MPs for the work and pensions committee have criticised the chief executive of Motability for running a “bloated” reserves model and for not giving enough to its charity arm.
In an evidence session in front of the work and pensions committee yesterday Mike Betts, chief executive of Motability Operations was criticised by MPs for holding some £2.4bn in reserve as a “financial shock absorber”.
Last month the organisation faced scrutiny about the amount the chief executive of the company arm was paid and the amount it held in reserves and the National Audit Office has been asked to look into it.
According to its website the charity, Motability, "sets the strategic policies and direction of the Motability Scheme" which provides vehicles that have been adapted for disabled people. The charity contracts Motability Operations to run the scheme.
The Charity Commission said last month that it had conducted a detailed reveiw of the relationship between the two bodies, which did not identify any regulatory concerns.
But yesterday MPs described the company as "bloated" and said it should give more to its charity arm.
Labour MP John Mann called the company’s reserves “bloated”, while Conservative MP Charlie Elphicke questioned Betts on why the company did not donate more of its cash surplus to its charitable arm the Motability Charity scheme.
“Don’t we have here a very good scheme which has now become rather bloated,” asked Mann. “Where there is no risk, and little bits on the side, little bits of extra profits for the banks, little bit of comfort for you – hence why you keep giving us false information.”
In the hearing, Betts defended the company’s levels of reserves, saying it “bought £14m worth of cars a day” for its customers and was beholden to the “vagaries” of the used car market, prices for which tend to fluctuate.
'Financial shock absorber'
“The reserves is the shock absorber and that’s invested into the cars. We’ve built up reserves of £2.4bn, we’ve got £6.5bn worth of cars and so we fund that with £2.4bn in reserves, £4.1bn in cash. That £2.4bn is not idle, our customers benefit £80m a year which we would pay in interest if we borrowed that on the open market.”
Betts also said Motability Operations faces “more risks” than car leasing companies on the open market and doesn’t have “the same ability to mitigate”. He also said that the company is given very “stretching targets” by the charity to “not only have low prices, but to have stable prices. So if we do have some sort of shock, we can’t increase customer prices to recover”.
However Mann refuted Betts, saying that the Motability Operations was “not covering a great deal of risk”.
“So, the FCA is saying you don’t need to carry that £2.4bn in reserve to cover risk, but you’re saying you do. And this has created a bit of a puzzlement, the word risk has come up at least 50 times, but you’re not actually covering a great deal of risk are you?
“The market is saying you’re not risky. The market is saying you’re incredibly safe. You’re making a few things up. I put it to you that you’re not actually risky at all. You’re a safe bet, an incredibly safe bet yet at the same time you’ve been carrying significant cash reserves.”
Company could ‘afford to be a little more generous’ to the charity
Elphicke criticised the amount of money that Motability Operations currently returns to its charity arm. He noted that, since 2012 Motability Operation’s amount of cash in the bank had increased from “about £100m” to over £1.1bn in 2017.
“The variables all seem to be up, up and away since 2011 and yet each year you give the excellent charity £45m. Don’t you think you could afford to be just a little bit more generous than just £45m and actually give more money to good causes?”
Betts said that the company had put “£265m” back into the charity since 2011 and said the “journey to reserve sufficiency means you will see those numbers increase” but wouldn’t put a number on the amount.
Ephicke asked whether the company would make a “one-off, substantial donation to the charity” given its sizeable reserves.
Neil Johnson, the company’s non-executive director who was also giving evidence alongside Betts, said “there is no impediment” to the company doing that “provided we can see the sustainability of the scheme going forward”.
He also said that “there are real concerns in the cart market at the moment regarding residual values” and said that, given the used car market had recently seen a “sustained run of very high values” it was likely “to come to a pretty abrupt end”.
Motability charity would 'welcome' NAO review
MPs also said they would ask the National Audit Office to conduct an inquiry into the governance of the charity and its commercial arm.
Lord Sterling, chair of the charity, told the committee that the charity would “welcome” an inquiry from the National Audit Office. He said the charity itself had also written to the NAO.
He said: “We wish to have a review so that the issues raised in recent weeks can be put to bed once and for all”.