Watchdog accused of ducking confrontation over MPs' expenses

Body in charge of MPs' expenses appears to want to water down Kelly report

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Sweeping reforms proposed to clean up the MPs' allowances system following the expenses scandal may be watered down under a plan drawn up by Parliament's new watchdog.

Sir Ian Kennedy, chairman of the Independent Parliamentary Standards Authority (Ipsa) charged with overseeing MPs' expenses, denied back-peddling on measures designed to overhaul the system. But rules on second homes, capital gains tax and the employment of family members appeared to have been softened when Ipsa released its proposals yesterday.

Any attempt to tamper with the original reforms suggested by Sir Christopher Kelly, the chairman of the Committee on Standards in Public Life, could put Sir Ian at odds with the main party leaders. All three have demanded that they be implemented in full ahead of the next election.

Under Ipsa's recommendations, MPs could be given the chance to throw out rules forcing them to hand back profits made from the sale of houses bought with the help of expenses. Sir Ian admitted that a vote in the House of Commons may be needed to secure the measure.

Those MPs living just outside London may also win back the power to claim expenses on a second home under Sir Ian's plan. While the Kelly report suggested a ban on second homes for any MP living within a "reasonable commuting distance" from Westminster, Sir Ian said only those living within London Transport zones 1 to 6 should be prevented from claiming the allowance. As a result, those in the Home Counties and in constituencies on the edge of the capital would be free to continue claiming it.

Sir Ian also reopened the door for MPs to employ members of their families, despite the Kelly report calling for a total ban on the practice. His consultation document said Ipsa had heard "very strong views" on the issue from MPs. "On that basis, we feel it is right to allow an opportunity to hear considered views on whether prohibiting the employment of family members is necessary and proportionate," it said.

However, some of the measures proposed by Sir Ian were even tougher than those already suggested. He said that the generous "golden goodbyes" handed to MPs who lose their seats should be withdrawn altogether. MPs can currently be handed up to £64,000 through the so-called resettlement allowance. The Kelly report had recommended that it be capped at £10,000 rather than scrapped.

Sir Ian backed the proposed ban on claims for mortgage payments on expenses. MPs will have to rent or stay in a hotel.

Norman Baker, the Liberal Democrat MP who has campaigned against expenses abuses, said: "Altering something as significant as the rules on capital gains, which is a key concern of the public, would be very unwise. The Kelly report achieved the almost impossible by managing to come up with proposals supported by all parties and the public. Any attempt to unravel his work would undermine the progress made in solving this issue so far."

Sir Ian said that there needed to be a "clear and clean break with the past" and emphasised that the measures published yesterday were only part of a consultation and were not definitive.