Sunday, May 17, 2009

Political scandal

I think I ought to comment on the scandal involving Members of Parliament. For my non-British readers I should say that the newspapers have been full of nothing else for the past week. MPs are paid in a complicated way. They receive a salary of about $82,000 and on top of this receive about $150,000 for office expenses. More than 20 years ago they were pushing for a pay rise which the government of the day did not want to give them. The government devised a way in which they could receive more money without appearing to. Since MPs have duties both in London and in their constituency it was agreed that they should be able to be reimbursed for a second home, either in London or in their constituency. What has happened is that some MPs have been abusing the system.

At first there were a few leaked documents that revealed that it was quite common for MPs to employ family members as office assistants. Sometimes there is nothing objectionable about this; a spouse may be as committed to the family business as the principal, and ought to be remunerated. However, Derek Conway (Tory MP) was caught putting his son, a university student, on the payroll while he made only a token contribution to the work of his father. Conway was punished by being expelled from the Tory party. Others felt that prosecution for fraud might have been more appropriate.

Still, this put the whole parliamentary system of expenses under suspicion, and journalists sought to obtain access to MPs' claims under the Freedom of Information Act. MPs did not like this and sought to exempt MPs' own documents from the Act. When this was not granted, the MPs then attempted to appeal this decision at the High Court, spending £50K of taxpayers' money on lawyers' bills. They lost this too. Finally they agreed to publish expenses, but said they would need time to censor sensitive information (addresses, telephone numbers etc). Clearly the plan was to censor anything that might be embarrassing. Somebody though this too much so a computer disc with the uncensored information found its way to the Daily Telegraph (rumoured to have been sold for up to half a million dollars).

The Telegraph has been drip-feeding the information into the public domain for more than a week. The stories have been startling. Remember that the rules state that expenses are allowable for cost incurred solely for carrying out their duties as MPs. Reasonable expenses might be for rent or mortgage interest on a second home, maintenance costs of such a home, travel, and extra food costs. Such reimbursement of expenses is commonplace in business and indeed in the public sector. If I were required to attend a committee meeting in London I would expect my train fare to be paid; if I had to stay overnight to make an early start, I would expect a night's stay in a hotel to be paid for (and in Central London that would be about $140). In addition, I would expect to be fed while I was away from home - usually a sandwich lunch provided at the meeting and a hotel meal in the evening (no more than $40 in central London).

What we have seen is the process of 'flipping'. This means that an MP will nominate a London home as his secondary residence, claiming 'maintenance' costs that upgrade the residence (such a new kitchen and bathroom) then 'flip' his nomination to his constituency home where he will do the same. He will then sell his London home at a profit, buy a new derelict property, upgrade that at taxpayers' expense and then 'flip' again. Each time he sells and re-buys he makes a smart profit - or he might just keep the upgraded house and become a landlord. Normally, one would have to pay 40% Capital Gains tax on selling a second home, but by manipulating the nomination of what is the secondary home it is possible to avoid this.

Although this has been the commonest abuse there have been many others. Many have equipped their London homes with luxury goods like 42 inch plasma screen televisions or state of the art Hi-Fis. Some have nominated their country estates as their secondary homes and put in claims for cleaning of their swimming pools, drainage of their tennis courts and even (hard to believe) dredging of their moat. Some MPs have been regularly claiming their complete grocery bills ($600 a month on their Walmart bill).

As you may imagine the public are very angry. Their taxes funding luxury goods while their jobs are in jeopardy, their pensions are dwindling and their houses being repossessed is hardly going to endear MPs to their constituents.

David Cameron, the Tory leader has taken the initiative, forcing some of his MPs to repay their more extravagant claims, and dismissing one MP from his front bench for dishonesty. Gordon Brown has sacked a minister and expelled two MPs form the party, but the scandal is hitting Labor more than the Tories. Two Labor MPs look to be liable to prosecution for fraud after claiming mortgage repayments on houses where the mortgage had been repaid. It looks like they are going to take a real hit in the next election.

My own solution would be to drastically reduce the number of MPs - 646 for a nation only one fifth the size of the USA seems extravagant - and pay them proper salaries. Only legitimate expenses with receipts should be reimbursed.

1 comment:

Brian Koffman said...

People will always find a way to game the system, and politicians (and doctors) are among the best at it.