Speaker John Bercow Ensures ‘Flippers’ Get Away With It

(Telegraph) – MPS WHO ‘FLIPPED’ THEIR SECOND HOMES to maximise their expenses or avoided paying capital gains tax will escape censure under the official House of Commons inquiry while those with far less questionable claims are asked to repay tens of thousands of pounds.

John Bercow, the Speaker, has turned down a request by Nick Clegg, the Liberal Democrat leader, to widen the scope of his audit into MPs expenses amid concerns that some of the worst abusers of Commons allowances are escaping punishment.

A number of MPs whose claims triggered public outrage, including Elliot Morley and David Chaytor who claimed thousands of pounds for ‘phantom’ mortgages, have been given the all-clear by Sir Thomas Legg.

Meanwhile, others with far less questionable claims have been asked to repay thousands.

Mr Bercow, who was elected as Michael Martin’s replacement after claiming he was the right candidate to clean up Parliament has admitted using a legal loophole to avoid paying CGT.

Now he has ruled against broadening the Legg inquiry, claiming such an investigation would take too long.

The decision was approved by the Members Estimates Committee, a group of senior MPs including Harriet Harman, the Leader of the House, and her shadow, George Young.

In his reply to Mr Clegg, seen by the Daily Telegraph, the Speaker said: ‘Extending the review to cover changes of home designations for personal gain and the payment of capital gains tax would unquestionably involve significant retrospective changes to the rules on allowances…’

‘Agreeing to your proposal would therefore considerably lengthen the timescale of the review and the MEC did not feel it could support this.’

Mr Clegg said that he was ‘dismayed’ by the ruling, which was taken in private and referred to only briefly in published minutes of the meeting.

He had warned that the audit would not be ‘credible’ if abuses such as flipping and non-payment of CGT were not investigated.

‘This response shows that despite people’s anger at the expenses scandal the worst perpetrators are still being let off the hook,’ he said.

‘Only in a place as mad as Westminster can MPs make fat profits playing the property market with taxpayers’ money and get away with it.

‘Despite all the rhetoric of cleaning up politics we now know that at the very heart of the Westminster establishment there is still no will to deal with the biggest offences.’

On Tuesday it was disclosed that Bernard Jenkin, a former vice chairman of the Conservative Party, has been asked by Sir Thomas to return more than £63,000, including £50,000 which he claimed in rent for a property owned by his sister-in-law. This represents the largest repayment demand to be made public.

He has written to Sir Thomas challenging his ruling on the grounds that his arrangement had the approval of the Commons fees office.

Critics of the Legg inquiry will argue that Mr Jenkin’s case is not as questionable as those involving flipping (where MPs changed the designation of their second homes to maximise their claims) and CGT avoidance.

Both attracted widespread public anger when they were exposed by The Daily Telegraph during the expenses scandal earlier this year.

Mr Bercow himself legally avoided paying thousands of pounds in capital gains tax on the sale of two properties by declaring them as his main residence to the taxman despite nominating them as his second homes for the purposes of his expenses.

He volunteered to repay £6,500 after his claims were questioned by The Daily Telegraph. However, this was not raised by Sir Thomas who instead asked him to repay nearly £1,000 that he had overclaimed for his mortgage interest costs.

Kitty Ussher resigned as a Treasury Minister in June after it emerged that she had avoided paying CGT by changing her second home designation for a single month on the advice of her accountant when selling a house in her constituency of Burnley, enabling her to declare that it was her main home.

Hazel Blears, the former communities secretary, Eleanor Laing, shadow justice minister, and Greg Barker, a shadow environment minister, all voluntarily wrote cheques for five figure sums to assuage constituents’ anger over their legal non-payment of CGT.

Margaret Moran, the Labour backbencher who announced she would stand down at the next election after being heavily criticised over her expenses, ‘flipped’ her designation between three properties, spending thousands on decorating each home.

Other prominent ‘flippers’ include Keith Vaz, chairman of the Commons Home Affairs Committee, who switched designation from his London house to his Leicester constituency home and back again within the space of a year.

Andrew Lansley, the shadow health secretary, was criticised for decorating his constituency home before ‘flipping’ and selling the property, while Alistair Darling, the Chancellor, changed his designation between three properties on four occasions.

While some of these MPs have revealed that they have been asked to pay back money by Sir Thomas in relation to other claims judged excessive or incorrect, none have been asked to make any repayment in relation to ‘flipping’ or CGT.

Ordered by Mr Brown at the height of the scandal as a means of ‘cleaning up’ the Commons, the audit led by Sir Thomas Legg has now made provisional rulings on every MP. They have until Monday to challenge the findings.

The process has provoked a storm of protest from MPs who were angered that Sir Thomas had focused on items such as excessive claims for gardening and cleaning, while over-looking some of the practices attracting the most public concern.

While a handful of MPs are waiting to hear whether they must answer criminal charges for practices such as claiming for ‘phantom mortgages,’ the tax authorities are also investigating the tax affairs of 27 MPs in the wake of the Telegraph’s disclosures.

Earlier this month, the Standards and Privileges Committee was criticised for ruling that Jacqui Smith, the former home secretary, need not repay any money after she was found to have broken rules by declaring a spare room in her sister’s house as her main residence, allowing her to claim £116,000 in expenses on her family home.

As well as the Speaker, who chaired the meeting, the decision was approved by Miss Harman, Sir George, and Sir Stuart Bell, a veteran Labour backbencher who has urged MPs to refuse to pay money asked of them by Legg.

Also present were David Maclean, a Tory backbencher who led the battle to keep MPs expenses secret, and Nick Harvey, representing the Liberal Democrats.

9 Responses

  1. Yes. You called it right in your piece on The Legg Letters. The MEC drew Legg’s teeth before ever giving him the job. I had hoped he would prove you wrong, but apparently not. And you seem to have called the double dip recession right as well.

    You must be feeling pretty pleased with yourself.

    Doesn’t say much for our politicians though does it? and Cameron is uncharacteristically silent on the matter.

    I wonder why?

    And I am not happy about Kelly introducing his mortgage changes over five years so “MPs don’t lose money from the changes.” Since when have central London property prices been affected by the recession? it just gives them an opportunity to make more by waiting another five years to finally sell-up (and presumeably still claim mortgage relief in the meantime). Its a joke.

    And still no announcements of independent audits of MP’s office expenses so the likes of Spink cannot bleed the system.

    Despite the Telegraph’s best intentions, it appears that there will never be any real change. We will continue to be represented by corrupt politicians of all political persuasions.

    • I think you under-estimate the British public, Cynical.

      The press won’t let this matter drop, and the voters will be given a chance to express their own opinion in May.

      Between now and then, the politicians will do their best to focus on the economy and their individual credentials to hold office. The last thing they will want to talk about is Legg, Kelly or the expenses scandal.

      But the thing that voters need to remember is that the most important quality required by an MP is honesty – the others being intelligence and common sense. MPs do not need to understand the intricacies of the world economy or be a legal whizz-kid. The Civil Service employs fully qualified individuals in all those areas to advise them on these particular issues.

      MPs need the ability to weigh-up the pros and cons to arrive at the best possible solution for their constituents and the common good. Their claims to requiring any other qualities are simply bogus.

      If an MP is dishonest in his financial affairs, he is also dishonest on a personal basis. Dishonesty is a negative trait that permeates everything an individual does. Moreover, any instance of dishonesty in an MP can give rise to blackmail and seriously effect his decision making.

      Provided the electorate returns to basics at the next election and fails to re-elect tarnished MPs, Kelly’s five year period of grace will be worthless – because those errant MPs will not be returned into a position where they can continue bleeding the public purse.

      And, provided the electorate makes honesty its number one priority for potential MPs in the next election, parliament will be cleansed of corruption and important matters can safely be placed in the experienced hands of the Civil Service (where it has always been).

      We can be rid of Labour’s multicultural scheme; the Conservative’s attack on society’s poorest individuals and the Liberal’s laisez faire policies by returning honest individuals who will serve the common good and, from within, modify their chosen parties’ most ludicrous policies.

      It is possible – and everyone will have their chance in May to make it happen.

  2. Can someone explain why CGT avoidance is suddenly the same as fraud? As I understand it, it is perfectly legal, anyone in the same position as these MPs would use it, and everyone in the legal and accountancy professions knows about it. Are we really saying that MPs should volunteer to pay a tax no-one else in these circumstances pays, and they should ignore the advice of their professional advisers in the process?

    • I wondered when someone was going to get around to that particular chestnut…

      As you say, all tax AVOIDANCE is legal – tax EVASION is not. Moreover, they are the terms used by the accounting profession to define what is legal and what is not in a tax context.

      Unlike many other languages, English normally has a gamut of words that can be used to describe the same thing; but not in this case. There is a gamut of similar words; but, with the exception of ‘avoid,’ all the others imply some form of pre-meditation (and could therefore be viewed as libellous when used in a press report).

      When you read press articles, you will therefore find ‘avoided’ or ‘legally avoided’ used to provide some sort of distinction.

      What you need to bear in mind is that technical CGT avoidance is permitted to ensure that those inheriting a family property can avoid the tax when selling their family home. But the beneficiary needs to physically relocate to the inherited property before it is placed on the market. It is not the case, as you say, that ‘no-one else in these circumstances [pays the tax].’

      We are talking property speculation here and all property speculators pay CGT on their transactions.

      Property speculators should not be permitted to avoid CGT and that should most definitely be the case when that speculation has been solely funded by the taxpayer.

      CGT avoidance might be ‘legal’; but I think the public is intelligent enough to realise what was going on here – and the reason why journalists are restricted to using a particular phrase or word that just happens to correspond to a legal definition. (We are not lawyers; we just present the facts, in plain English, and in a manner that ensures we do not end-up in court). :-)

      You might, in this case, accuse the press of being unclear; but it is the public who have made the rules, which we have to abide by…

      • Indeed, except I studied conveyancing as part of a legal practice course. The second thing you learn about CGT is that if your client has a second home, you must investigate whether you can claim this relief, or risk being taken to court for negligence.

        I have yet to meet a tax practitioner who claims that what the MPs did was less than legal.

        Let’s see now: Property Law and Practice, published by College of Law Publishing states: if an individual has more than one residence it is a question of fact which one constitutes his only or main residence. However, the taxpayer can determine the question by making an election within two years of acquiring a second property, backdated for up to two years.”

        There is also a spousal exemption, which allows married couples to choose which property takes advantage of the exemption and change their mind later should one house increase in value faster than the other.

        So again, what are MPs supposed to have done wrong given that if you or I were in their position and our lawyer made us pay more CGT than we had to we would drag them through the courts?

  3. Ok, clearly if they evaded tax that would be different. Some MPs do seem to have used the CGT flip on properties that seem to be investments. But others used it for a constituency home that they spend a great deal of time in.

    To be honest, I can’t understand why the Members Estimates Committee don’t investigate this. But (Frank Field, I’m looking at you) claiming for a trouser press as a necessary expense of being an MP is 10 times worse than taking advantage of a Tax loophole that is so basic that every lawyer in the land knows about it.

    • Debating the ‘legal’ issue is to miss the point entirely.

      Those whom have purchased a second home in the capital, responsibly, to allow them to do their job as an MP have not churned or flipped those second properties to line their pockets and their actions have therefore not given rise to CGT.

      The possibility of CGT only arises when a property sale is made and, since that property has been purchased at taxpayer expense, it is totally unjustifiable for any profit to be made by the MP concerned. The fact that they even avoided CGT when playing the property market just makes matters worse.

      And, incidentally, constituency homes do not qualify for the odious allowance (although some appear to have played the system so they effectively did). Now if that isn’t corrupt, dishonest and stealing from the public purse what is?

      • Well, technically it was only under this Government that it became possible to designate the second home in the Capital rather than the constituency.

        Before 2004 all second homes had to be in the constituency, iirc. Because ultimately, an MPs job is in London. (and quite right too! Why should we subsidise a London home when a constituency home is invariably cheaper.)

        Second, the rules banned using the allowance for anything other than mortgage interest. The capital was paid off at the Members own expense. In fact, the MP may well hav paid a substantial proportion of the capital on purchase. Ok, this is clearly self serving – if they allowed capital payments the state could claim a beneficial interest in the property.

        But fair enough. Ultimately my problem is that I think that trouser presses, duck islands and employing close relatives to fund their decadent student lifestyle is in a completely different league to tax advise offered by professionals and followed. If the police referred the lot of them to the CPS, I expect that the CGT issue would be the least important issue. This is as much about Clegg pursuing his agenda – in Clegg land you presumbly don’t even get the personal allowance for income tax – as it is about how the tax system works.

        Face it: most people pay tax automatically. It is easy to persuade people who never had to file a return that avoidance is evil. You know gift-aid is technically avoidance? So is the personal allowance for income tax.

        The whole CGT thing suggests that ignorance about how the tax system works is being exploited to pursue political ends. Now, I personally would have MPs jointly own their second homes with the state, and an appropriate proportion being repaid on sale. (What five year period saw house prices fall, on average?) But we don’t have that, and moaning about legal CGT avoidance
        does nothing to take us closer.

        • Remind me to employ you the next time I wish to speculate on the property market; but I have to agree with Cynical.

          The press does not exist to ensure every existing law is upheld; but to serve the public interest by exposing those issues which act against it. In that context it is perfectly legitimate for the press to highlight the iniquity of MPs being legally able to avoid CGT on their property deals – and continue to ram the point home.

          In this situation, the Law is an ass, and requires just as much attention from the public as MPs’ expenses.

          As a lawyer you are constrained by thinking only in legal terms. The press is concerned with fairness and highlighting issues that are blatently unjust.

          Were the Law on CGT avoidance not so open to widespread abuse, we would not be having this conversation. But it is not for the press to tell the public what the law should be. It is just there to inform them of the facts, in plain English, that make it iniquitous.

          What you do with the information is up to you…

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