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The Department for Work and Pensions (DWP) has issued an update on possible cost increases for Motability users following changes announced in the Budget. Officials confirmed that from July 2026, VAT will be applied to Advance Payments and Insurance Premium Tax will be introduced on Motability Scheme leases.
Motability, which operates the scheme and accounts for around one in five new car sales in the UK, estimates that the average upfront Advance Payment for a vehicle could rise by about £400 over a three-year lease. The potential impact has prompted concern among MPs, with several writing to ministers to question how the changes could affect disabled people who rely on the scheme.
To be eligible for a Motability vehicle, individuals must receive a qualifying higher-rate mobility benefit, such as the Enhanced Personal Independence Payment (PIP) Mobility Component, Higher Rate Disability Living Allowance (DLA) Mobility, Armed Forces Independence Payment (AFIP), or War Pensioners’ Mobility Supplement (WPMS), and have at least 12 months remaining on their award.
Responding to the Budget measures, Motability said the tax changes would increase the overall cost of leasing vehicles on the scheme, leading to the estimated £400 rise in Advance Payments over three years. However, the organisation stressed it would continue to offer between 40 and 50 vehicles with no upfront payment. The changes are expected to be introduced from July 2026, with customer engagement beginning in spring 2026. Any proposed adjustments will undergo a disability impact assessment by the Motability Foundation before being approved and implemented.
Labour MP Neil Duncan-Jordan raised concerns in Parliament, asking whether Motability lease costs for users would increase from July 2026. Responding on behalf of the DWP, Minister of State Sir Stephen Timms said the government was aiming to protect taxpayers while ensuring the scheme continues to support disabled people effectively. He confirmed that vehicles requiring no Advance Payment would remain available, allowing users to lease a car using only their qualifying disability benefit.
Mr Duncan-Jordan also asked how much costs would rise for new Motability leases as a result of the Autumn Budget. Sir Stephen replied that any increase in Advance Payments would vary depending on factors such as the vehicle’s make and model, and that pricing decisions would ultimately be determined by Motability.
When questioned about whether the impact on people with fluctuating conditions, such as multiple sclerosis, had been assessed before the changes were announced, Sir Stephen said Motability Operations had confirmed it would continue to provide a wide range of vehicles without Advance Payments, ensuring access to suitable vehicles regardless of a person’s health condition or disability.
