5.21 There are four basic approaches to providing accommodation:
Parliament could acquire and own the accommodation itself.
MPs could receive a flat-rate allowance from which they would be expected to make their own
arrangements.
The present arrangements could be allowed to continue, involving support for mortgage interest as
well as rent or hotel costs.
Renting or hotel costs only could be allowed, with support for mortgage interest abolished. This would
return the position to what it was some years ago.
5.22 The following sections consider these options in turn. Later parts of this chapter deal with a number of
important subsidiary issues, and with the transitional arrangements.
Accommodation owned by Parliament
5.23 The option most favoured by members of the public in evidence to the Committee is that MPs should
be housed in accommodation owned by Parliament, either in a barracks or block of apartments near Parliament or, as frequently suggested, in the athletes’ accommodation in the Olympic Village after 2012.
5.24 There are precedents for directly owned accommodation in other legislatures. In Sweden, for example,
accommodation in Stockholm for Members who live outside the capital is provided rent-free by Parliament, which owns around 250 apartments.5 The Norwegian Parliament owns 140 flats to
accommodate MPs with constituencies more than 40 kilometres from the Storting.6
5.25 The main arguments in favour of this approach are that it would:
Remove entirely the scope for abuse.
CHaPTeR 5: aCCoMModaTioN
“It is important that they don’t get lost in the Westminster world and having a home with their families in London will at least keep the link with the rest of the real world.” 7
The use of a compound like the Olympic village or any other single block of accommodation is likely to
involve significant continuing security costs.
5.27 For these reasons the Committee does not favour this option.
A flat-rate allowance
5.28 The second option is that MPs should receive a flat-rate allowance to cover their additional
accommodation costs, or have the current allowance rolled into a substantial increase in salary.
5.29 Such a supplement could differ from normal pay in that it could be non-pensionable. It could be taxable
or not. It could be paid as of right, or converted into a daily rate to be paid according to actual nights spent in London as the result of attendance in Parliament.
5.30 There are precedents for flat-rate allowances in other legislatures. MPs in the German Bundestag,
for example, receive an allowance of €3,782 (approximately £3,500) a month. In addition to meeting accommodation costs, the allowance is expected to cover the establishment and upkeep of one or more constituency offices and travel. Payments are not exempt from tax. The Bundestag website states that: “A lump-sum allowance for all Members based on average expenditure is the fairest and cheapest solution, as a system based on submission of receipts would create a huge increase in administrative expenditure for the Bundestag. Moreover, granting a lump-sum allowance means that the budgetary cost can be calculated precisely from the outset on the basis of the number of Members.” 8
5.31 Not all the precedents are entirely favourable. In the European Parliament, MEPs are entitled to a daily
allowance of €298 (approximately £275) to pay for accommodation, meals, travel and any other expenses involved in attendance.9 Concerns have been raised that this has created a ‘clocking-on’ culture. Similar
allegations have been made about the behavioural effects of the daily attendance allowance paid to members of the House of Lords.
5.32 The approach has a number of supporters both inside and outside Parliament:
“My strong advice is to keep the new system simple. The simplest system would be one of fixed allowances payable to all MPs by virtue of their election to the House. Concerns that such allowances might be seen as extra pay could be addressed by a clear articulation of what is expected in return for the allowances.” 10
“What’s wrong with giving the extra money, the £24,000 on top of their pay? Let them sort it out, you save all the accountability, costs, to manage them and micro-manage them, that then puts the responsibility back on them to organise their own accommodation.” 11
5.33 Others have strongly rejected the proposal:
“We need to get away from an ‘allowances’ culture and move back to one which pays only for actual expenditure incurred.” 12
“While it would be a simple measure to increase pay and limit expenses, such an approach accepts the idea that MPs are in some way under-paid. They are quite clearly not, which [is] why so many of the recent expenses claims must be viewed as rank profiteering.” 13
5.34 The main arguments for a cash allowance are that it would:
However, it would be more complicated if it were paid as an attendance allowance for which clocking- on was required, rather than as a simple addition to salary.
Be straightforward to explain and understand.
Give MPs the flexibility and discretion to decide best how to meet their individual needs. 5.35 The main arguments against it are that it would:
Undermine the distinction between pay and reimbursement of expenses which the Committee regards
as fundamental.
Be inequitable between MPs with different family circumstances and living in different places.
Be tantamount to legitimising the very practices which have brought the system into disrepute. It
would look as if Parliament was responding to the abuses of the present arrangements, revealed by the publication of receipts, by simply removing the need to produce receipts.
5.36 A flat-rate allowance is unlikely, therefore, to meet the test of commanding public confidence or to satisfy
the other principles set out in this report. For these reasons, the Committee does not favour it.
Continuing support for mortgage interest
5.37 A third option is to continue with a reformed version of the existing rules which allow MPs to claim the
cost of mortgage interest as well as rent or hotel costs. It is the support provided out of public funds for mortgage interest which has been the main source of controversy, mainly because of the opportunity it has provided in the past to make large personal capital gains from publicly funded assets. The controversy has been aggravated by the fact that it has been possible for some MPs to realise these gains without paying capital gains tax by designating what has been their secondary home for the purposes of claiming expenses as their main home for the purposes of claiming tax exemption.
5.38 The main arguments that have been put forward in favour of continuing to allow support for mortgage
interest payments are that:
Support for mortgage interest gives MPs greater flexibility to make arrangements which suit their
personal needs.
It could also be cheaper for the public purse than paying the rent on an equivalent property.
Provided the cost to public funds of paying for mortgage interest is no greater than with alternative
arrangements, it should not matter that an MP can enjoy a potential benefit in the form of capital gains, particularly since they are taking the risk of potential capital losses:
“If making a capital gain is seen by some as a ‘crime’, then it is a ‘victimless crime’ because it does not add in any way to the tax payer’s burden: it is simply a function of market movement.” 14
The option to choose which of several properties should enjoy exemption from capital gains tax is
not peculiar to MPs. It is available to anyone who owns two homes. HMRC rules allow taxpayers to designate whichever home they choose as the one on which they wish to claim exemption. It is not necessary to show that it is the more expensive or the one in which most time is spent.
CHaPTeR 5: aCCoMModaTioN
“Members should make a declaration in respect of any property on which they claim for expenditure that it is not – and will never be – their main residence for capital gains tax purposes.” 16
The implication is that in future any gains made on accommodation purchased with the help of public funds would in principle be subject to capital gains tax. How this would be enforced is not at present clear.
5.41 In the Committee’s view, the interim arrangements adopted by the House do not go far enough:
In practice, those MPs claiming mortgage interest have not collectively made smaller demands on the
public purse than those paying rent. Research conducted for the MEC found that on average MPs who claimed for the cost of mortgage interest had higher overall claims than those who claimed for the cost of rent, once costs for furnishing, legal fees, maintenance and repairs, etc. were taken into account.17
The Committee is not aware of any other significant UK organisation in the private or public sector
which routinely reimburses their employees for mortgage interest, except perhaps as part of special arrangements for very senior employees or by way of time-limited bridging arrangements following a move at the employer’s request.
There is a clear difference between providing the resources necessary to do a job and allowing
someone to gain an asset, and enhance their own personal finances, at public expense. In the case of MPs, the potential for gain is related to interest payments funded by the taxpayer rather than the individuals themselves.
No doubt it can be attractive or convenient for some MPs to own two homes, one in London, and one
in their constituency, and there can be no prohibition on this continuing. But, equally clearly, there is no necessity for this arrangement in order to ensure that an MP can fulfil his or her responsibilities. It is, therefore, not right for the taxpayer fund it.
The ability to make a personal profit has led some MPs to enter into arrangements apparently
designed to maximise personal gain rather than seeking to provide best value for the taxpayer. Some MPs share the public’s disquiet:
“We made MPs (some MPs) into property speculators. I just do not think that is what was intended and it is certainly not what the public wants.” 18
Arrangements for the support of mortgage interest for Members of the Scottish Parliament (MSPs)
are in the process of being brought to an end following the 2008 Langlands Review. The National Assembly for Wales has agreed that the same should now happen for Assembly Members (AMs) following the Jones Review.
5.42 For these reasons, and because of the importance of making a clean break with what has become such
a discredited arrangement, the Committee believes that under the new expenses scheme MPs should no longer be allowed to use public funds to pay mortgage interest or to meet any other costs incurred in purchasing properties. In future only rent or hotel costs should be reimbursed.
Recommendation 3 x
MPs should no longer be reimbursed for the cost of mortgage interest payments or any other costs associated with the purchase of a property. No new arrangements for support of mortgage interest should be allowed from the date of this report. In future only rent or hotel costs should be reimbursed. (Transitional arrangements are dealt with in recommendations 12 to 14).
5.43 Transitional arrangements for those with existing mortgage commitments are discussed later in this