknowledges that some individuals will be eligible for financial support from the Motability Foundation, but this may not cover all cases.
The changes follow the earlier announcement that luxury car brands would be removed from the Motability Scheme. The combined effect of these policies has sparked concern among disability advocates and MPs, including Lewisham North Labour MP Vicky Foxcroft, who questioned the Chancellor on the projected financial impact for users and the car industry.
