I was not aware of the fact, but apparently the government has exempted disabled drivers from paying VAT on new cars. This immediately strikes me as odd, in that there is no inherent reason why a disabled person – even one with mobility difficulties – would have greater need for a car than any particular other person. For one thing, it smacks of lumping all disabled people together and assuming that their needs are identical, whereas in fact the need for motorised transport probably varies as widely among disabled people as it does among the general population. Secondly, there are plenty of non-disabled people who desperately need a car – perhaps to convey their children to school, to go to work or attend hospital. They do not get tax breaks to buy one, however. One might also question why the benefit is not being channelled into public transport, as the government claims to want to encourage us out of cars.
More to the point, it is an excellent example of where it would be better to give people money rather than perks. In this case, rather than give disabled people a tax break on buying a car, why not give them money to contribute to the car, or if they prefer a rail ticket, a mobility scooter, their heating bill, entertainment or whatever they consider to be their priority.
The paternalism is only half of the problem, however. The other half is that, unsurprisingly, enterprising people have learnt to game the system. Firstly, the VAT exemption does not appear to be capped. Thus it applies not only to a Nissan Micra, on which the VAT might be just over £1,000. It appears it also applies to “top-of-the-range Land Rovers, Bentleys, Maseratis and Lamborghinis, costing up to £70,000. That means that [disabled drivers] could save as much as £12,250 on each transaction in VAT.”
Now, I think it is pretty clear that the government never intended to give a tax break to those buying luxury cars that cost almost two and a half times the average household income. But there is more to come.
Some of these disabled drivers are so enterprising that they have taken to selling their un-driven cars on at a cost that is higher than the VAT-exempt price that they paid, but not as high as the VAT-included price that a typical dealer would charge. On a luxury car, that difference could be as much as £10,000. Even if the buyer and the disabled re-seller split that difference equally, that means that the disabled driver is able to turn his government perk into a £5,000 cash profit.
Unethical it may be (and very possibly illegal too), but it is also a fine example of how government intervention creates moral hazard and ultimately generates immorality and criminality where previously there was none. As ever with government, the intentions are all fine and dandy, but the outcomes are very different from what was intended.