Laws spells out scale of the challenge to his successor

David Laws has briefed his successor as Chief Secretary to the Treasury on the momentous task he faces in slashing spending, ministerial sources said yesterday

In a final piece of government business, he briefed Danny Alexander on the preparations for this month's Budget and the spending review in the autumn. Mr Laws is believed to be considering leaving politics altogether after disclosures that he claimed £40,000 to rent rooms in a property belonging to his partner. Senior Liberal Democrats are trying to persuade him stay on as an MP.

Meanwhile, members of the coalition ridiculed claims that Mr Alexander avoided capital gains tax (CGT) when selling a property he designated to Parliament as his second home. The Daily Telegraph said he was likely to have saved thousands of pounds as a result.

But party sources said that Mr Alexander had simply followed the rules that were in place at the time that meant homeowners were not liable for CGT on a second home if they sold it within three years. They said: "The only way he could have paid anything is if he had given it to the taxman as an act of charity."

In a statement, Mr Alexander said he had paid all the required taxes on the sale of his property. He said he had already promised to pay CGT when the time comes to sell his current second home. He said he had never "flipped" the designation of homes to avoid tax.

Francis Maude, the Cabinet Office minister, said: "He didn't do anything, as far as I can see, artificial, in order to avoid paying tax. He did a normal transaction, which was not taxable. So the idea that this is using a loophole seems to me to be nonsense."

The coalition Government hopes that the smooth hand-over will soothe fears in the City that the crisis could undermine its determination to get to grips with reducing the size of Britain's debt mountain.

Following his resignation from the Cabinet over his expenses claims, Mr Laws is deliberating whether to step down as an MP.

His departure from the Commons would force a tricky by-election in which the coalition partners would be forced to field candidates against each other.

Close colleagues said he was in despair because of the combination of his resignation and the exposure of private life.

They are urging him to delay any decision until the Parliamentary Standards Commissioner reaches his verdict on Mr Laws's claims.

They have also pointed out that both Nick Clegg and David Cameron have made it clear they wanted him to return to Government if he is cleared by the standards watchdog.

Mr Laws has spent the last two days pondering his future with family and friends.

Cathy Bakewell, the chairwoman of Mr Laws's local party in Yeovil, said yesterday that his future as an MP for the Somerset constituency was "on his mind", although she believed he would not resign.

"His mood is one of deep depression. He is hurting and he needs to find a way forward," she said after talking to the MP since the storm broke.

"It is certainly something which he has to consider – whether he wants to continue. I have tried to persuade him, over the last 48 hours, that he should not do anything precipitative and he should certainly wait for the outcome of the Parliamentary Standards Commissioner."

One Liberal Democrat MP said he believed Mr Laws could be talked "back from the ledge" and persuaded to remain an MP.

But he added: "It's still not off the table – he is in a sense of despair. My sense is that he is thinking: 'I had a phase of my life that was the City and a phase that was politics, now I should try something else'."

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