It has been reported that executives within the motor industry have expressed frustration at the Chancellor’s intention to end the provision of luxury cars through the Motability scheme, which assists those in receipt of disability benefits with funding to lease a new vehicle. Motability itself is a private company and accounts for about a fifth of sales of new cars in the UK, last year having spent £2.8 billion in the provision of vehicles for about 815,000 users. Of the 700,000 vehicles that constitute Motability’s stock, around 50,000 are considered luxury brands, such as BMW, Audi or Mercedes-Benz. In addition to removing luxury vehicles – defended by Motability as representing only seven per cent of its offering – the government is considering other reforms, including reducing the tax breaks available through the scheme, such as exemptions from VAT and insurance premium tax.

While Motability itself has pledged to crack down on potential abuse of the scheme, figures from within the motor industry have criticised the possible reforms. They argue that reform will reduce the size of the market for new cars, increase prices, deter investment, cost jobs and reduce the number of vehicles subsequently moving into the used car market, with knock-on implications for pricing. In addition, it is claimed, the planned changes will affect social mobility and cost the Treasury revenue.

The two latter claims have arguably been addressed. On the matter of tax revenue, it has been estimated that ending the tax relief on Motability vehicles will save the Exchequer over £1 billion per year. With regard to the question of social mobility, a reformed scheme would still deliver that. As the Transport Secretary indicated in a recent radio interview, the government considers the scheme to provide important support for those with mobility needs and believes that it should continue to do so. At issue, therefore, according to a Treasury official, is the question of whether the scheme has lost sight of its original purpose and whether, by providing premium vehicles rather than essential transport, it is making good use of public money. As such, the government’s concern is essentially with matters of fairness.

Rent Seeking and Promoting Growth

The other concerns raised by industry figures – concerning jobs, investment, prices and the state of the market more broadly – are interesting in so far as they focus entirely on issues within the automotive sector. What, precisely, is being sought? It is natural for businesses to wish for certainty and consistency, without which it is difficult for them to make plans or operate with any confidence. This, however, does not appear to have been mentioned. Rather, what seems to be at issue is the financial support provided to the sector by way of the Motability scheme.

One might wonder, therefore, whether this constitutes an example of the kind of rent-seeking behaviour deplored by Adam Smith in his comment that ‘People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the publick, or in some contrivance to raise prices.’ While this observation was made in the context of a discussion of trade corporations and competition in employment, it reflects Smith’s concern at the tendency of those in business to seek monopoly advantages or government regulation that favours their own operations. Such behaviour – whether in the form of lobbying for special tax exemptions or using a dominant market position to exclude competitors – aims to increase one’s own profits without offering any additional productivity in return. Is this what figures within the automotive industry are engaged in, essentially seeking government financial support for their own advantage? Are they arguing that the proposed reforms should be abandoned because they are ‘bad for the sector’?

It could be argued – and perhaps this is the contention of the executives in question – that helping the motor industry is in the public interest. Maybe there are grounds for continued government support – in effect by leaving the scheme to operate as it is – based on the wider economic benefits. Through the Motability scheme in its current form, the argument might run, the government supports investment and research within the motor industry, or at the very least the provision of jobs. It thereby restricts unemployment and encourages spending, thus stimulating economic activity more broadly and contributing to economic growth.

Welfare and Demand Support

There may be an argument of this kind to be made, but it invites the question of whether a scheme designed to assist those with mobility problems represents the best means by which the government could provide a stimulus to growth via the automotive sector – and why via this sector rather than any other? We might wonder whether the Motability scheme has accidentally become part of the UK’s industrial strategy. That is to say, a scheme intended to support those with mobility problems – that is, a supposedly targeted form of welfare provision – appears to be serving as a form of demand support for the automotive industry, to which some within the sector feel entitled or believe is essential to their economic success.

The purpose here is not to adjudicate the merits of either the Motability scheme or the effectiveness of any form of government-funded demand support for industry. However, an arrangement that seems to function as both, without necessarily doing either well, surely requires revision, particularly if, to follow Smith, those who benefit commercially come to see the provision as something to which they are entitled – all the more so if that form of unintended support is in danger of collapse when government thinking on welfare provision is revised.

A more effective approach would be to consider the UK’s welfare needs independently of any industrial strategy and to implement policies designed to achieve the best outcomes in each area respectively. Such an approach could reflect a coherent economic vision aimed at yielding the economic goods of labour market participation, increased prosperity and targeted and effective  welfare provision.

Government Support and the Good

To develop this kind of economic vision, we must engage with fundamental issues concerning our values, the kind of society we want to build and the kind of economic arrangements which will support it. Do we seek simply an increase in wealth, or are there other outcomes to be pursued, too? Are we hoping simply for growth, or growth of a particular kind? How should the increased wealth be distributed? What kind of employment do we wish to see provided: simply ‘jobs now’, or sustainable, productive work that is conducive to human flourishing in the long run? These questions oblige us to consider what kind of prosperity we seek.  

Ultimately, we are brought to reflect on our conception of the good – both for individuals and society more broadly – for it is only with a grasp of such notions that we can make sense of the question of whether a particular sector ought to receive support from government, or whether measures to grow the economy are appropriate.

Without this, there is the possibility that economic support from government will always be subject to the competing claims of self-interested groups seeking their own advantage, used haphazardly to address one crisis after another as each arises, or spent on various projects to ‘promote growth’, without coherence or overall purpose.

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Neil Jordan is Senior Editor at the Centre for Enterprise, Markets and Ethics. For more information about Neil please click here.