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News & Features

NAO Releases Report on the Motability Scheme

Posted in General News on Friday, December 7th, 2018

On 7th December 2018 the National Audit Office (NAO) released its report following its examination of the Motability Scheme. The NAO opened its report by praising Motability on the service it provides to the 614,000 people on the scheme. However it was noted that the scheme is supported by government and operates under very little risk which makes its high performance easier. It should also be said that only 36% of those who are eligible for the scheme are taking advantage of it and the NAO believes that Motability is investing very little time in trying to determine the reasons behind this.

As part of its financial examination the NAO found that Motability Operations has made £1.05 billion in unplanned profit since 2008 and a large proportion of this was put down to Motability Operations’ independent forecasts of the future value of their cars being as the report states, “out of line with the wider market average”. This has resulted in customers being overcharged in their lease agreements by a collective amount of £390 million over the past 10 years. Despite this Motability lease costs remain 44% lower than other market alternatives. The regulator was also very concerned about the large amount of monetary reserves held by Motability Operations and the sizable salaries of its executives. The regulatory body believes that both of these are far too high in relation to the risk that the company faces and it believes that if this money was invested correctly Motability Scheme customers would benefit significantly. On 31st March 2018 for example, Motability Operations held £2.62 billion in reserves and when taking into consideration the amount of funds available to the scheme, the NAO found this to be significantly higher than other car leasing companies. With this in mind, the regulator recommended that both Motability the Charity and Motability Operations work together to develop a long term plan to establish how the profits of Motability Operations will either be invested back into the scheme or donated to the charity for the benefit of disabled people. The NAO is keen for the resulting strategy to be informed by a broad consultation and Motability responded to the recommendation by pointing out that there is already a framework in place to decide how the charity spends the sizable donation it receives from Motability Operations to benefit disabled people. Motability has agreed to expand its consultation to include a wide range of external stakeholders in 2019 and continue to develop the strategy. To aid this process the NAO recommended that Motability Operations should have its cash reserves externally evaluated in relation to comparable companies in similar industries and Motability has assured the NAO that this is being implemented.

On the subject of executive pay, the NAO mentioned, among other things, that a Long Term Incentive Plan (LTIP) was set up in 2008 enabling five executive directors to receive 15.3 million over seven years for achieving performance targets set below the levels that were already being reached when they were introduced. Therefore the NAO recommended that Motability conducts a review of the performance framework of the scheme, taking into consideration its “uniquely advantaged position”. Motability has agreed to carry out a review in the context of its guiding principles which centre around maintaining high levels of customer satisfaction and ensuring the financial stability of the scheme. As part of its governance review Motability has stated that The Scheme Agreement will be updated in an effort to improve the procedures which influence executive pay.  The NAO is looking for Motability to report openly on the findings of their governance report as well as all the changes that occur as a result of it.

On a positive note the regulator mentioned that Motability invested £345 million to support Motability’s grant activity between 2010 and 2017 and Motability Operations made a donation of £400 million to the Motability Charity in September 2018. The charity is also expected to receive on going donations of at least £100 million per year. However, the NAO has found that there is no long term plan in place detailing how this money can be put to best use. Amyas Morse, head of the NAO commented: “The Motability scheme delivers an excellent service to its customers, earning remarkable satisfaction levels. Motability Operations’ management deserves credit for having turned the business around and investing in features that have enhanced benefits for customers. However, Motability Operations has taken an unnecessarily conservative view of risk, holds more in reserves than arguably it needs and has also made large unplanned profits. On top of which there has been an internal view of executive performance as being ‘consistently extraordinary’, with the reward to match, despite pressures from the Charity. “There is much to be proud of, but we think that stakeholders, including government, need to give far-reaching consideration to the scheme as it now stands, and to its future, in particular, whether its governance and accountability arrangements are robust enough.” DMUK CEO, Graham Footer commented: “Many of our charity’s members are on the Motability Scheme and have been for a number of years. While the scheme provides an essential lifeline to these individuals, we believe that Motability could make better use of its surpluses to not only improve the scheme for its customers but alleviate many of the problems they face on a daily basis as disabled motorists. We look forward to working with Motability in the future to fully implement the recommendations of the National Audit Office.” 

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robert latimer's Gravatar
robert latimer

Friday, December, 14th, 2018

the scheme is very very good it takes all the worry out of motoring, servicing & mot are all taken care of i am, now on my fourth car 2 of which I had for 5yrs i am very pleased with them.

Mahesh Patel 's Gravatar
Mahesh Patel

Friday, December, 14th, 2018

Why can't you make automatic cars the same price as manual cars and give more high end vehicles with the added extra's built in to make life easier for disabled motorist instead having to pay for the added extra's which we can ill afford. With all thatextra cash you have atleast you give us a bit more choice instead of the same old rubbish.