OPTIONS FOR THE FUTURE
217. On the basis of our study of these issues,
and the evidence we have considered, we identify three future
options for paying accommodation costs MPs incur in working away
Option AAdding accommodation costs to salary
218. This idea, which we identified in our "issues
paper", has attracted both strong support and firm opposition.
It would be the most straight-forward way of addressing the question.
Although it is often assumed that it would be unpopular with the
general public, this may not necessarily be so. It would doubtless
attract the wrath of a cynical media, but contributors to letters
columns, phone-ins, blog sites, leader writers and even a viewers'
panel convened by the BBC Politics Show, have advocated it as
the clear-cut solution. It is also, on the basis of the clear
evidence we have received, the normal way other employers in other
sectors would cover ongoing accommodation costs of this kindand
identifying solutions analogous to practice in other walks of
life was one of our objectives. Hence we have identified this
219. Two considerations would need addressing:
taxation and pension. The current ACA of £24,006 is untaxed.
We have consulted HMRC as to whether accommodation expenses could
be written off against tax if ACA were added to salary and have
been told unequivocally that they could not. So if the current
maximum value of the ACA were to be maintained then the
£24,006 would have to be "grossed up" to allow
for 41% tax and national insurancei.e. by £40,688,
taking the MPs' salary to £102,508 before any consideration
of Sir John Baker's recommendations or even a cost of living increase
effective from 1 April 2008. In fact, the current ACA is
not claimed to its full limit so, to be cost neutral, the actual
uprating should be limited to £33,500, bringing the salary
to approximately £95,300. This would inevitably attract much
comment although there would be no overall impact on the public
purse: it would recover the 41% as tax and NIC revenue.
220. The second consideration would be the impact
that incorporating ACA into salary would have on MPs' pensions.
Although the benefits of the Parliamentary Contributory Pension
Fund are grossly misreported and exaggerated, we can see no justification
for increasing the PCPF in line with this rise in salary. So we
would propose that this extra element of salary, covering accommodation
costs, should not be pensionable leaving only the core salarythe
reward for doing the jobcounting towards the pension. This
would require a change to the pension scheme which might possibly
necessitate primary legislation.
Option BAn Overnight Expenses Allowance,
comprising a £19,600 maximum budget for accommodation and
£30 per day for subsistence
221. The £4,200 subsistence allowance (140
days x £30) would operate on the same basis as the Per Diem
in Option C below. MPs would claim it in daily blocks of £30.
There would be no requirement to account for itemised expenditure:
it would be claimed at a settled rate. But MPs would have to be
able to demonstrate at audit that they had worked away from their
only or main residence on the number of days they had claimed
for, over a year. The £19,600 accommodation budget (140 days
x £140) would be a maximum annual "budget" against
which a Member could claim reimbursement of expenses necessarily
incurred by the Member in staying overnight away from the Member's
only or main residence, for the purpose of performing parliamentary
222. This budget would retain the tax exemption
of the ACA, and it would not be pensionable income. An MP would
claim reimbursement of costs incurred against categorised headings
defined in a revised Green Book, and would have to produce itemised
receipts for the purposes of verification, assurance and audit.
This option might draw less external criticism, but is clearly
overlaying a long term arrangement with detailed accounting practices
which employers in other sectors would only operate for short
term or ad hoc working away from home. It also retains most of
the inherent weaknesses of the ACA.
Option CA Per Diem in two parts £30
for subsistence and £140 for accommodation for a maximum
of 140 days
223. This would literally be an "allowance"
comprising two daily block sums paid in respect of additional
expenses necessarily incurred by the Member in staying overnight
away from the Member's only or main residence, for the purpose
of performing parliamentary duties. This allowance would retain
the tax exemption of the ACA, and it would not be pensionable
income. It would be expressed and claimed on a daily basis rather
than an annual basis, and could be claimed for a maximum of 140
days. There would be no requirement to account for itemised expenditure:
it would be claimed at a settled scale rate, but MPs would have
to be able to demonstrate that they had worked away from their
only or main residence on the number of days they had claimed
for, over a year. This would give more control, accountability
and transparency than employers in other sectors would secure
in a long term arrangement, but that may be a reasonable balance
for the advantage of operating an untaxed allowance.
224. Considering these three options, we have
weighed the advantages and disadvantages and conclude that option
A (expenditure on overnight expenses to be combined with salarythis
would be taxable but not pensionable and would add approximately
£33,500 to salary) is not to be recommended to the House.
Option C (a per diem rate for overnight expenses with two flat
rate components, one to cover subsistence (about £30) and
the other to cover accommodation (about £140)based
on a maximum of 140 nights in London each year) has also been
carefully considered but is not recommended to the House. While
we recommend option B in paragraph 225 below, if the House
does not accept this option but approves the remainder of the
report, the current ACA will continue but without Members being
able to claim for furniture, household goods or capital improvements.
225. We recommend that the Additional Costs
Allowance be adapted into an overnight expenses allowance, comprising
a £19,600 maximum budget for accommodation (excluding furniture,
household goods and capital improvements) but operating on the
basis of itemised reimbursement and a flat rate of £30 for
THE LONDON ISSUE
226. The Senior Salaries Review Body (SSRB) raised
the question of the eligibility of Members living within commutable
distance from Westminster to claim the Additional Costs Allowance.
The regional media has also drawn attention to this issue. The
only MPs currently ineligible to claim the allowance are those
representing inner London constituencies. These Members receive
instead a "London Supplement", at present set at £2,912,
which unlike the ACA is taxed. MPs for outer London constituencies
may choose either to receive the Supplement or to claim the ACA.
The SSRB pointed out that changes to normal sitting hours, with
late nights now only on two days a week, and improved public transport,
mean there is a case for revisiting the principle that outer London
Members should be entitled to claim the ACA. Members outside London,
but within commutable distance, receive no financial support with
their subsistence costs unless they choose to run a second propertythus
creating a perverse incentive.
227. We have considered the SSRB report and the
proposals made in respect of the Scottish Parliament, which drew
a 40 mile ring around Holyrood, and have concluded that change
is needed both to the eligibility for an accommodation allowance,
and the London Supplement.
228. We recognise that habitual late finishes
on Monday and Tuesday nights, combined with early starts the next
morning, continue to justify accommodation expenses being covered
for two nights a week, but that the same case cannot be made in
respect of Wednesday or Thursday nights. So we see a case for
a phased introduction of a "half rate" accommodation
allowance for MPs in those seats, enabling them either to take
hotel rooms on Monday and Tuesday nights, or to retain modest
or shared flats.
229. We recommend that new MPs elected to
the next Parliament to represent constituencies in outer London
should be eligible to claim half of any overnight expenses allowance;
and all MPs representing those seats should be restricted to claim
half the standard rate from the start of the following Parliament.
230. Inner London MPs are in the position of
having to live and work in the centre of the capital city, often
staying late into the evening for parliamentary votes. The only
financial recognition for this is the payment of London Supplement,
currently set at £2,916pa. This is paid with salary and is
taxable. The SSRB recommended that it rise to £3,500 from
last April but this proposal was neither put to the House nor
referred to this Committee. The Baker review has re-asserted the
need for such an increase, proposing £3,623 from 1 April
231. Living and working in London year round
incurs a cost that other MPs do not encounter. Our review of levels
of London weightinga supplement to pay for many London
workersfor a range of public and private bodies suggested
strongly that the London Supplement is at the lower end of what
is currently being paid. The average London weighting now is around
232. The present sitting hours of the House means
that Members usually need to remain within the parliamentary precinct
until around 11pm for two evenings a week when the House is sitting,
at which point they have to travel home. In most other walks of
life such extra and unsocial hours would usually lead to some
recompense: for example, the payment of a part-day subsistence
rate and the reimbursement of late night travel costs. Sums of
£5-6 are typical for part-day subsistence and recognised
by HMRC as not incurring a profit element. A journey of six miles
or so after 10pm by taxi in London costs around £25. Taken
together the additional net cost amounts to about £2,100,
or £3500 before tax.
233. The Committee considers that the extra costs
of living and working in London, combined with the unsocial hours
on at least two days a week, should be reflected not in salary
but in a London costs allowance.
234. We recommend that, instead of the London
Supplement (which Sir John Baker recommended should be increased
to £3,623), the extra living costs and working unsociable
hours in London should be reflected in a new London costs allowance
consolidated into a taxable amount of £7,500 for MPs who
do not or are not eligible to claim the Additional Costs Allowance.
39 The Green Book, paras 3.3.1, 3.3.2 and 3.10.1. Back
SSRB, paras 5.54 and 5.55. Back
SSRB, para 5.56. Back
CSPL, principle 17. Back
Corporate Officer of the House of Commons v Information Commissioner
and Others TLR 22 May 2008. Back
Scottish Review, para 4.46 and rec 14. Back
Peter Luff MP. Back
Norman Baker MP. Back
Chris Mullin MP. Back