A plan to abolish the additional costs allowance (ACA) is gaining support among MPs in the wake of a scandal involving Derek Conway, the Tory MP who employed his two sons as researchers while they were at university.
But the call for what would amount to a one-off pay rise of about 33 per cent on top of MPs' annual salary of £61,000 would risk a furious public backlash. It would also give a boost to the MPs' already generous pensions.
The move could also pose a big headache for Gordon Brown, who is trying to limit public sector pay awards to workers including the police and NHS workers to less than 2 per cent. Trade unions would accuse MPs of double-standards.
The ACA, which is available to MPs with constituencies outside inner London, currently costs taxpayers £11m a year. Although this would rise to £14m if all 646 MPs were awarded a £22,000 salary boost, the net cost would be lower because it would be taxable.
MPs who support scrapping the ACA will ask a review of expenses set up last week by the Commons Speaker Michael Martin to consider incorporating it into their pay packets.
Mark Field, Tory MP for the Cities of London and Westminster, said there was growing support among MPs for the housing allowance to be rolled into salaries. He said that recent publicity about the loopholes in the system had been "an accident waiting to happen". He added that the scheme had been quietly agreed by the main parties in the 1970s as a quid pro quo for holding down MPs' pay.
In a letter to the Speaker, Mr Field said: "The time has come to abolish the ACA which... all too frequently results in the improper use of parliamentary allowances tantamount to a serious diversion of public funds."
Desmond Swayne, parliamentary aide to David Cameron, said constituents who lived in London during the week did not get a tax-free housing allowance like MPs. "I would increase MPs' salaries and tax it," he said.
The ACA is supposed to reimburse MPs for the cost of renting, mortgage interest payments or staying in a hotel. Many MPs use it to buy a property in London. Of the 586 MPs who claimed the allowance last year, more than half claimed over 90 per cent of the £22,110 maximum. According to the MPs' rule book, the Green Book: "The ACA reimburses MPs for expenses wholly, exclusively and necessarily incurred when staying overnight away from their main UK residence for the purpose of performing parliamentary duties. This excludes expenses... incurred for... personal or political purposes."
Yesterday's newspapers brought another crop of allegations that MPs were exploiting loopholes in the rules. Sir Michael Ancram, the millionaire former Conservative deputy leader, came under fire from Labour MPs after it emerged he claimed £22,030 for maintaining his country mansion in his Wiltshire constituency – including repainting the walls and removing moss from the garden. Mr Ancram, the 13th Marquess of Lothian, said: "I claim what I have always been told I am entitled to claim."
James Purnell, the Work and Pensions Secretary, was in the firing line for avoiding capital gains tax when he sold his London flat on the ground that it was his main home, even though it was designated his second home to the Commons authorities and he claimed about £20,000 in allowances for it.He insisted that he did not break the rules or act inconsistently.
A survey showed that 43 MPs declared rental income from property in London or their constituencies while claiming ACA on another home. One MP described it as "an MPs' buy-to-let scheme funded by the taxpayer". Mark Todd, a Labour backbencher, said that it would be far cheaper for the Commons to buy a block of flats and rent them to MPs.
Meanwhile, David Cameron, who has led calls for greater openness, is backing a Liberal Democrat Bill to make it illegal for anyone who does not pay taxes in the UK to sit in the House of Lords. His move could increase pressure on Lord Ashcroft, the deputy Tory chairman, to disclose his tax and residency status. The proposed law would remove his peerage unless he pays UK taxes.
But Geoff Hoon, Labour's chief whip, said: "It is time David Cameron started giving straight answers to straight questions, in the same way he has been urging others to do. For all David Cameron's PR on transparency, the reality is persistent secrecy when it comes to the status of Lord Ashcroft".
* THE FAMILY SCAM
Almost 180 MPs from all parties have admitted that they employ relatives.They are facing demands to publish how much they pay them following the affair which cost the senior Tory MP Derek Conway his political career.
* THE MAIN HOME SCAM
MPs should designate a "main home" which rules say will normally be the one where they spend most nights. They can then claim Additional Costs Allowance (ACA) for their second home. Ed Balls, the Schools Secretary and his wife Yvette Cooper, the Chief Treasury Secretary, have switched their "second home" from their Yorkshire home to their house in north London. The Tories say this should be their "main home" because their children go to school in London. The first-ever cabinet couple qualify for up to £44,000 of ACA since "double claims" by couples are allowed. They are believed to have claimed £27,000 but insist their actions are within the rules and have been cleared by Commons officials.
* THE CGT SCAM
James Purnell, the Work and Pensions Secretary, was accused yesterday of avoiding capital gains tax when he sold his London flat by telling HM Revenue & Customs it was his main home even though he claimed about £20,000 in allowances on the grounds that it was his second home.
* THE INHERITANCE TAX SCAM
The Tory MPs Sir Nicholas Winterton and his wife Ann have transferred their London flat to a family trust, apparently in an attempt to avoid £300,000 in inheritance tax. They claimed expenses worth £165,000 for rent paid to the trust. No rules were broken.
* THE NO RECEIPTS SCAM
MPs are reimbursed for expenses worth up to £250 without having to provide receipts. There is pressure for the limit to be cut to £50 a month.
* THE SHOPPING SCAM
MPs are allowed to claim for food bills of up to £400 a month under the ACA and do not have to provide receipts for items under £250. Commons officials revealed last week that MPs could use it to buy an iPod or a fish tank from a supermarket.
* THE DESIGNER KITCHEN SCAM
MPs can use the ACA to buy "white goods, electrical equipment and other furnishings". Some admit they have increased the value of their property with designer kitchens.
* THE RE-MORTGAGING SCAM
Until 2006, MPs could claim the second home allowance even if they had already bought a property and could obtain a lump sum by re-mortgaging it and using the ACA to cover the interest. Although this loophole was closed, MPs can still claim interest payments if they re-mortgage their homes to pay for improvements.
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