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NAO report says Motability scheme excellent but why £2.62 billion in reserves?

07 December 2018

The National Audit Office (NAO) has found that the Motability scheme provides an excellent service to customers, but has long operated in a protected environment, supported by government, which has made maintaining high performance less challenging.

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Since 2008, the percentage of eligible people using the scheme has increased from 29% to 36% – a total of 614,000 customers in September 2017 from the 1.7 million people eligible for support. One of the scheme’s four strategic objectives is to improve reach and awareness, but there has been limited effort to understand why many eligible people do not use the scheme.

In every year since 2008 the scheme has made more profit than intended, generating £1.05 billion of unplanned profit in total.

At 31 March 2018, Motability Operations held £2.62 billion in reserves. This amount, when compared to the total funds available to the scheme, is significantly higher than major car leasing companies. While a more prudent approach to reserves may have been appropriate while the business was changing, it is less justified given its ongoing success. If Motability Operations adopted an approach more in line with other car leasing companies, it could hold a lower level of reserves and increase the level of funds available to distribute to the charity.

Remuneration of Motability Operations’ executive directors has been generous and linked to performance targets that have been easily exceeded. In 2008, a long-term incentive plan (LTIP) was implemented which enabled five executive directors to receive £15.3 million over seven years. The NAO forecasts that executive remuneration will fall after the final LTIP payments are made in December 2018, with the chief executive’s total remuneration likely to reduce from £1.7 million to around £1.4 million in 2019-20.

The NAO concludes in its report that careful consideration is needed relating to the scheme’s governance and Motability Operations’ executive remuneration. The government also needs to regularly review the value of the support it provides, in light of its objectives for mobility allowances.