MPs should get a pay rise – but will lose second homes

MPs shamed in the expenses scandal will still receive "golden goodbyes" of nearly £65,000 each from the taxpayer at the election after the sleaze watchdog decided not to penalise them. Sir Christopher Kelly's long-awaited plans for cleaning up the discredited allowances system demanded radical action to rebuild public confidence in Westminster.

But he backed off from action against those politicians whose actions sparked public fury – and signalled support for substantial pay rises for MPs in compensation for the tough new rules.

Sir Christopher's inquiry concluded that the "resettlement grants" to help MPs readjust to life outside Parliament should be slashed by up to 83 per cent. But it decided the new rules should not come into force until after the next election, expected in May.

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The decision means Tory MP David Wilshire, accused of paying £105,000 of expenses into his own firm, is in line for a £51,813 pay-off at the election.

Fellow Tories Sir Peter Viggers, who tried to claim for a duck island, Sir Anthony Steen, who said critics were jealous of his huge home, and Douglas Hogg, who put the cost of moat-cleaning on expenses, will each pick up £64,766.

Labour MPs Elliot Morley and David Chaytor, who have been forced to stand down at the election for claiming for non-existent mortgages, will receive £64,766 and £36,269 respectively.

Margaret Moran, who claimed £22,500 to treat dry rot at her partner's home more than 100 miles from her constituency, will get £54,403.

The Kelly inquiry said: "It would be inappropriate for those MPs who have acted with honesty and integrity and had already planned to stand down prior to the expenses scandal to have their retirement affected at this late stage."

Sir Christopher instead urged the Commons watchdog, the Committee on Standards and Privileges, to block pay-offs for MPs accused of abusing the system. "They already have the ability to withhold the grant from those who have misbehaved and we think they should be prepared to use it," he said.

Sir Christopher called for taxpayer-funded claims for mortgage interest to be scrapped within five years, as well as a ban on MPs employing their spouses and for more MPs to be forced to commute to Westminster.

His plans were supported by party leaders, but elsewhere at the Commons they were greeted with horror and anger. A senior Tory said: "Kelly and his committee are not infallible. They haven't grasped what it is like to be an MP."

There was also growing backing among MPs for a large pay increase in return for the financial pain they were suffering. Vera Baird, the Solicitor General, said the Independent Parliamentary Standards Authority (Ipsa), which will take responsibility for the expenses system, would have to consider "whether there needs to be compensation through pay if there are extra expenses attached to being an MP".

Sir Stuart Bell, who sits on the Speaker's committee overseeing reform of expenses, said some MPs felt "victimised" by the new measures. He said MPs had not had a "proper" salary increase since 1976, adding: "We should look at pay in relation to allowances and put ourselves in a situation where MPs will live on their pay and not have to claim any allowances at all."

Sir Christopher called for responsibility for MPs' pay to be moved to Ipsa.

In a hint he backed higher salaries, he said his inquiry had "cleared away the undergrowth" of expenses and the Senior Salaries Review Body, which currently recommends MPs' pay levels, should "take a view in light of that".

MPs angry at being denied a vote on the reforms are now trying to influence Ipsa, which is committed to "consulting" MPs before making final decisions.

Patrick Cormack, the Tory MP for Staffordshire South, said Ipsa should take the suggested reforms "as an agenda, not as a prescription".

However, MPs could yet have influence on the new system. George Young, the shadow Commons Leader, is set to push the Government to allow a "take note" debate on the report's findings. He believes that as Sir Christopher's committee has recommended a number of measures that would require further legislation, such as handing Ipsa power over setting MPs' salaries, the Commons should have a further say.

It would also give angry MPs a final chance to criticise the details of the recommendations.

Rough justice, but MPs' pain is self-inflicted

Sir Christopher Kelly's proposed new regulations, which MPs would be well advised to accept without quibbling, amount to a new compact between MPs and taxpayers, in which transparency, accountability and reasonableness – rather than obfuscation and legal tax-dodging – win the day. Some MPs have undoubtedly been hard done by; others will feel so. They can choose between staying on or standing down voluntarily with a generous pay-off that will be much less generous if they wait.

More contentious changes, such as the ban on employing family members, are to be phased in. That risks temporarily creating a two-tier Parliament, which is not ideal. But it would be wrong to believe, as some MPs would like us to, that the next generation of parliamentarians will be forced on to the breadline. That is far from being so. What MPs will no longer be able to do is to spend our money without accounting for it, nor will they be able to enrich themselves at our expense.

That is, of course, how it always should have been. But it was not just a relatively small number of greedy and borderline-corrupt MPs who created the current difficulties and brought Parliament as a whole into disrepute. Other things contributed, including Margaret Thatcher's decision to allow MPs to claim mortgage costs in lieu of rent; the house-price spiral of the 1990s; the sharp rise over the same period in professional salaries in some walks of life, and the cosy way in which MPs policed their own expenses.

MPs are not wrong to see the leaks of their more colourful claims, the witch-hunts some of them endured, and the new, far stricter, regime as rough justice. But they have only themselves to blame for their reluctance, over many years, to put their House – which is also our House – in order.

At a glance: The main findings of the Kelly report

*Mortgage interest

Mortgage interest payments from the taxpayer will end within five years. The Kelly report says it knows of no other major public sector organisation or private company with such an arrangement.

*Capital gains

Profits from the sale of second homes before mortgage interest payments are abolished will have to be handed back.

*Rent

New MPs will be required to rent their second homes, as will serving MPs within five years.

*Furniture and fittings

Kelly endorses the recent decision to end the "John Lewis list" claims for furniture and fittings on second homes, as well as cleaning and gardening costs.

*Hotels

MPs without homes in London will be able to claim the cost of staying in a hotel when the Commons sits late. Kelly suggests a limit of £120 plus VAT (currently £138) for London hotels and £100 plus VAT (currently £115) outside the capital.

*Second homes

From April, MPs in outer London lose their entitlement to taxpayer-funded second homes. Kelly suggests removing the allowance for any MP "within a reasonable commuting distance of London". His report considers that some 91 constituencies fall into this category, including 12 outside the capital.

*London allowance

The London costs allowance – paid to MPs in the capital not entitled to a second home – will be cut from £7,500 to £3,760 a year. There would be a higher allowance for MPs outside London who will lose entitlement to a second home.

*Relatives

Almost a third of MPs employ close family members (usually wives) as assistants. The committee accepted the majority provide an "excellent service", but said it was no longer consistent with "modern employment practice or the proper use of public funds".

*Travel

MPs will no longer be able to claim all travel expenses. They will have to pay commuting costs to Westminster. They will be allowed to claim for first-class rail tickets "where they can justify", but fly economy in the UK and Europe.

*Communications allowance

The allowance – currently up to £10,400 a year – has faced criticism that it is used by MPs for self-publicity rather than for keeping in touch with constituents. It will be axed, with MPs required to pay for sending letters out of general office costs.

*Golden goodbyes

Starting at the election after next, MPs will lose their automatic right to a "resettlement grant" of between 50 and 100 per cent of their salary (£32,000-£64,000 at current rates) when they leave Parliament. In future those defeated at an election will be paid up to nine months' salary (£48,000), while those who step down voluntarily would receive eight weeks' money (£9,800).

*Double jobbing

The practice of allowing an MP to also be a member of a devolved legislature would be scrapped "ideally by 2011". This will mainly affect politicians from Northern Ireland.