Chancellor
says she ‘can’t leave welfare untouched’ this parliament as budget looms
Rachel
Reeves understood to be eyeing cuts to Motability scheme as she tries to plug
hole in country’s finances
Rowena
Mason and Heather Stewart
Fri 17
Oct 2025 20.24 BST
Rachel
Reeves has said she “can’t leave welfare untouched” this parliament, with the
Treasury understood to be considering axing up to £1bn in tax breaks for a
scheme providing cars for disabled people.
The
chancellor set out her thinking on welfare before next month’s budget in an
interview, having previously said she would need to make cuts and raise taxes.
“We can’t
leave welfare untouched,” she told Channel 4 News when asked about changes to
the benefit system. “We can’t get to the end of this parliamentary session and
I’ve basically done nothing … We have to do reform in the right way and take
people with us.”
The
government had to abandon billions of pounds in cuts to disability benefits
earlier this year after a revolt by Labour backbenchers, but it is still
pressing ahead with cuts for future claimants of the health element of
universal credit from April 2026.
It is now
understood to be considering removing tax breaks for the Motability scheme,
under which disabled people are exempt from VAT and insurance premium tax on
cars subsidised by the government.
Whitehall
sources said the ending of tax exemptions was under consideration but that no
decision had been taken. They downplayed the idea of reducing the eligibility
criteria for Motability cars, but said the option of scrapping the VAT and
insurance premium tax exemptions was “more likely”.
Another
change under consideration is the idea of removing luxury brands such as BMW
and Mercedes from the scheme, under which a minority of claimants top up with
an advance to get a more premium car. These premium brands only make up 40,000,
or about 5%, of the 800,000 Motability cars.
Adding
VAT and insurance premium tax to the Motability car’s price tag would mean more
claimants would need to make an advance payment for their cars. Estimates
suggest it could bring in about £1.2bn, although Whitehall sources suggested it
would not be likely to raise as much as that.
Although
not a direct cut to the benefits bill, further attempts to reduce tax
exemptions for the Motability scheme would still be controversial, with critics
warning the Treasury to listen to the concerns of disabled people.
James
Taylor, the director of strategy at the charity Scope, said it could “heap
extra costs on to disabled people all over Britain”. “Motability is a
cost-effective way for disabled people to be able to use adapted cars. Often
these cars need to be able to accommodate equipment, carers, and disability
related aids,” he said.
“Life
costs more if you are disabled. Energy and day-to-day living costs remain
stubbornly high across the board. The government shouldn’t be looking to ramp
up costs on disabled people. They could leave more disabled people isolated,
and less able to get into work.”
Emma
Vogelmann, the co-chief executive of the disability group Transport for All,
said: “As disabled people we often find public transport is unusable – broken
pavements, nonexistent bus routes, and packed stations we can’t navigate. A
Motability car changes that – it allows us to work, shop, and do the school
run. Scaling back the scheme would lock disabled people away from daily life.
Does the chancellor want to take away our freedom?”
Cuts to
the Motability scheme have previously been backed by the Conservatives. Helen
Whately, the shadow work and pensions secretary, said on Friday that the
chancellor was “following our lead”.
“I’m glad
she’s been keeping an eye on our welfare announcements, but the government
should be doing much more to fix welfare and reform the Motability scheme,” she
said.
“Motability
should be there for people with serious disabilities. That’s why the
Conservatives would stop people with low-level mental health problems and
neurodiversity – like mild depression and ADHD – getting free cars. We would
also put an end to taxpayers funding luxury cars on Motability, instead
ensuring every penny goes towards supporting genuinely disabled people.”
Rather
than giving people “free cars”, the Motability scheme allows disabled people to
use their personal independence payment (Pip) to lease new cars for three
years. The scheme is run by a private company, overseen by a charitable
foundation, that buys new cars then leases them to claimants for three years
before selling them on.
Rachael
Maskell, a Labour MP who was one of the strongest critics of the government’s
abandoned disability cuts, said the “government must adopt a process of
co-production [involving disabled people] and then follow the evidence … Random
top-slicing or cuts often cost more in the long run”.
A
Treasury spokesperson said: “We do not comment on speculation around changes to
tax outside of fiscal events.”
While
Labour’s attempts to cut disability benefits were largely abandoned earlier
this year, government sources suggested the chancellor continues to believe the
system is unsustainable in its current form and in some cases disincentivises
people from seeking work.
Reeves is
expected to introduce a significant package of tax increases and spending cuts
in her 26 November budget to offset a downgrade in the Office for Budget
Responsibility (OBR) forecasts for economic growth.
The
Institute for Fiscal Studies (IFS) said on Thursday that the chancellor could
be forced to look again at welfare savings alongside tax rises. The IFS said
options could include scrapping the pensions triple lock, a fresh drive to cut
health-related and disability benefits, and limiting growth in spending on
special educational needs.
The OBR
reviewed its forecasting model over the summer and is expected to say the
public finances look £10-20bn weaker than it believed at the time of Reeves’s
spring statement. The chancellor has expressed irritation at the timing of this
review, which she believes would have been better done immediately after last
year’s general election or in 2023.
As well
as tackling this deterioration, the chancellor must also deal with the £7bn
cost of the U-turns on winter fuel and welfare. Reeves is hoping to build up
more “headroom” against her fiscal rules, to avoid being buffeted by the bond
markets.
Government
borrowing costs fell to their lowest level since July on Friday after Reeves’s
comments on tax and spend appeared to reassure investors.
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