When Rachel Reeves steps up to deliver the Autumn Budget on Wednesday, November 26, 2025, at HM Treasury in London, she won’t just be balancing books—she’ll be deciding whether tens of thousands of disabled people can still afford to drive. The proposed changes to VAT and Insurance Premium Tax rules for the Motability Scheme aren’t technical tweaks. They’re a potential lifeline cut. And over 40 disability charities, including Transport for All, are sounding the alarm: this could price disabled people out of mobility entirely.
What’s Changing—and Who Pays
Starting July 1, 2026, the government will apply the standard 20% VAT rate to top-up payments made by disabled individuals who upgrade their Motability leases beyond basic models. At the same time, the 12% Insurance Premium Tax will be imposed on insurance for new leases under the scheme. The twist? These taxes won’t touch the core lease payments funded by Personal Independence Payment (PIP) or other qualifying benefits. Only the extra money people pay to get a slightly newer car, a bigger boot, or a better sound system will be taxed.
And here’s the critical exception: vehicles permanently adapted for wheelchair or stretcher use remain fully exempt. That’s a relief—because for many, these aren’t luxury choices. They’re necessities. But for the 15% of Motability users who make top-up payments, the math gets brutal. A £2,000 top-up could suddenly cost £400 more in VAT alone. Add insurance tax, and some drivers could see monthly payments jump by £50 or more.
Why This Feels Like a Betrayal
“Cutting our only way to get around would betray disabled people and steal our independence,” reads the open letter signed by Transport for All and 41 other groups. It’s not hyperbole. In rural areas like Cornwall or Northumberland, where buses run twice a day—if at all—having a car isn’t about convenience. It’s about getting to dialysis, seeing a specialist, or even just going to the grocery store without relying on someone else’s schedule.
One mother in Stoke-on-Trent told me she’s already cutting back on heating to afford her son’s Motability lease. “He’s 17. He’s got his own life. If this goes through, he won’t be able to go to college on his own. He’ll be stuck. And that’s not policy—it’s cruelty.”
The government claims the changes are about fairness. “We can’t keep subsidizing premium vehicles with public money,” a Treasury source said. But here’s the reality: fewer than 5% of Motability users even opt for luxury brands like BMW or Mercedes. Most top-up payments are under £1,000, and often go toward things like automatic transmission, climate control, or adapted seating—not leather seats and sunroofs.
The Numbers Don’t Add Up
Initial Treasury discussions floated £1 billion in savings from the scheme. That number has since been scaled back to £300 million. But The Independent estimates the real haul could be closer to £1.2 billion—if people don’t drop out. And that’s the wild card. If even 10% of current top-up users quit the scheme, the government loses more than just tax revenue. It gains a surge in demand for social care, home visits, and transport support—costs that aren’t on the budget spreadsheet.
The Motability Scheme has grown from 615,000 users in 2023 to 815,000 today. That’s a 33% increase in just two years. Why? Because it works. It’s not a handout. It’s a direct exchange: disabled people use their own benefit entitlements to lease a car. The government doesn’t pay for the vehicle. It just removes taxes on the transaction. That’s why charities are furious at the narrative that this is “free cars.”
The Ripple Effect
What happens when someone can’t afford their lease? They return the car. Then what? They rely on community transport, which often requires 48-hour notice. Or they stay home. Studies show disabled people who lose mobility are 3x more likely to develop depression. Hospital admissions for untreated conditions rise. Carers burn out. The social cost? It’s not measured in pounds, but it’s real.
And here’s the irony: the government is simultaneously rolling out a pay-per-mile electric vehicle tax—3p per mile for EVs, 1.5p for plug-in hybrids—starting April 2028. That’s a separate measure, but it compounds the pressure. Disabled drivers are being asked to switch to greener cars while being hit with new taxes on the very system that lets them access them.
What’s Next?
The Treasury insists it’s open to feedback. But with the budget just days away, time is running out. Charities are preparing mass protests, petitions with over 250,000 signatures, and lobbying MPs ahead of the vote. The government’s own impact assessment admits “significant uncertainty” around behavioral responses. That’s code for: we don’t know how many people will be affected—but we’re doing it anyway.
What’s missing from the debate? A single voice from someone who actually uses the scheme. Not a civil servant. Not a policy analyst. Not a politician. A real person. Someone like James, 62, from Leeds, who drives his adapted Ford Focus to his physiotherapy twice a week. “I’ve had this car for five years,” he said. “It’s not a status symbol. It’s my freedom. Take that away, and you take my dignity.”
Frequently Asked Questions
How will the new VAT and Insurance Premium Tax affect Motability leaseholders?
Only those making top-up payments—around 15% of users—will be affected. The standard 20% VAT will apply to those extra payments, and a 12% Insurance Premium Tax will be added to insurance on new leases. Core lease payments funded by PIP or other benefits remain tax-exempt. For someone paying £1,500 in top-ups, this could mean an extra £300–£400 per year in costs.
Who is exempt from these tax changes?
Vehicles permanently adapted for wheelchair or stretcher use are fully exempt, regardless of payment type. Also, no taxes will apply to the base lease cost covered by mobility benefits like PIP. This protects those with the highest mobility needs. The government confirmed it rejected a more extreme proposal to tax resale values of former Motability vehicles, recognizing the risk to the scheme’s stability.
Why are disability charities so alarmed?
Over 40 charities warn that even small cost increases could force users to give up their vehicles, especially in rural areas where public transport is sparse. Losing a car means losing access to healthcare, employment, and social life. Studies show mobility loss correlates with increased isolation, depression, and emergency hospital visits—costing the NHS far more than the £300 million the government hopes to save.
Is the Motability Scheme funded by taxpayers?
No. The scheme is funded entirely by disabled people’s own benefit entitlements—primarily PIP. The government’s role has been to remove VAT and Insurance Premium Tax to make leasing affordable. It’s not a subsidy. It’s a tax exemption on transactions paid for by individuals. Misrepresenting it as “free cars” has fueled public misunderstanding and political pressure.
What’s the difference between this and the new EV road tax?
The EV road tax—3p per mile for electric vehicles, 1.5p for plug-in hybrids—is a separate policy set to launch in April 2028. It applies to all EV drivers, not just Motability users. But it adds another layer of financial pressure on disabled people who are encouraged to switch to greener vehicles. Combined with the new VAT and insurance taxes, it creates a double hit on mobility costs.
What happens if the changes go ahead?
If the changes are implemented, experts predict a 5–10% drop in Motability participation within 18 months. That could mean 40,000–80,000 people losing access to a car. The government has not modeled the social care costs that would rise as a result. Charities say the Treasury is trading short-term revenue for long-term human and financial crisis.
