House of Commons - The Operation of the Parliamentary Standards Act 2009

The Operation of the Parliamentary Standards Act 2009 - Committee on Members' Expenses Contents

Conclusions and Recommendations

Introduction

172. Following the expenses scandal of 2009, Parliament was right to establish an independent system of payments for MPs' costs which would prevent abuses. The aims which the new system was intended to achieve were the right ones, including independence, value for money for the taxpayer, transparency, increased public confidence in the payments system and enabling Members to perform their parliamentary duties on behalf of their constituents and thereby Parliament to function effectively.

173. However, the new system was agreed upon, legislated for and implemented in haste, leaving a number of major issues unresolved, and the inherent problems have been made worse by some of the decisions of IPSA's board. Eighteen months after the new system came into operation, it is clear that many of the aims which were set out for the new system are not being realised. In our review we have considered each of those aims in turn, examining the extent to which they have been realised and how they could be realised more effectively. Our recommendations therefore arise directly from the aims set out in 2009.

Independence and primary purpose

174. At the heart of the problems is the fact that the legislation nowhere sets out what the purpose is of the payments scheme, and therefore of IPSA.[294] We agree with the CSPL that the purpose of the scheme is "to ensure that MPs are properly supported to do their jobs". Obviously IPSA must also have regard to other factors, such as the current financial stringency and public confidence, and it must make its own independent decisions as to what constitutes "proper support", but a scheme to cover MPs' costs and expenses cannot have any other primary purpose than enabling MPs to do their jobs for the benefit of their constituents. Instead, IPSA states that its purpose is to pursue "the public interest" (which the Act does not refer to) and that (as the Act does provide) it is merely to "have regard" to the principle of enabling MPs to do their jobs.[295]

175. Moreover, the Act makes IPSA both the regulator and the service provider, which is unsatisfactory because a regulator should not be regulating itself. The NAO found that IPSA was the only independent regulator for a legislative body which also had responsibility for processing and validating claims; everywhere else, even where a scheme's rules are determined independently, administration of the rules remains the responsibility of parliamentary staff.[296] There is a good reason for this, which is that parliamentary staff are more likely to administer a scheme in such a way that it does not impose undue burdens on MPs, while independent regulation and transparency can ensure that they do not allow abuses to flourish or succumb to pressure. As noted above, the CSPL's fundamental principles include independence in determining the details of the scheme and in audit and assurance, but not in administering the scheme.[297]

176. The problem is not just weaknesses in the legislation but also a number of serious errors by IPSA's board. As discussed earlier, implementing the new system very quickly was an achievement, but some of the recent changes to the scheme illustrate the magnitude of the initial errors. In particular:

IPSA's board ruled out direct payments, with the result that for a time MPs were spending an average of 50% of their post-tax pay on costs for which they had to await reimbursement. Now IPSA regards direct payments as the way forward.[298]
A claims system was adopted which was suitable for standard expenses but entirely unsuitable for the much more complicated costs and expenses necessarily incurred by MPs.[299] Even the most basic adjustments to make it easier to use, such as reducing repetitive inputting, have been made only fairly recently. Consequently IPSA outsourced much of the scheme's administration to MPs and their staff, taking them away from their work for constituents.
IPSA paid too little attention to MPs' need for advice on the implications of its rules.[300]
The initial rules on accommodation and travel ignored MPs' caring role in respect of dependent children aged five or over.[301]
Separate budgets for office rents and other office costs created unnecessary inflexibility.
Parliamentary duties were so narrowly defined that an MP could not claim for travel outside his or her constituency even when the journey concerned a matter before Parliament.

177. IPSA has made some changes to the scheme, but we do not regard them as sufficient. We believe the status quo is untenable, for the following reasons: the administration of the system does not provide value for money; MPs are being hindered in carrying out their parliamentary duties and deterred from making legitimate claims, to the detriment of their constituents and the democratic process;[302] transparency is not achieving its purpose of enabling the public to make informed judgments about the costs incurred by individual MPs and to make valid comparisons between them;[303] and MPs with families or without independent means are being placed at a disadvantage,[304] with long-term consequences for the future composition of the House.

Recommendations:

Independent determination of the payments system for MPs' costs and independent regulation of it are fundamental and should continue. (Recommendation 1)

The Act should be amended in accordance with the CSPL's recommendation to provide that IPSA's primary duty is "to support MPs efficiently, cost-effectively and transparently in carrying out their parliamentary functions". It would continue to be IPSA's role to determine what assistance for MPs was necessary. (Recommendation 2)

IPSA's current administrative role should be carried out by a separate body, so that IPSA is not regulating itself, and the Act should be amended to permit this. The best arrangement would be for that separate body to be within the House of Commons Service, both because such a body would avoid imposing undue burdens on MPs and because it would benefit from the economies of scale of being part of a larger organisation in areas such as human resources and IT. Independent regulation by IPSA and transparency would ensure that it did not replicate the deficiencies of the old expenses system. (Recommendation 3)

Value for money for the taxpayer

178. The cost of administering the system of payments for MPs' costs has risen by millions of pounds, even when the indirect costs of the old system are added to the direct costs.[305] The NAO calculated IPSA's cost per claim as just under £16, with 38% of claims being for less than that average processing cost.[306] As well as IPSA's own costs, the system has imposed considerable extra work on MPs and their staff, taking them away from their parliamentary duties and causing a proportion of the taxpayer's expenditure on MPs' staff under the scheme to be wasted.[307]

179. The sums paid out to MPs were less in 2010/11 than in the final year of self-regulation following the reforms of 2009, but the NAO indicated that, given MPs' view that they are subsidising their own work, it could not conclude that the reduction was a genuine efficiency improvement.[308] From our own experience we are certain that it is not. Value for money must be assessed in terms of the effectiveness of IPSA's expenditure in enabling individual MPs and therefore parliamentary democracy to function effectively and not simply in terms of the level of that expenditure.

180. The NAO asked IPSA to consider several points arising from comparisons with other legislatures and organisations: risk-based validation and monitoring, more direct provision of business resources and centralised procurement contracts.[309] As discussed above, direct provision and centralised procurement contracts would require a careful balance between the advantages of centralisation and the disadvantage of lack of flexibility,[310] and that balance is more likely to be achieved by an administrative body within the House Service than by IPSA. If that balance were achieved, direct provision and central purchasing would allow MPs to spend more time performing the duties for which they were elected and offer the taxpayer a significant saving.

181. The most important contributor to high costs is the complexity of IPSA's scheme. We consider later how the scheme and its administration might be simplified.[311]

Recommendations:

The body administering MPs' expenses should implement a more risk-based and therefore cost-effective approach to validation, as recommended by the NAO. (Recommendation 4)

The body administering MPs' expenses should extend its use of direct payments to cover as near to 100% of transactions as possible. (Recommendation 5)

The body administering MPs' expenses should make more extensive use of its capacity to purchase and provide centrally. (Recommendation 6)

Transparency

182. The purpose of transparency in the payments scheme for MPs' costs is to enable the public to judge whether the details of the scheme and its administration and regulation are fair and effective, to make informed assessments of whether the costs claimed by each MP are justifiable and to make well-founded comparisons between MPs. IPSA has published a great deal of information, but that has not been shaped by an assessment of what the purpose of such publication is. Consequently it has not assisted the public to make meaningful judgements of MPs and comparisons between them. In particular, IPSA's policy of bi-monthly publication of claims allows meaningless comparisons and misrepresentation by the media.[312] Our recommendations below seek to make IPSA both more transparent and more effective in achieving the purpose of transparency.

183. IPSA's decision to publish individual claims without the underlying receipts means that the system is open to the perception of abuse.

Recommendations:

IPSA should improve its system of publication by:

Creating an enhanced scheme of annual publication of claims, which would be searchable and facilitate comparisons, and would include the underlying receipts (subject to safeguards relating to personal details and security);
Begin developing and implementing a cost-effective system of real-time publication of claims, or at least publishing on an accruals basis (reflecting when the costs were incurred), and immediately ceasing the misleading bi-monthly publication. (Recommendation 7)

When publishing claims, IPSA should make a clear distinction between (a) costs commonly regarded as personal, such as accommodation and travel, and (b) office and staff costs. The latter would not be described as "expenses" in any other profession, and should not be so described by IPSA, which should publish them separately from other costs. (Recommendation 8)

When publishing "not paid" and "part-paid" claims, IPSA should classify each one in respect of the reason for non-payment; and it should review whether publication of such claims increases or reduces public confidence in the payments system and Parliament. (Recommendation 9)

Public confidence

184. The responses to the NAO's survey question indicated that public confidence in the system of payments for MPs' costs had increased. It is reasonable to attribute some of this to the fact that there is an independent body (IPSA) running the payments system and that it has ensured that there is no systematic abuse of the system, as well as to the impact of an election and the imprisonment of several former MPs.[313] Independent determination and regulation of the system is essential, as we have indicated above.[314]

185. However, increased public confidence in the payments system does not necessarily translate into increased public confidence in Parliament and MPs. That is partly because public confidence in Parliament and MPs depends on a wider range of issues, but in our view it is also partly because of the impact of IPSA's system of bi-monthly publication on the reputations of individual MPs and thereby on the House itself.[315]

Members' ability to fulfil their duties

186. The claims system introduced by IPSA's Board is obstructing MPs in fulfilling their duties and thereby impeding the effective functioning of Parliament. The NAO found that 85% of MPs considered IPSA's system was such a burden that it hindered them in doing their jobs,[316] and the percentage was the same in our survey.

187. Nothing better illustrates the IPSA Board's attitude towards its task and towards MPs than its online claims system, which imposes major costs on MPs for the sake of a relatively minor saving in its own administrative costs (estimated by IPSA itself at about £150,000).[317] Requiring 650 MPs and a similar number of their staff, instead of a handful of skilled IPSA staff, to master the electronic system and enter data was an inefficient use of a public resource. It is here that the absence from the legislation of a specific requirement that IPSA must assist MPs to perform their parliamentary functions has been especially damaging.

188. IPSA's rules on staff, together with its diversion of the time of MPs' staff towards operating the claims system, have reduced the staffing available to MPs in the face of a well-resourced Executive. In particular, under the old system, MPs could transfer funding (or "vire") between their office and staff budgets, and a large number did so, enabling them to operate more effectively to the benefit of their constituents and with no loss of accountability.[318] This practice is permitted in the Scottish Parliament.[319] An alternative would be to provide a single office and staff budget so that each MP could make his or her own decision on the most effective use of resources, given that each constituency is unique in its geography, demographics and transport.

Recommendations:

In order to use publicly-funded resources more effectively, IPSA should offer MPs the option of submitting claims in paper form only, allowing IPSA more efficiently and in a more controlled way to enter the data into their online system. (Recommendation 10)

IPSA should merge the office and staff budgets. (Recommendation 11)

Impact on Members with families

189. The role of an MP inevitably puts a strain on family life. The payments system introduced by IPSA appears to have exacerbated those strains, as indicated by our evidence from Dr Madan and by the views of MPs gathered by the Hansard Society and ourselves.[320] In particular IPSA removed additional provision for accommodation or family travel in cases where MPs had dependent children aged five or over.[321]

190. The accommodation and travel rules for MPs with children aged five or above have since changed. However, it is likely that this will lead to accusations of "special treatment" for such MPs and individual MPs being singled out in the media for receiving a benefit which is not available to the public at large. In fact the provision reflects the unusual circumstance of being required to live and work in two separate places, and recognises the impact of this on family life.

Impact on Members without independent means

191. The NAO found that many MPs are subsidising the cost of their work, and paying out a substantial proportion of their post-tax salary before receiving reimbursement, causing serious cashflow problems for some.[322] IPSA's Board had apparently made no assessment of these problems before the NAO brought them to its attention.

192. This situation risks creating a two-tier House of Commons: MPs with independent means can bear some or all of the costs of fulfilling their parliamentary duties, whereas those without independent means are forced to make claims and risk reputational damage as a result of the local and national press placing them higher in rankings of costs claimed.

Deterring MPs from submitting legitimate claims

193. The NAO has clearly demonstrated that MPs are being deterred from submitting legitimate claims.[323] Beyond stating that MPs should claim what they are entitled to, IPSA's Board has failed to address this issue and its impact on whether the objectives set for the payments system are being achieved. Some of the reasons why legitimate claims are deterred are within IPSA's control, such as its unwillingness to give advice on whether specific claims are within the rules or not, the method of claims and reimbursement and the nature of its publication arrangements.

Recommendations

IPSA should, on request from MPs, indicate to them whether a specific claim will be accepted or rejected; any subsequent claim would of course be published in the usual way. (Recommendation 12)

IPSA should make it easier for MPs to find out online how much of each budget has been spent. (Recommendation 13)

Impact on MPs' staff

194. MPs' staff have not only had to spend significant amounts of time dealing with IPSA's claims system, but IPSA has worsened their terms and conditions, downgrading their redundancy terms and provision for childcare.[324] IPSA's procedures have also left many of them out of pocket for long periods when they have incurred costs on behalf of their MP, and it does not consistently reimburse such costs directly.[325] IPSA's initial unwillingness to meet representatives of staff appears symptomatic of its attitude towards MPs' staff.[326]

Recommendations:

IPSA should establish a liaison group with MPs' staff, and should include their representatives in consultations on the same basis as the statutory consultees. (Recommendation 14)

IPSA should review the overall remuneration package of MPs' staff, and in particular redundancy pay, with a view to ensuring that they are appropriately rewarded and that MPs are able to retain experienced staff and provide opportunities to interns. (Recommendation 15)

IPSA should make it a consistent practice that MPs' staff who incur legitimate costs relating to the MP's parliamentary duties receive reimbursement direct, and should ensure that such reimbursement is made promptly. (Recommendation 16)

Payments for MPs' costs

195. As already indicated, there needs to be a clear separation between, on the one hand, costs generally regarded as personal (accommodation and travel) and, on the other hand, office costs and staff. As regards the personal costs, to simplify the scheme IPSA could consider extending its existing system of geographically-differentiated supplements.

196. Assuming there is a robust rationale and method of calculation for IPSA's Outer London supplement, the travel element could be determined in a similar way, taking account of actual travel claims (perhaps for the period 2001-10). For the accommodation element, it would be essential to minimise the scope for a personal benefit to MPs and to make a significant saving over the recent average costs in each region. There could be different rates for those MPs with and without a second dwelling. The levels of the supplements would of course be determined by IPSA.

197. Some legislatures elsewhere operate a system of this sort, such as the German Bundestag.[327] IPSA itself has indicated that there can be circumstances in which a flat-rate allowance is the best option: in March 2010 it stated its "belief as a matter of principle that it is preferable that MPs should receive expenses for costs actually and reasonably incurred, rather than a flat rate allowance; unless the cost of administering such a system is shown to be disproportionate to the benefits, or the use of expenses imposes an unreasonable burden on MPs to fund costs before claiming them back."[328] Indeed IPSA has not only provided such a flat-rate allowance since its scheme began (the London Area Living Payment) but has recently introduced a new one in the form of an extra supplement for Outer London MPs.[329]

198. A system of regional supplements could have the advantages of: increasing transparency and contributing towards public confidence, as a simple comprehensible system for the public; reducing the cost for the taxpayer, by cutting the administrative costs and by setting the initial levels lower than the current average payments, thereby guaranteeing a reduced overall cost; reducing the time spent on form-filling, leaving MPs and their staff more time to carry out their parliamentary duties; minimizing the disadvantages felt by MPs with families and without independent means; and not deterring MPs from requesting payments towards costs legitimately incurred.

199. Equally we recognise that there are legitimate concerns about MPs making personal gains and about accountability for the way in which money is spent if such a scheme were not carefully constructed.

200. Therefore we concentrate here on securing better information about how the current system of regional supplements works and the impact of their wider application, in order to allow a well-informed public debate in advance of any decision for or against such a system being extended.

Recommendation:

To facilitate informed consideration and public debate about cost-effectiveness and accountability, we recommend that:

a. IPSA provide a detailed explanation of the rationale for its existing London supplements (especially the Outer London one) and make transparent its current methodology for calculation of the rates.

b. A body independent of both Parliament and IPSA be commissioned by the House Service to undertake a financial cost-benefit analysis to determine whether extending IPSA's current system of London and Outer London supplements to other regions in the UK could provide greater value for money for taxpayers, and an evaluation of the extent to which each of the aims for the Act set out in 2009 would be achieved.

c. In not more than six months' time, the House should have the opportunity to consider the merits of that cost-benefit analysis and evaluation and to make a decision on whether there should or should not be a system of regional supplements instead of the existing travel and accommodation provisions. (Recommendation 17)

MPs' salaries

201. In setting salaries, IPSA should take account of the 1911 principle that MPs should be able to maintain themselves "comfortably and honourably, but not luxuriously" and the Lawrence Committee's principle that MPs' should be able to discharge their duties "without undue financial worry and to live and maintain themselves and their families at a modest but honourable level."[330]

202. We believe that, whenever possible, salaries should be set by IPSA at the start of a Parliament and maintained for the duration of that Parliament, and would apply the same principle to the setting of rates and maxima for any other payments to MPs.

Recommendation:

The levels of salaries and rates and maxima for any other payments to MPs should, whenever possible, be set by IPSA at the start of a Parliament for the duration of that Parliament. (Recommendation 18)

When it examines the matter of resettlement grants for MPs who lose their seats at a general election, IPSA should take into account the arrangements in the Scottish Parliament and the National Assembly for Wales. (Recommendation 19.)

The role of Parliament

203. Parliament has a duty to ensure that individual MPs and thus Parliament itself are able to operate effectively, for the benefit of their constituents and of the country as a whole. That duty cannot be sub-contracted unconditionally to a separate body. IPSA's Board has so far failed to achieve the aims intended in setting up an independent payments scheme, and in particular to run the scheme in such a way that MPs are able to fulfil their parliamentary duties effectively. In December 2010 the Prime Minister said that IPSA must change or be changed,[331] but the revisions made by IPSA to the scheme since then have not gone far enough.

204. Under the Act, Parliament has the option of passing a motion praying Her Majesty to remove from office the Chair and other Board members of IPSA.[332] More constructively, it has the power to amend the 2009 Act so that IPSA operates within a different legislative framework while remaining independent and continuing to determine and regulate the payments scheme within that framework. Some of our recommendations require legislative changes; others are not dependent on legislation, but could be brought about in that way if IPSA does not act. We believe that step should be taken if IPSA's Board has not implemented the recommendations of this report by 1 April 2012.

205. The best way of promoting public confidence in Parliament and in the system of payments for MPs' costs is to ensure that Parliament is effective, and is seen to be so, in holding the Government to account and dealing with the matters that people care about, and therefore that the taxpayers' money devoted to enabling MPs to fulfil their parliamentary duties is money well spent. We believe our recommendations would increase MPs' ability to fulfil their parliamentary duties, and thereby contribute to the effectiveness of Parliament. We urge the Government and Parliament to have the courage to reform the system of payments for MPs' costs by implementing our recommendations.

294 Paras 8-13 above. Back

295 Para 9 above. Back

296 Para 51 above. Back

297 Para 70 above. Back

298 Paras 134-5, 138 above. Back

299 Para 141 above. Back

300 Paras 148-52 above. Back

301 Paras 122, 125 above. Back

302 Paras 127-31 above. Back

303 Paras 90-4 above. Back

304 Paras 117-26 above. Back

305 Para 78 above. Back