Mr George Osborne - Standards and Privileges Committee Contents

6.  Letter to the Commissioner from Mr George Osborne MP, 15 July 2009

Thank you for your letter of 30 June relating to the complaint lodged by Mr Laurie Burton, who is known to me as the Chair of the Tatton Constituency Labour Party. I will willingly address all your questions and provide you with any information required.

I should say that I believe the complaint from Mr Burton to be entirely unfounded, and believe that at all times I have followed the rules set out in the Green Books published in February 2001 and June 2003.

In accordance with section 3.1.2 (Green Book 2001) and section 3.1.1 (Green Book 2003), all the allowances I have claimed have been incurred for the purpose of allowing me to stay overnight in pursuit of my parliamentary duties since my election to Parliament in June 2001 for the seat of Tatton in Cheshire, some 180 miles from London. I only own a property in Cheshire in order to fulfil my duties as a constituency MP for Cheshire, and I have never sought to exploit the allowances for personal gain.

In accordance with section 3.9.1 (Green Book 2003), I did consult the Department of Finance and Administration ("Fees Office") in advance of the designation of my homes for the purposes of the claiming of parliamentary allowances—both in 2001 and in 2003. I also consulted the Fees Office in advance of the mortgages I took out against the house in Cheshire in 2003 and 2005. Both at their request and on occasions unsolicited, I also submitted copies of all the relevant paperwork, including mortgage statements, letters from the mortgage companies and mortgage arrangement documents. At no point has anyone from the Fees Office contacted me in person or in writing to express any concern about my arrangements. All my claims for mortgage interest were accepted by the Fees Office and paid out in full.

In accordance with section 3.3.1 (Green Book 2003), I have borne "in mind the need to obtain value for money". Indeed, I apply that principle both to the expenses which are allowable against parliamentary expenses and those expenses I incur personally. That explains the regular re-mortgaging of both the houses in Cheshire and London, every two or three years and usually with different mortgage providers, in order to obtain the best mortgage deals and to avoid paying the more costly Standard Variable Rate (SVR).

Let me answer each of your questions.

Question 1. The circumstances in which you came to acquire your Cheshire and successive London residences with dates, finance arrangements and a brief description of the accommodation each provided.

Following my marriage, my wife Frances and I jointly purchased [our London property] in April 1998. This was a three bedroom terraced house in London. We bought the house for £710,000, and secured against it a joint interest-only mortgage of £150,000.

In 1999 I was selected as the Conservative parliamentary candidate for Tatton in Cheshire, and my wife and I started to rent at my own expense a small cottage […] in the constituency.

In October 2000, in the reasonable anticipation that I would be elected at the forthcoming election and that we would start a family, my wife and I ceased to rent and we instead bought [a property in Cheshire]. This is a four bedroom house, with a kitchen, TV room and sitting room, located 6 miles from my constituency border. It is 12 minutes drive from [the town's] train station, which has an hourly direct train service to London — the train service my family and I usually use to travel to my constituency. Only in the last year has a frequent direct train service been provided to a station within the constituency. I would not have bought the house if I had not hoped and anticipated that I would become shortly thereafter the MP for Tatton and therefore [it] is exclusively connected with my parliamentary duties.

The purchase cost of [the property] was £445,000. I calculated that when the cost of the legal fees, mortgage arrangement fees and moving fees were added, and the cost of some essential repairs and basic decoration were added, I would need at least £470,000 to buy and move into the house. This amounted to just over 5% on top of the purchase price, which I thought was wholly reasonable and represented good value for money. The sellers of the house wanted a quick sale for personal reasons, and the mortgage company said that increasing the existing mortgage we had would be far easier and quicker than taking out a new one against a new property. We therefore raised the £470,000 we needed by increasing the interest-only mortgage of £150,000 secured on [the London property] to £620,000. This, I understand, is common practice when people purchase second properties.

So, to sum up, by the time I was elected to Parliament in June 2001, I had an interest-only mortgage with the […] Building Society of £620,000 secured against [the London property]—£150,000 of which had been used to buy [the London property] and £470,000 of which had been used to purchase and move into [the Cheshire property]

In 2003, for the reasons set out in detail below in response to later questions, I replaced that single mortgage with two separate mortgages — one secured against [the Cheshire property] and one secured against [the London property].

In July 2006, we moved house in London from [my first London property] to [my second London property]. This is a five bedroom semi-detached house. I have never claimed any parliamentary allowances against it or ever designated it as anything other than my main residence for parliamentary purposes.

Question 2: Whether, and if so when between 2001 and 2003, you designated your Cheshire residence as your main home.

Yes. Between June 2001 and July 2003 I designated my Cheshire residence as my main home for parliamentary purposes, on the advice of the Fees Office.

On 21 July 2003 I completed the ACA1 form, newly introduced by the Department of Finance and Administration, and identified [my London property] as my main residence and [my Cheshire property] as my second residence.

Question 3: the reasons why you considered your Cheshire residence to be your main home during this period

In June 2001, following my election to Parliament, I met with a representative of the Fees Office in a room in the House of Commons to discuss my arrangements for claiming the additional cost allowance. I believe this type of meeting was offered to all new MPs. Although I have no notes of the meeting, I have a clear recollection of its content for I had been considering what was the appropriate designation of my two homes and wanted advice.

I explained to the representative that I had recently purchased a house in Cheshire in the anticipation that I would be elected there. I also explained that I had met the costs of the purchase, and the costs associated with moving in and doing some essential repairs and basic redecoration, by securing an additional £470,000 of mortgage against my London home.

I explained that at present my wife, newborn son and I were dividing our time equally between London and Cheshire—with us usually spending Thursday evening or Friday morning to Monday morning in Cheshire while parliament was sitting, and the whole week there during much of the recess. However, I explained that I expected my child would eventually go to school in London—and so therefore I saw that in the long term as my main home. I know you are not considering capital gains tax liability, but I think it is relevant to note that I explicitly told the representative of the Fees Office that I regarded London as my main home for purposes of capital gains tax.

The representative of Fees Office advised me that in my family circumstances the rules would allow me to designate either property as my "main home", but that it would be sensible to designate Cheshire as my "main home" and claim ACA against the London home as that was the property against which the mortgage used to purchase the house in Cheshire had been secured. The representative said I could always reconsider the issue when the terms of my mortgage allowed me to remortgage, which was not until 2003. I pressed on whether this would conflict with the designation for purposes of capital gains tax, and the representative told me that capital gains tax designation was irrelevant as far as the parliamentary authorities were concerned. I was repeatedly told that, as far as the rules were concerned, it did not matter which property I designated.

Following that advice, I therefore designated my Cheshire residence as my main residence and claimed ACA against the interest-only mortgage secured on my London residence.

I do not have copies of my ACA claims for the period 2001 to 2003, and nor apparently do the Fees Office. I remember however that I claimed it for mortgage interest and (to the best of my recollection) nothing else. I am certain that I never claimed for furniture or utility bills or other costs associated with the London residence. I have, however, found in my files at home a copy of my mortgage statement for 31 August 2002 to 31 August 2003. This shows my monthly mortgage interest payments were £2,868, before falling to £2,816. In that year I paid £34,161 in mortgage interest costs. According to the Fees Office records, my total ACA claims for 2001 and 2002 were £3,119[113] and £18,058 respectively. This is relevant because it shows that I only ever claimed for mortgage costs incurred in the purchase of my Cheshire residence, and never claimed for the full cost of the whole mortgage or for any of the portion that had originally been used to purchase my London residence.

Question 4: whether, and if so when in 2003, you designated your London residence as your main home

Yes, from 21 July 2003 onwards I designated my London residence as my main home for parliamentary purposes — and that has continued since I changed address in London in 2006.

Question 5: the reasons why you considered your successive London residences to be your main home from 2003 and what were the circumstances that led you to make the change from your Cheshire designation

There were three reasons.

First, the advice I had received from the Fees Office in 2001 was that I could always reconsider the designations of my two homes in 2003. That was when the terms of the single £620,000 mortgage I had secured against my London house allowed the mortgage to be changed without incurring expensive penalty costs. So 2003 was the first opportunity I had had since becoming an MP to create a separate mortgage secured against the home in Cheshire.

Second, my family life was changing. My second child was born in June 2003 and we were beginning to think about schooling for my two year old. I anticipated that I would now be spending four full days a week in London while parliament was sitting, and weekends and recesses only in Cheshire.

Third, in 2003 Parliament introduced a stricter definition of a "main home" and that meant the advice I had received from the Fees Office in 2001 was out-of-date. This is apparent in the contrast between section 3.1.2 of the 2001 Green Book, which provides no definition of a main home, and section 3.9.1 of the 2003 Green Book, which says "your main home will normally be the one where you spend more nights than any other". The new ACA form was introduced requiring Members to clearly identify a 'main' and 'second' home. By then it was clear that I would be spending more nights a year in London. So I completed the new ACA1 form (attached), identified London as my main home and Cheshire as my second home. I split my mortgage in two, one for London and one for Cheshire, and from then on have claimed the ACA against the Cheshire home.

Question 6: whether, and if so, why, you raised a mortgage on your Cheshire home in 2003, the size of the mortgage and its relationship to the value of the property at the time

In November 2003 I raised a £450,000 interest-only mortgage against the Cheshire home. I wanted to raise at least a £470,000 mortgage, which was equal to the amount I had increased my London mortgage back in 2000 in order to purchase and move into [the Cheshire property]. However, £450,000 was the maximum the mortgage company would allow given the then value of the Cheshire home. Even so, the costs of arranging the new mortgage, and valuing the property, amounted to several thousand pounds. I did not have a record of the exact value of the property then, but it had clearly risen substantially from the £445,000 we had paid for it since 2000 because of the general uplift in property prices in the area.

I telephoned the Fees Office and spoke to a representative before creating the new mortgage in Cheshire, and changing the designation of my main home. They said that it was within the rules and approved the change. I sent them a copy of the new mortgage details and the Fees Office started paying out claims for ACA against the new mortgage.

Question 7: What claims for mortgage interest on your Cheshire home you made against the ACA in 2003-04 and each successive financial year

According to the Fees Office, these have been my claims for mortgage interest:

2003-04: neither my office nor the Fees Office have a record

2004-05: £15,292.50

2005-06: £18,360.52

2006-07: £18,700

2007-08: £19,437.84

Question 8: whether, and for what reason, you consider that those costs were necessarily incurred for the purpose of performing your parliamentary duties, given that apparently you owned the home outright before 2003; to what use you put the capital thus released and whether any of it was used in support of the costs of your London residence.

The costs are entirely associated with the interest on the mortgage secured against my home in Cheshire. I only own that home because it allows me to perform my parliamentary duties in my constituency, and stay overnight when I am more than 180 miles from Westminster. As I explain above, although I owned the Cheshire home outright before 2003 that was only because the £470,000 mortgage I had taken out to purchase it in 2000 had been secured against my London home. In 2003 the terms of the mortgage contract meant I was able to unite the mortgage with the home it had been used to purchase, without incurring penalty charges.

Although neither you (nor the complainant Mr Burton) ask about my re-mortgage in 2005, when the size of the interest-only mortgage rose to £480,000, I want to volunteer information which I have already provided to various media inquiries, in the interests of complete transparency. In 2005, the lock-in period of the £450,000 mortgage I had secured in 2003 expired and I had to renegotiate in order to avoid the monthly mortgage payments rising as the mortgage moved onto the SVR. Due to the further increase in property prices, I was then able to achieve what I wanted to achieve in 2003 and increase the mortgage to at least cover the value of the original £470,000 I had borrowed to purchase and move into my Cheshire home. At the same time it had become clear that the property needed some essential repairs. Eight wooden windows and a front door were in a bad state of decay and needed to be replaced. I had already paid a deposit of 25% on the cost of replacing three windows in February 2005, at a cost of £901.11, which I claimed on the ACA at the time with the consent of the Fees Office. The boiler broke and needed replacing and the chimney flue above the cooker needed urgent repair. The total cost of these repairs was in excess of £12,000. I spoke to the Fees Office on the telephone and asked for their advice. They suggested that I could either claim for the cost of these repairs directly or I could increase the value of the interest-only mortgage, as they told me other MPs had done. I sought their permission therefore to increase the mortgage to £480,000, and sent them hard copies of the mortgage details. The deal I secured meant the actual monthly mortgage ACA claim fell from £1,646 to £1,560 in January 2006. In 2008, I again re-mortgaged for the same amount of £480,000 in order to avoid moving on to the more expensive Standard Variable Rate.

I am now on a tracker mortgage with zero per cent interest and as a result no monthly payments, which I believe demonstrates that pursuant to section 3.3.1 I have always sought 'value for money' for my arrangements.

None of the capital in any of the re-mortgages was used in support of the costs of my London residence. The £480,000 mortgage covers the £470,000 cost of purchasing and moving into my Cheshire home and subsequent essential repairs costing more than £12,000, and it was secured with the approval of the Fees Office.

Question 9: what were the circumstances and arrangements you made for the change in your London house in 2006.

In 2006, we moved from [my first London property] to [my second London property] because we wanted a larger home for our growing family. We increased our mortgage in London to £470,000. I have never claimed any allowance against this mortgage.

Question 10: what advice, if any, you have taken from the House authorities about any of these arrangements

As explained above, I have sought and followed advice of the Fees Office on the Additional Costs Allowance from the moment I became an MP. It was with the advice and approval of the House authorities that I first designated my Cheshire home as my main home, so I could claim against the portion of my London mortgage that had been used to buy that Cheshire home. It was on the advice and approval of the House authorities that I split the mortgage in 2003, and secured a £450,000 interest-only mortgage against the home in Cheshire. It was again with the advice and approval of the Fees Office that I took out a £480,000 interest-only mortgage in 2005 to cover the original cost of purchasing and moving into the Cheshire home, and the cost of essential repairs. I have always sent the Fees Office copies of all my mortgage correspondence and continue to do so. They have paid every ACA claim I have made for mortgage interest and never once questioned it.

I hope this full and detailed response answers your questions.

I repeat: I believe I have fully complied with the rules of the House, always claimed only for costs incurred, done so in pursuit of my parliamentary duties, and always sought value for money as demonstrated by current monthly mortgage costs of zero. I have actively sought and acted on the advice of the Fees Office and sent them all relevant documentation. I have never had an ACA claim for mortgage interest queried by them.

Please do not hesitate to be in touch if you require more detail from me in person or writing.

15 July 2009

113   The Department of Resources later corrected this figure to £18,009. See WE 32.


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