Gary,
This is kind of an open question really. Downsizing the car is a great idea since you will save on petrol and car insurance as well. A smaller car will also mean that you son will feel more comfortable if he's learning to drive in your car or when he passes his driving test.
If your son is not going to use the car more than your wife, then the best way to go about this will be to have your son as a named driver on the insurance policy and let your wife be the policyholder so that you don't end up paying
new drivers insurance premiums which are very very high. This will save you loads of money in terms of car insurance because your son will benefit from the no claims discount that your wife has accumulated over the years (I'm hoping she has!). You need to make sure that you get car insurance with an insurer which lets named drivers build up their no claims bonus so that your son does not start from scratch when he decides to have insurance under his own name. See the article on car insurance companies which let you
build no claims as a named driver for more information.