The car giant cashing in on Britain's disability benefits boom

Telegraph

11-03-2025

When Rachel Reeves lays out her plans to slash Britain's welfare bill later this month, Andrew Miller will be paying close attention.
Miller is chief executive of Motability Operations, a company that leases cars to people with disabilities. While little known publicly, the business has grown to become a giant in recent years.
A surge in the number of people claiming disability benefits has seen the number of Motability customers rise by about 200,000 over the past two years to 815,000. People exchange some of their disability benefits for access to a car, helping them get around and giving them independence.
Such is its scale, nearly one in five new cars sold in Britain today now comes from Motability. Turnover at the group jumped by a quarter to £6.9bn last year – making it bigger than ITV, Burberry and Direct Line in sales terms.
Yet with Reeves and Liz Kendall, the Work and Pensions Secretary, poised to slash Britain's welfare bill, there are questions over whether the group's scale can be maintained. Any cuts to the benefits regime would naturally rattle the business.
This matters not just for Miller and his colleagues but the City of London, too. Motability sold about $5bn (£3.9bn) worth of debt last year and has already tapped markets for a further $1bn in 2025, according to Bloomberg. This has pushed it into the upper echelons of the largest UK corporate borrowers.
Motability's journey
Few could have predicted this when Motability Operations was founded in 1977. The scheme was launched by Labour peer Lord Goodman as a government initiative to make it easier for disabled people to get a car they wanted.
Prior to its launch, disabled people had to rely on an aesthetically-challenged three-wheeler known as the 'Invacar' to get around. The Motability scheme let people swap benefits for a wide array of normal cars, giving them greater greater freedom.
Motability Operations, a private company, now runs the scheme under a seven-year rolling contract from the Motability Foundation, a charity that counts the King as a patron.
Barclays, HSBC, Lloyds and NatWest jointly own the operations business and help underwrite many of its bond deals. The banks do not receive dividends and all profits are ploughed back into the charity but the group paid around £362m to service its debts last year.
Around 20 manufacturers, such as VW and Mercedes, supply around 900 models to the scheme and drivers can choose to pay a top-up payment to get the best models. Drivers get a basic Dacia Spring by sacrificing some of their benefits, for example, or can pay £7,999 up front to upgrade to a BMW i4.
Until recently, Motability enjoyed slow, steady growth over decades. Miller, who previously ran the Guardian Media Group when it owned Autotrader, took charge of the business in 2021 and has overseen much of the recent period of runaway growth.
Booming benefits claims
Expansion has not been fuelled by any boardroom wizardry so much as a surge in the number of people claiming benefits. The number of people entitled to Personal Independence Payments (Pip), Britain's main disability benefit, has jumped from 2.6m in 2020 to 3.6m last year. It is forecast to rise to 4.2m claimants by 2030, according to estimates published by the Department for Work and Pensions (DWP).
The bill for sickness and disability benefits is on course to hit £100bn before the end of the decade, rising from £65bn last year. The rapid rise is placing intense pressure on public finances and causing growing alarm in Westminster.
To stem the increase, ministers are planning to cut £6bn from the benefits bill, with around £5bn expected to come from Pip cuts. The Chancellor is expected to set out details alongside the Spring Statement on March 26.
The vast majority of customers who use Motability receive Pip, which pays up to £9,600 a year. Around £2.8bn of the company's £6.9bn of revenues comes from customers exchanging their benefits, while the rest comes from the resale of old vehicles.
Any reduction in its customer base could mean a change to its funding model in future. Although lenders to the company have traditionally seen the group as a super-safe investment, the headwinds could make it a harder investment to gauge.
'The feeling was it's an easy to understand business and most didn't expect cyclicality to it being in the auto sector and because there was always going to be an underwriting of the demand and it made it a very easy credit to own. It was super safe,' said one bondholder.
'Loads of people owned them because there was nothing to worry about but now people are looking more closely.'
Motability's fleet of vehicles is worth £14bn, with about £10bn of this paid for with bank and bond market debts. Despite the significant borrowings, it remains well capitalised with a healthy buffer to withstand any problems.
Matthew Hamilton-James, Motability's chief finance officer, insists the company has a 'robust operating model and financial structure' that makes it 'sustainable through market volatility'.
Second-hand market
Elsewhere, the car industry is watching to see what impact the benefit changes might have on the second-hand car market. Motability is a key cog because it creates a ready supply of used vehicles for dealerships to sell on.
Nine in the 10 of the cars on the Motability scheme are not specifically adapted to accommodate a disability, making them easier to sell on. Last year the company resold about 277,000 vehicles to second hand dealerships.
Jim Reid, who runs a car dealership in Aberdeen, buys around 10 vehicles a month from Motability, representing about 25pc of the flow of cars into his dealership.
Any slowdown in supply 'would definitely be affecting the market and it would have a knock on effect on all of the prices of cars,' he says. 'Anything which means less cars will obviously be an issue.'
The reliance on selling on cars also poses another problem. Despite making healthy profits for several years, Motability reported a massive £534m loss last year after taking a hit on the resale value of some of its fleet. The resale price of second-hand cars – particularly electric vehicles (EVs) – has dropped considerably in recent years.
'The used car market has definitely made a difference and you would worry when that falls away. The residual value in that would be a worry,' the bondholder says.
Hamilton-James said: 'Last year, we continued to see a changing operating environment, caused by the volatility of the automotive and insurance markets and the reduced value of second-hand cars.
'We are confident in the economics of our business model, and our robust capital reserves position us well for the future and to ensuring the long-term sustainability of the scheme.'
Motability has been a surprise beneficiary of the recent surge in disability benefit payments. But its period of runaway growth may well be coming to an end.