Welfare Reform and Work Bill

Lord McKenzie of Luton Excerpts

Monday 21st December 2015 Lords Chamber

I do not expect a full response tonight, but I do not expect this matter to go away, either. Millions of pounds are involved, stuck away in charities, apparently doing nothing, and people are being paid fortunes as chief executives of charities that are directly funded by the department, so there cannot be any excuse for the charities concerned. I know it will be said that this is up to the trustees, but the trustees have been there since day one. The confusion between governance and management is such that we will never have any change. Therefore, it was quite right of the noble Lord, Lord Kirkwood, to bring this issue to the attention of the Committee.

[Lord McKenzie of Luton (Lab)]

My Lords, this amendment requires certain financial and governance arrangements to be put in place in respect of the providers of motor vehicles under Motability arrangements. As we have heard, it is attached to Clause 20, which contains a provision enabling the Secretary of State to recover the costs of administering the scheme under which mobility components of DLA and PIP are made available, on the claimants’ request, to Motability. I understand that the annual charges will be under £1 million per annum and that Motability will absorb this so that it will not be passed on to lessees, but perhaps the Minister will confirm that.

The noble Lord, Lord Kirkwood, and my noble friend Lord Rooker have raised concerns before over the governance issues and in particular the level of remuneration of the chief executive of the operating company. We should acknowledge that Motability has been a major force in helping disabled people to have access to suitable vehicles. Since its creation in 1977, it has supplied more than 3.5 million vehicles and currently has some 637,000 customers—a 1.8% increase on the year.

Noble Lords will be aware—my noble friend spelled this out—that there are basically two separate entities: Motability, which is a registered charity incorporated under royal charter; and Motability Operations Ltd, an entity regulated by the FCA and owned by four major banks. The latter is contracted to carry out the acquisition and leasing operations on behalf of the charity. Each of them publishes extensive annual accounts, the former in accordance with the Charities Act 2011. The latter is financed by a combination of bonds in the capital markets and bank borrowing. Obviously, the main source of income for the scheme comes from individuals who choose to spend either their higher rate mobility component of DLA or the enhanced mobility component rate of PIP.

It will be recalled that the introduction of PIP as a replacement for DLA was discussed extensively during the passage of the Welfare Reform Act 2012, with the prospect of the revised mobility thresholds meaning that some disabled people would drop out of entitlement. Can the Minster please update us on the progress of this, which is due to be completed in 2018? How many DLA recipients have been reassessed and how many have fallen out of eligibility for Motability? One-off transitional support has been introduced for those who would lose the use of their vehicle, and perhaps we can know how many have availed themselves of this. This level of support was said to be subject to review during 2015. Has this happened and what changes are proposed? Was there any consultation with the DWP involved?

It would seem that the operating group is funding the cost of this transitional support via the charity. Does this mean that the costs are ultimately being borne by the vehicle lessees—that is, the very disabled people the scheme was meant to support?

The DWP also provides funding to the charity for the Specialised Vehicles Fund, which enables disabled people to lease a drive-from-wheelchair vehicle. Is it the case that, faced with funding being frozen on an annual basis, Motability has restricted access to the fund and apparently did this without consultation? Can the Minister say whether this restriction was discussed with the department at all and whether it agrees with the approach adopted?

As my noble friend made clear, public funding is involved in these arrangements in various ways: the application of Motability components of DLA and PIP; funding for the Specialised Vehicles Fund; and taxation benefits by way of zero VAT on the lease of vehicles and their sale at the end of the lease period. On this basis, notwithstanding the published report and financial statements, noble Lords are justified in testing matters of value for money, transparency and probity, and we look forward to the Minister’s response.

[Lord Freud]

My Lords, that was a thoroughly enjoyable debate for this time of the evening. The amendment moved by the noble Lord, Lord Kirkwood, is directed at Motability, which provides vehicles at discounted rates to people whose disability or long-term health condition has a significant effect on their mobility. It is run on a day-to-day basis by Motability Operations, a limited company, and is overseen by the Motability charity.

On the specific questions about Clause 20 that were raised by the noble Lord, Lord Kirkwood, I can say that the Government divert benefit payments directly to Motability but the administrative costs of the diversion have been borne by the Government, who do not have the power to recoup them. Clause 20 gives the Secretary of State the power to make regulations to do so. Such a power would currently apply only to Motability but it is drafted broadly to enable the provision to apply to any organisation running a future scheme.

I can confirm to the noble Lord, Lord McKenzie, that the cost is small—less than £1 million, I think—and Motability has confirmed that it will not change its pricing or the level of service it provides. Therefore, it will have no impact on its members.

The noble Lord, Lord Rooker, asked about information on directors’ remuneration and relevant interests. That is available in the annual and interim accounts of Motability Operations, in compliance with international financial reporting standards. These can be found on its website, which is where I found them on the occasion referred to by the noble Lord, Lord Rooker. Indeed, it publishes information on its board meetings in the same place.

The department meets regularly with Motability to discuss the scheme’s performance. I know that this does not overly impress the noble Lord, Lord Rooker, but as a charity, Motability is accountable to the Charity Commission. It is therefore unnecessary to require Motability to submit the annual report that is the formal subject of the amendment, because the information is there.

I will run through some of the rather surprising number of other issues. On overhead costs, Ernst & Young found that Motability was driving down its overhead costs, while satisfaction was rising. On the monopoly question, we have regular meetings and consider the value for money that Motability provides. The banks own Motability shares but they have waived all dividends and received no profit.

--- Later in debate ---

[Lord Freud]

There is a key issue about charities having to attract the best people when they are very substantial operations, which Motability is. I know, because I was involved for a period in a foundation in the charitable area, that to attract the kind of people who are commercially competent puts you into that bracket. I have said enough.

[Lord McKenzie of Luton]

One can understand the argument that the Minister has advanced in respect of the operations entity, but it seems much more difficult to justify the position he has taken in respect of the charity.

--- Later in debate ---

[Lord Freud]

I should have made clear before that that is not departmental money; it is users’ money that we transfer. That is the reason that the salaries are set by Motability and not by government. Government does get itself into quite a lot of problems because there are areas of commercial endeavour where salaries, bluntly, are much higher than the Prime Minister’s salary. There is a different set of rates in the outside world. I know that the noble Lord, Lord Rooker, is not going to let this one go and I will watch him—from a distance—to see how far he gets on this.

Finally, the noble Lord, Lord McKenzie, asked where we are. It is too early to tell the full picture. This started on a control basis only in July 2015, so I do not have a reliable figure for him. I remind noble Lords that customers who return their vehicle in good condition will get the benefit of up to £2,000-worth of support from Motability, which will in practice allow many to continue to be mobile through purchasing a used car.

[Lord McKenzie of Luton]

Would the Minister just mind dealing with two residual points? One is about the transitional protection—how that is funded and whether it is dealt with by the charity from contributions to the operating company or otherwise. The second is that the specialised vehicle fund has been frozen for a couple of years, which has obviously had an impact in terms of the opportunity to take advantage of that in an inflationary situation. Were the Government consulted on the changed criteria that were put in place for that?

[Lord Freud]

I will have to write on that latter point. The funding for the £2,000 comes from Motability itself—the charity—as I understand it, based out of the reserves it has built up. It needs very substantial reserves because the risk in a leasing business is in the residuals, which can be very volatile, even though you are the biggest. You need very substantial reserves, but it took a view that it had some excess which it was prepared to spend in this way. I urge the noble Lord to withdraw his amendment.