The boss of a taxpayer-supported business that supplies cars to people with disabilities is in line for a £2.2 million bonus, the Government spending watchdog said.
An inquiry into Motability by the National Audit Office (NAO) also found that customers were charged £390 million more than was required in their lease agreements to cover the costs of depreciation.
The scheme, made up of an operations business and two charities, accounts for about 10% of all new cars bought in the UK.
Motability Operations chief executive Mike Betts’ annual pay package of £1.7 million was recently described as “totally unacceptable” by the Work and Pensions and Treasury committees.
The NAO revealed that he is in line for a bonus which was worth £1.86 million in September and is likely to reach about £2.2 million by 2022.
This can be “released at any time” and “may be of interest” to the Commons committees, the watchdog noted.
Only the initial allocations of £258,000 have previously been disclosed.
Under the Motability scheme, an individual’s mobility welfare payments are transferred to Motability Operations in return for a leased car, along with insurance, maintenance and roadside assistance.
The Commons committees said potential rivals cannot compete with the company because it receives substantial tax breaks from the Government that no other firm is entitled to, and does not face any competitive pressure when tendering for the contract to run the scheme.
The NAO found that remuneration for Motability Operations’ executive directors has been “generous” and linked to performance targets set at levels “easily exceeded” since 2008.
As a result, in the first seven years of a bonus scheme, five executive directors received £15.3 million in total.
In letter published by the NAO, Motability chairman Lord Sterling wrote to Neil Johnson, chairman of the operations business, warning that the remuneration of executives is “too high”.
He said that the scheme is “vulnerable to attack” over pay levels, given that the business is “free of competition” and “enjoys a captive customer base in a relatively stable environment”.
The scheme has generated more than £1 billion of unplanned profit since 2008.
The NAO said Motability Operations’ own forecasts on the future value of used cars have been out of line with the market average, resulting in customers being charged £390 million “more than was required” to cover lease costs.
As of March 31 the business held £2.62 billion in reserves, which is significantly higher than major car leasing companies.
Motability exclusively benefits from certain tax concessions worth up to £888 million in 2017, the report said.
Based on May 2018 figures, the lease prices offered to customers are typically 44% cheaper than the market rate.
The watchdog concluded that senior management of the operations business deserves credit for the success of the scheme, with overall customer satisfaction at 99%.
But it found there has been limited effort to understand why only 36% (614,000) of eligible customers use it.
Motability Operations has taken an unnecessarily conservative view of risk, holds more in reserves than arguably it needs and has also made large unplanned profitsSir Amyas Morse, NAO
Sir Amyas Morse, the head of the NAO, said: “Motability Operations has taken an unnecessarily conservative view of risk, holds more in reserves than arguably it needs and has also made large unplanned profits.
“On top of which there has been an internal view of executive performance as being ‘consistently extraordinary’, with the reward to match, despite pressures from the charity.
“There is much to be proud of, but we think that stakeholders, including government, need to give far-reaching consideration to the scheme as it now stands and to its future, in particular whether its governance and accountability arrangements are robust enough.”
Work and Pensions Committee chairman Frank Field said: “We knew already that executive pay at Motability Operations was out of control.
“But the NAO has now uncovered the full extent of it, and revealed that the chief executive is in line for a £2.2 million bonus payout, on top of the obscene amount of money he has already been given.
“This is a man whose income is already more than most people can expect to see in a lifetime.
“It is beyond appalling to learn that money that could have been used to improve the lives of disabled people will be lining his pockets instead.”
Responding to the NAO report, the Motability charity said it will “seek improved mechanisms to better influence Motability Operations’ executive remuneration”.
Lord Sterling said in a statement that the scheme accepts the watchdog’s recommendations but insisted there are “areas still open to further debate”.
The finding that customers are being overcharged “runs quite contrary” to prices which are lower than the market rate, he said.
Lord Sterling added: “Every penny surplus to sustainability and to this excellent price and service goes to help enhance the lives of the scheme’s disabled customers and their families.”
A Department for Work and Pensions spokeswoman said: “To ensure that the scheme is focused on delivering better value for money we are committed to working with the charity and key stakeholders so that current and future arrangements result in improved outcomes for disabled people.”
Labour spokeswoman Marsha de Cordova said: “It is shocking that the wealthy few continue to profit at the expense of many disabled people in need of support.
“It is disgraceful that executive directors received millions in bonuses, particularly given that the scheme has been found to overcharge hundreds of thousands of disabled people for vital mobility support.”