Full Breakdown
City Minister Faces Criticism Over £2 Billion Car Finance Tax Loophole
1/25/2026, 9:34:01 PM
Overview of the Tax Loophole
City Minister Lucy Rigby has been criticized for her response to a £2 billion tax loophole that allows major banks to avoid taxation on compensation payouts related to the £11 billion car finance scandal. This loophole enables banks, including Barclays, Lloyds, and Santander, to sidestep regulations that prevent them from deducting compensation from their taxable profits. The rules, established in 2015, were designed to ensure banks pay taxes on compensation linked to corporate misconduct. However, the motor finance divisions of these banks are classified as “non-bank entities,” exempting them from these regulations.
Urgent Calls for Intervention
Bobby Dean, a member of the parliamentary Treasury committee, has urged Rigby to take action against this loophole. In a letter dated December 29, Rigby acknowledged that the compensation restrictions do not apply to non-banking companies, even if they are part of larger banking groups. Dean criticized her response as inadequate, stating, “This is a complete non-answer from the government. Once again, they have chosen to side with the industry over consumers and taxpayers.”
Implications for Consumers and Banks
The Financial Conduct Authority (FCA) is expected to announce its next steps regarding a proposed compensation scheme in February or March. This scheme aims to address the mis-selling of Personal Contract Purchase (PCP) and Hire Purchase (HP) agreements, which have affected approximately 14 million drivers between 2007 and 2024. A Treasury spokesperson emphasized the importance of providing consumers with access to motor finance in a manageable and affordable manner, stating, “We want to see this issue resolved in an efficient and orderly way that provides certainty for consumers and firms.”
Criticism from Advocacy Groups
Consumer advocacy groups have expressed concern over the government's inaction regarding the tax loophole. Critics argue that allowing banks to avoid £2 billion in tax undermines public trust and places an unfair burden on taxpayers. The lack of decisive action from the government has led to calls for greater accountability and transparency in the financial sector.
What's Next for Affected Consumers
As the FCA prepares to outline its compensation scheme, consumers who believe they were mis-sold car finance products are encouraged to stay informed. Financial expert Martin Lewis has indicated that an announcement regarding the mass redress scheme is likely in March, with hopes that affected individuals will receive compensation this year. He noted, “I’m being asked all the time about car finance misselling redress... I would say it is at least 90% likely they will put a mass redress scheme so people can get their money back through the regulator instead of going through a claims firm.”
Verbatim Quotes
- “This is a complete non-answer from the government,” — Bobby Dean, Member of the Parliamentary Treasury Committee
- “It is vital that consumers have access to motor finance to enable them to spread the cost of a vehicle in a way that is manageable and affordable.” — Treasury Spokesperson
- “I would say it is at least 90% likely they will put a mass redress scheme so people can get their money back through the regulator instead of going through a claims firm.” — Martin Lewis, Financial Expert
