Motability (Hansard, 22 May 1996)

§ Mr. Alan Simpson (Nottingham, South)

I make just one apology for bringing this matter back before the House—a very sad and belated apology to David Whitton, a remarkable, extremely bright and extremely principled campaigner for disability rights, who suddenly and tragically died quite recently. I apologise to David because, when he first contacted me about Motability—it seems a long time ago—I promised him that I would undertake to get Parliament to take action on what he believed was a quite unprincipled scam being perpetrated by a cartel of high street banks. He believed that the banks were exploiting many disabled people, the allowances made to them through the mobility component of the disability living allowance, and the public, because the scheme is centrally funded. I am very sad that I have not been able to honour the promise in David's lifetime, but it does not deter me in the slightest from continuing to pursue the matter until I am certain that it has been resolved in the terms that he would have wished.

David's belief about what is wrong with the relationship between Motability the charity and Motability Finance Ltd., the private, for-profit financial arm, is very simple. He believed that up to £100 million which rightly belonged to disabled people had been inappropriately syphoned off by the banks into their private profits. I will explain how that might have come about.

It is important to distinguish between Motability the charity and MFL the private company. Motability the charity encompasses a wonderful idea. I have no complaints about the way in which it is run. But there are major differences between the two bodies. One is that of scale. The charity has a turnover of £3 million, while MFL, the finance company, has a turnover of £375 million, assets of £1 billion and credit at any given time of up to £1.5 billion. I understand that MFL is the biggest car-leasing business in the world.

I initially became aware of the matter through another campaigner for disabled rights, my constituent Mick Reynolds, who was in the bizarre position of being pressured by the finance company to accept a vehicle under the scheme which did not meet his needs and would have cost him more than a vehicle which did meet his needs and that he would have preferred. We fought a long battle to reverse that decision, during which he educated me about some of the things going on behind the scenes in MFL and introduced me to David Whitton. It was from there that my real education in the behind-the-scenes activities of Motability Finance Ltd. took off.

All questions on the matter boil down to four basic questions: who controls whom; whether the arrangements between a charity and a private company offer the best deal for disabled people; whether excess profits and charges are being made; and whether the stranglehold of the banking cartel is corrupt and unaccountable.

I have made a considerable effort to find out what is going on inside MFL, but its organisational structure makes a masonic lodge look like open government. I suspect that the House could find out more about foreign spy rings than it could about the internal goings-on in the Motability Finance Ltd. empire and how the firm manages public money.

259 There have been a series of internal reports on MFL and Motability, all of which have been undisclosed and have criticised the level of profits and the relationship between Motability the charity and MFL the private monopoly. The first report that I came across was one picked up by the accountancy firm KPMG, in which it suggested that the banks were making a 30 per cent. return on capital. That is more than double the rate of return of private car-leasing companies.

When MFL was challenged, it said that the figures were notional and that the report was an exercise. Yet the exercise was conducted by KPMG on the basis of figures provided by MFL. If a company provides figures from which such a conclusion is drawn, it should accept the validity of the conclusion reached by a reputable firm of accountants.

The second report I came across was commissioned by an equally principled and wholly praiseworthy civil servant, Simon Willis, who was seconded into the Motability scheme. He had the sense to bring in a company of charity solicitors, Birchams, which conducted a report on the way in which the relationship between the charity and the finance company was working. It made the most profound criticisms of that relationship. It said that the Governors of Motability have no clear picture of the effective rate of return being earned by the banks or the current position on surpluses since MFL's accounts reveal nothing on these lines and the management accounts of the banks relating to the Motability scheme have never been disclosed. We consider it imperative that the Governors of Motability now require the banks to disclose the relevant accounts so as to provide a full picture of their trading position, profitability and accumulated reserves and surpluses. Without this information, the Governors are incapable of performing their duty to satisfy themselves that there are no alternative funding sources which could provide better value for money to Motability's customers. Birchams had no axe to grind. It is important to note that, having issued the report that it was commissioned to produce, it was immediately decommissioned; the rest of the processing of its report remains a mystery, having been handled internally within Motability Finance Ltd.

The report commissioned by Simon Willis came on the back of an earlier and in many ways much more damning internal letter written by someone who ought to have known exactly what was going on in Motability—Alan Outten, who was not only a banker and a member of the board of directors of Motability Finance Ltd. for 15 years, but had been deputy chairman of Motability Finance Ltd. He said: Some 2 or 3 years ago the banks reduced their gross margin to 1.5 per cent. gross, made up of 0.5 per cent. over cost of funds plus 1 per cent. profit margin … Somewhere along the line, MFL 'shifted the goal posts' without the agreement of the Charity, so that each bank received a flat management fee of £50,000 each plus an additional funding margin of 0.1 per cent. This change effectively increased the 'management charge' from a maximum of £600,000 to £1 million … It is surely an anomaly that the board of MFL should be paid £1 million per annum (and increasing) by the Charity for representing the interests of the banks, which are not consistent with the objects of the Charity. I suspect that that letter was one of the factors that prompted Simon Willis to call for the independent report by Birchams.

Since that time, a further report has been commissioned. Schroeders merchant bank was asked to look at profitability levels within the company. Again, 260 I have been unsuccessful in getting a full copy; I have managed to get only an executive summary of the bank's report, but the bottom line is simple. Schroeders bank says: The current margins, which were agreed in the autumn of 1993. appear now to be out of line with the market. The margins charged by the Partners should therefore be revised in the light of this benchmarking exercise. In practical terms, that comment amounts to a statement by Schroeders that the margins to which the banks have been working are probably twice as high as could legitimately be justified.

There have been changes in the charging regime only as a result of public pressure from disabled people, from organisations representing disabled people and from campaigners in this House and in the other place who have sought to raise the matter in both Houses. Since the matter was raised, MFL has made a series of reductions, but all have!been designed simply to forestall further criticism.

The whole structure of MFL is based on obsessive secrecy and obsessive control. The company has seen not only the Birchams report and the Alan Outten letter, but a letter sent by Simon Willis to the chairman of Motability pointing out his concerns about the extent to which a public charity was effectively owned by a private, for-profit company and about the fact that that company had no accountability to the charity or, ultimately, to the Government who fund it. In his letter to the chairman. Simon Willis said: All suppliers to the scheme are subject to continual or periodic competition except the banks … Not only are they exempt from market pressures; the governors of the charity have repeatedly beer denied access to the partnership accounts which underpin the scheme's financing. The charity commissioners run an annual profitability study to determine the appropriateness of the profit margins … The 1992 study was shown briefly to the governors but all copies were then recalled. Among several recommendations which have not been pursued, it concluded that 'higher than envisaged returns appear to be being made by the Banks.' For some reason the 1993 study was not shown to the executive governors. I only saw it in draft and 1 seem to recall a surplus approaching £100 million and a return or capital of over 20 per cent. to the funding banks. That is not a picture of a charity being able responsibly to oversee its stewardship of the allocation of public moneys and to fulfil the goals of a laudable scheme which gives disabled people the mobility to which they are entitled.

We are currently waiting for the report by the National Audit Office. I believe that the delay in issuing that report is probably a result of its having been nobbled. I am led to believe that there are aspects of the relationship between MFL—with its beneath-the-surface partnership accounts—and Motability that will not be allowed to be properly explored.

Throughout this time, as the contingency funding is allowed to remain in the banks' hands and MFL is driver by the banks' priorities, I have had a constituent, Liz Carr. whose physical condition has changed dramatically since she acquired a vehicle. She now finds that she is unable to get a change in her lease to entitle her to a more appropriate and adapted vehicle because, she is told, adaptation funds are not there. The fact that some £100 million is sitting in an account somewhere else suggests that the funds are indeed there, but that moneys belonging to disabled people are not being allowed to be used in the interests of disabled people.

261 Although I said that MFL had not been unresponsive, it is worth bearing in mind its first response. The first criticism produced a remarkable change in the company. The chair of the company wrote back to the charity at the end of 1993 saying: I am delighted to inform you that at the meeting on the 7th December there was unanimous support from the banks to make a donation to the charity of fifteen million pounds in March 1994, with a commitment to advance a further ten million pounds in March 1995. What a generous offer. Ignoring for the moment the fact that the company was giving back disabled people's money to disabled people, what troubled me most were the strings attached to the offer. The chair went on to say: Given that such a donation will result in an initial insufficiency of reserves, it was also felt necessary that certain assurances should be sought from the charity. The most important of those assurances was that the charity will not, without the partners' prior consent, seek to admit any other lessors into the scheme. Thus the terms on which money would be handed back was a guarantee that the banks would be offered a perpetual monopoly so that they could continue to milk a no-risk leasing scheme, using public money to provide themselves with comfortable private profits. That is a wonderful and unique example of public money being used to provide a banking cartel with money for nothing and perks for free. There is no way in which the Government—or Motability—can either test the value for money offered by the banks or renegotiate terms on the basis of clear knowledge of the charges being made. The current arrangements are untenable and unprincipled.

That is not just my view; I believe that the Minister also takes that view. I am grateful to whoever it was who supplied me with a copy of a letter sent by the permanent secretary at the Department of Social Security. On 3 February 1995, he wrote to Gerry Acher, the vice chairman of Motability, saying: My Secretary of State said that a monopoly could not continue unchallenged indefinitely". The permanent secretary also said that in terms of the requirements of the charity, it was important that three key issues were addressed. First, the charity must be able to demonstrate that there is sufficient competitive pressure in the scheme to ensure that disabled customers are getting the best deal possible. Secondly, there was a need to get a properly documented memorandum of understanding between the Department and Motability, and between Motability and MFL as soon as possible. Thirdly, the Comptroller and Auditor General had to be assured that proper control is exercised in disbursement of public monies on both the direct DSS payments to Motability and the DLA money which funds the scheme. On this we have made little or no progress. Having raised the matter initially, I have started to get letters from distributors telling me of their embarrassment at knowing that they could offer disabled people better terms through other commercial credit organisations than through the leasing arrangements in which Motability Finance has a monopoly. In some of the examples that I have been given, interest rates of 20 per cent. APR were quoted: twice the rate that other finance organisations could have offered. In his original letter, Simon Willis made precisely 262 this point—that an array of banks and credit companies in the market place could be tested to discover whether the MFL banking cartel offers the best deal in the interests of disabled people. That possibility has been consistently thwarted, undermined and rejected.

In one sense, I cannot blame the banks. They are in a position in which they are fishing for money in a barrel, and one can hardly blame them for wanting to continue fishing. But it is not an acceptable position, and neither disabled people nor the House can be expected to tolerate it.

I ask the Minister to undertake two clear actions. I do not and will not go along with the line of inquiry that simply asks why this arrangement, which I believe is both crooked and corrupting, should have been allowed to continue for so long. I know that outside the House there is a great deal of speculation about the personal and corporate links between those who appear to have significant influence in the shaping of policy in Motability Finance Ltd. and donations that have been made over the years to the Conservative party, but that is for other people to explore.

My reason for raising the matter in the House today is to ask for two things. I ask the Minister to instruct Motability to open up its options and to break the banking cartel's sense of ownership of the charity. The charity must be in a position to pursue its own priorities so that its destiny and resources are not at the behest of banks and so that it can, if it so chooses, test out the banks' offer against other possible sources of money. I hope that the Minister will give the House that assurance today.

I hope that the Minister will also assure me that he will support another action that I have taken today. I have written to the Chairman of the Public Accounts Committee asking for that Committee to investigate this matter. I have been told that, behind the scenes, there is a great fear that Parliament will seek to scrutinise some of the completely unjustifiable terms on which the relationship between the banks and the charity has been allowed to continue. I have written to the Chairman of that Committee to ask it to investigate the matter so that there is a proper parliamentary investigation of what is going on. I ask the Minister to join me in supporting that approach.

§ The Minister for Social Security and Disabled People (Mr. Alistair Burt)

I am grateful to the hon. Member for Nottingham, South (Mr. Simpson) for raising this important subject for debate, which I am more than happy to answer. I am extremely disappointed that he has left me no time to deal with the points that he has raised, so I shall not bother to answer many of the points. If the hon. Gentleman does not give me sufficient time to deal with the issue properly, he cannot expect me to deal with it in a half-hearted fashion. He knows that the National Audit Office is dealing with the matter and that a report is expected soon.

I am sure that the hon. Member for Nottingham, South used it as a casual phrase, but he should be aware of its seriousness: simply to refer to the delay as being due to the likelihood of the National Audit Office "being nobbled", I think, means that he is accusing a public servant of being corrupt. It is up to him if he is content to leave that comment on the record, but that is what it 263 means. He is saying that if the NAO comes out and reports more or less along the lines that he has taken, fair enough, he will look at the report. If it does not, however, it is because a public servant is corrupt. If that is not what he meant, I urge him to take another opportunity, in due course, to make that very clear.

As most hon. Members know, Motability was set up in 1977 with all-party support. The then Secretary of State invited the late Lord Goodman to consider how disabled people could use their mobility allowance to gain access to a vehicle on terms representing good value for money. Lord Goodman, with Lord Sterling—Motability's present chairman—approached the Committee of Clearing Banks for assistance. They then set up the financing scheme which the hon. Gentleman now regards as crooked and corrupting. I am sure that they would be disappointed, and that the previous Labour Administration would be disappointed, to be associated with the words used by the hon. Gentleman.

As the hon. Member for Nottingham, South went on to say briefly, Motability has developed to become probably the most successful organisation of its kind in the world. It provides an opportunity for independent transport for hundreds of thousands of people who would otherwise not have such transport. It is a shame that that aspect of the matter is not highlighted more often. Motability is a very large scheme. Funding has grown. The assets owned by the bank, to which the hon. Gentleman referred, are the cars that people drive. As he will be aware, last year Motability achieved a significant milestone with the handing over of the 500,000th car. The Government therefore support the objective of the Motability scheme and acknowledge the very real benefits that the scheme can provide by allowing disabled people to become independently mobile.

The custodians of the scheme must be the governors of Motability. The governors and trustees have very clear responsibilities in relation to the general administration of Motability's aims and objectives, as set out in its royal charter, and in controlling the various charitable funds at its disposal. It is for Motability to ensure that the suppliers of the scheme offer value for money. Motability is a registered charity and, as such, is required to deposit copies of its annual accounts with the Charity Commission and to comply with company and charity law. As a requirement of Government grant, Motability must also submit its annual accounts to the NAO and is open to scrutiny by the NAO.

As the hon. Member for Nottingham, South knows, the NAO is currently preparing a value-for-money report concerning the Motability scheme. If Parliament subsequently wants to scrutinise Motability and its work, that would present no problem for Ministers or, I should imagine, for the scheme. If Parliament wishes to do that, it would be perfectly proper. Overall, however, the hon. Member is setting up a conspiracy theory and any evidence that comes to hand which does not back up that theory can be dismissed in one way or another. I find that disappointing.

The hon. Gentleman raised a number of specific points, of which I shall be able to deal with only one or two. However, I shall deal with some of the basics.

264 Who is in charge of the scheme? According to the hon. Member for Nottingham, South, it is the boss banks or something like that. The Motability scheme is a unique partnership between Government, the charitable sector and the private sector. Each partner in the scheme has its part to play. The governors of Motability have clear overall responsibility, as set out in its royal charter and articles of association, to ensure that the scheme operates in the interests of all beneficiaries.

I should deal with the transparency of the scheme, because that is important. While not directly responsible for the operation of the Motability scheme, I am keenly interested that it continues to achieve the Government's objective for the scheme: the provision of personal transport, for those who qualify, at terms which represent good value for money for the disabled customer. We are united in putting the disabled customer at the heart of our concerns and in wanting to ensure that the scheme works well for them.

Adverse comment and criticism of the scheme is a matter for serious concern and urgent attention. Having seen Motability's outstanding success, and being confident of the operation's propriety, I have been surprised at the range of criticism levelled at the scheme and at many the guises in which it has appeared. However, I do not take any issue with the hon. Member for Nottingham, South or with any others for seeking to find out information about the scheme and to raise legitimate questions.

A proportion of what the hon. Member for Nottingham, South said—he knows that we have a good relationship— was perfectly fair and reasonable. It is only when he questions propriety and uses language that I regard as unfortunate that I think he goes too far. But it is right to ask questions: there is no problem about that.

Given the criticisms that have been made, it is possible to recognise that earlier recognition of the depth of the concerns voiced about transparency and swifter action to provide details on the operation might have helped to avert the current situation, in which lack of knowledge has led to unjustified suspicion. I should also point out that, as a registered charity in receipt of Government funds, Motability deposits its accounts both with the charity commissioners and with the NAO, while MFL— the limited company—deposits accounts at Companies house. They therefore all have to be open to public scrutiny.

Much has been made of the structure of the scheme and the suggestion that partnerships have been set up to hide the movement of funds through the funding banks. That is not the case. The scheme was set up in a tax efficient and perfectly legal manner to ensure that disabled people gain the maximum benefit. I am anxious that Motability should be able robustly to deal with the criticisms that have been made and to demonstrate fully the propriety of its operation. I believe that the publication of the NAO report will provide the most appropriate opportunity for that. When it is published, I shall be more than happy to talk to the hon. Gentleman about what it reveals. I presume that there will be an opportunity to discuss the matter then.

I am extremely sorry that I have not had the opportunity to say more. Had I been given more than eight minutes, I probably would have done.