Banks accused of profiteering from the disabled charity

Charity concerned over financial aspects of car leasing. Steve Boggan reports

Six high street banks running a pounds 1.2bn car leasing company for a disabled charity have made "unjustified" profits, according to a former deputy chairman of the company.

Motability Finance Ltd, which leases 80,000 cars a year by using disabled people's pounds 32.65 a week mobility allowance, has twice landed windfall profits but it does not fully explain how much was made or where the money went.

The leasing company was set up by the charity, Motability, to capitalise on bulk discounts. It is the largest car leasing company in the world, but it is currently being investigated by the National Audit Office following claims that it has become secretive, refusing to publish the accounts of a number of associated partnership subsidiaries controlled by Barclays, NatWest, Midland, Lloyds, the Royal Bank of Scotland and the Bank of Scotland.

Last night, Alan Simpson, Labour MP for Nottingham South, tabled 16 parliamentary questions for Peter Lilley, the Secretary of State for Social Security, demanding information on the finance company.

Since its creation in 1977, some governors of Motability (the charity) have complained that the workings of Motability Finance Ltd (MFL, the finance company) have been kept secret even from them.

However, internal correspondence obtained by the Independent reveals that there has been a boardroom split within MFL over who should handle the charity's money.

Alan Outten, a former deputy chairman of MFL and one of its directors for 15 years, wrote to Simon Willis, a former director of Motability, in June 1993 arguing that the charity should take over MFL.

Mr Outten, 62, died last Saturday after a battle against cancer. He voiced his concern over MFL, of which he was vice-chairman for eight years, in a letter in 1993 in which he wrote: "For the last year or so, I have been increasingly convinced that we should look at the possibility of the charity taking over MFL ... All the costs and expenses of MFL are recovered in the pricing of the initial rentals ... All the computer systems, premises, staff salaries and pension contributions, operating costs, consultancy and professional fees etc are and have always been paid for by the customers [disabled people].

"Accordingly, the banks have no investment in MFL and a valid case could be made for saying that the charity, acting on behalf of the disabled, has paid for and therefore effectively owns MFL."

MFL receives an element of customers' Disability Living Allowance directly from the Department of Social Security, ensuring it was free of bad debts.

Mr Simpson said: "The charity does a fine job but the finance company behind it represents a monopoly providing risk-free profits for a group of banks instead of pushing costs down further for the disabled.

"It is extremely doubtful to me whether the banks require such a large reserve against increases in tax rates," he said. The banks were hedging against a possible increase in corporation tax from 33 per cent to 50 per cent, which never occurred.

Twice, he said, the banks made windfall profits from running MFL, once when corporation taxes were lowered and once when, in 1988, they took out fixed-interest loans shortly before interest rates increased. Proceeds went towards a new charity, called the Motability Tenth Anniversary Trust Fund Ltd. That currently stands at about pounds 40m.

In another letter, dated 17 March 1993, to David Maxwell of KPMG Peat Marwick, formerly the charity's auditors, Mr Outten criticised the pounds 40m projected contingency fund.

Gerry Acher, head of audit at KPMG Peat Marwick and vice chairman of Motability, said Mr Outten's proposals had been considered but rejected because it would have been inappropriate for the governors of a charity to bear responsibility for pounds 1.2bn of liabilities.

Reported profits of pounds 85m on the leasing side of the business, he said, failed to take into account tax and interest payments which brought true profits for the banks to just pounds 6m for 1993 and pounds 8.8m for 1984.

He said Motability's latest accounts, due in three weeks, would be more transparent.