'We can't leave welfare untouched,' says Reeves

Treasury considers end to tax breaks on cars for disabled people

- Rowena Mason, Heather Stewart

Rachel Reeves has said she “can’t leave welfare untouched” this parliament, with the Treasury understood to be considering axing up to £1bn in tax breaks for cars for disabled people.

The chancellor set out her thinking before next month’s budget in an interview with Channel 4 News broadcast last night, having previously said she would need to make cuts and raise taxes. “We can’t leave welfare untouched,” she said, when asked about benefits. “We can’t get to the end of this parliamentary session and I’ve basically done nothing … We have to do reform in the right way and take people with us.”

The government had to abandon billions of pounds in cuts to disability benefits earlier this year after a revolt by Labour backbenchers, but it is pressing ahead with cuts for future claimants of the health element of universal credit from April 2026.

It is now understood to be considering removing tax breaks for the Motability scheme, under which disabled people are exempt from VAT and insurance premium tax on cars subsidised by the government.

Whitehall sources said the ending of tax exemptions was under consideration but that no decision had been taken. They downplayed the idea of reducing the eligibility criteria for Motability cars, but said the option of scrapping the VAT and insurance tax exemptions was “more likely”.