MPs could have salaries docked over expenses

Watchdog is also considering a complete ban on politicians employing members of their families

MPs who refuse to pay back "excessive" expenses claims will have the money clawed back from their salaries – or even the lucrative "golden parachutes" they get when they leave the House of Commons – under strict new rules drawn up by the parliamentary authorities.

The Committee for Standards in Public Life, the House of Commons Commission and the Government have produced a "nuclear option" for hauling rebel MPs into line, amid growing anger at their failure to pay back allowances adjudged to have been paid in error.

The looming payback demand adds to a series of measures to bring all MPs to account for their spending, and draw a line under a saga that has eroded public confidence in Parliament over the past two years.

A lengthy review of the system of allowances, by Parliament's own standards watchdog, is expected to prevent MPs from dumping their most expensive household bills on taxpayers – and condemn the "John Lewis list" to history. Sir Christopher Kelly is also poised to ban MPs from employing any of their relatives.

At least 27 MPs are being investigated by the tax authorities over items including house sales and "luxury" purchases. Several more could face criminal charges over matters including mortgage claims.

Scores of MPs were last week told to repay cash following an audit of expenses carried out by the former civil servant Sir Thomas Legg. Senior figures, including the Prime Minister, the Tory leader, David Cameron, the Speaker, John Bercow, and the Home Secretary, Alan Johnson, have urged colleagues to pay up in a desperate attempt to bring the expenses furore to a rapid conclusion.

But the demands have provoked fury from a number of backbenchers, who complained that retrospective limits on items, including cleaning and gardening, breached their human rights. Several MPs have threatened to take the parliamentary authorities to court.

A senior government source yesterday said the "last resort" of withholding the cash was on the table. Official legal advice has confirmed that, in effect, Parliament can make up its own rules to allow the dramatic move. He added: "It has the support of all sides, even though they are reluctant to go ahead with it. The Government would prefer to see this done with consent, but if these MPs are going to dig their heels in, there may be no other option."

The long-awaited expenses inquiry by Sir Christopher Kelly's committee on standards in public life is expected to signal the end of a system that enables MPs to claim up to £15,000 a year to pay the mortgage interest on a second home. Instead, it is expected to recommend that MPs should be eligible only for help to pay for rented accommodation.

Sir Christopher is understood to be "seriously considering" recommending a ban on MPs employing members of their own families and paying them out of public funds. Early last year, in his response to the infamous case of the Tory MP Derek Conway, the watchdog made it clear that a ban must be considered, although he admitted "it could also seem a rather harsh answer to the problem".

But after the expenses furore – and the revelation that more than 200 MPs employ at least one family member at public expense – Sir Christopher is believed to have reconsidered his position.