“History repeats itself, firstly as tragedy, secondly as farce” said Karl Marx, and George Santayanna, the Spanish philosopher, said “Those who cannot remember the past are condemned to repeat it”. Both quotes come to mind when considering the latest manifestation of the issues surrounding MP’s expenses and tax affairs.
One of the things that became crystal clear from the MP’s expenses scandal that erupted in the last Parliament was that the body that supposedly policed the reimbursement of MP’s expenses was in fact in way too cosy a relationship with them, and was allowing some fairly outrageous claims to succeed. So the new Independent Parliamentary Standards Authority (“IPSA”) was formed to oversee the reformed system, and would of course, given the background and the awful press that Parliament had received, rule the system with an iron hand. Wouldn’t it?
Well ,apparently no, actually. A dispute has arisen between IPSA and HMRC over the right of MP’s to claim a tax deduction for accountancy fees incurred in the completion of expenses claims and tax returns, with IPSA actually defending the rights of MPs to reclaim such expenses in the face of implacable HMRC opposition. So what is the legal position here?
In order for an employee to claim a deduction for an expense from employment income, it is necessary for him or her to demonstrate that the expense is incurred wholly, exclusively and necessarily in the performance of the duties of the employment. This is a notoriously difficult test to satisfy, and HMRC is most certainly not satisfied that MP’s accountancy fees meet it – to quote from an email from an HMRC customer relationship manager disclosed to the Guardian under the Freedom of Information Act:
“Such expenses will not qualify for a (income tax) deduction ….. as they are not incurred wholly, exclusively and necessarily in the performance of the duties of the employment.”
So that’s pretty clear then. And one would imagine that tax deductibility would be a sensible yardstick for the IPSA to use in determining the allowability of an expenses claim by an MP, as I suspect I am not alone in wondering why we the taxpayers of the UK might be paying MPs expenses which were not incurred wholly, exclusively and necessarily in the performance of their duties. But apparently not.
Not only is the IPSA routinely reimbursing MPs for such accountancy fees, it also pays them subsistence for hospitality, food and drink consumed off Parliamentary premises before 7.30pm, for taxi fares home after late sittings before 1am and for insurance payments, all of which are items which would not normally be allowed as employment expenses by HMRC and for which HMRC has refused to give MP’s dispensations (effectively rulings that expenses payments are non-taxable).
The argument used by IPSA to justify this apparent defiance of standard HMRC practice, which is undoubtedly based on a sound interpretation of tax law, is breath-taking in its audacity, and actually rather far-reaching if taken to its logical conclusion. According to the Guardian, IPSA argues that:
“….. despite being on the Parliamentary payroll, MPs are more akin to small businesses, which can reclaim such costs.”
This argument is offensive on so many levels that it will take some time to enumerate even a few of them:
1, MPs are paid salaries by the taxpayers of this country to govern the UK. In what sense could that possibly make them self-employed?
2. MPs are elected by their constituents, so it shows a certain amount of gall and contempt for the electorate to suggest that this makes MPs self-employed.
3. Have MPs not recently been exercising themselves over the proliferation of arrangements whereby senior officials within government departments and local councils are operating through personal service companies (i.e. on a self-employed basis), and have we not just seen legislation introduced to outlaw this practice? So how can they countenance an argument on their own behalf that suggests they are self-employed, in defiance of the clear facts of the matter?
4. The rest of us taxpayers have to abide by tax law in determining the nature of our working relationships, and woe betide the employer who wrongly treats an employee as self-employed. They will face tax, national insurance, interest and penalties going back up to four years should HMRC determine that their categorisation decision is flawed. So why should MPs be any different?
5. Have MPs and those responsible for policing their expenses learnt nothing from the recent scandal? I would categorise MPs as very similar to taxation practitioners in terms of their tax affairs; in view of their responsible position in terms of passing and enforcing tax legislation (or in our case helping to administer it, encouraging clients to toe the line and trying to make it work in the face ofswingeing cuts to HMRC services), their tax affairs absolutely have to be, and to be seen to be, whiter than white.
I think there are two remaining problems here, both of which need to be addressed. There has clearly been a long-standing culture in Parliament that considers MPs to be significantly underpaid for what they do, and has sought to compensate them in that respect by allowing generous expenses claims.
The whole point of the response to the scandal was supposed to be addressing the second issue, but it seems clear that the IPSA, like its predecessor, is insufficiently independent to be entrusted with the task. As John Mann, Labour MP for Bassetlaw puts it:
“It is not the role of this supposedly independent body to challenge the role of the taxman. Everyone else has to abide by their rules, so why doesn’t IPSA?”
The obvious answer to the independence issue appears to be to entrust the task to HMRC itself, but one might see why that does not appeal to MPs, even though it would solve any problems of perception or reality in terms of preferential tax treatment of MPs.
The other problem apparently remains the level of MPs’ pay. They are probably hoist with their own petard in this case, as they are held in such low esteem by the general public (primarily because of the expenses scandal) that any attempt to give them a significant pay rise would cause outrage, even though they almost certainly deserve one, given the level of responsibility they exercise.
There is of course another good reason why MPs should be better paid, which is alluded to in the Guardian article by John Mann again:
“There is absolutely no requirement for an MP to employ an accountant unless they have too many jobs and complex outside incomes. In which case, they should pay for it themselves.”
Is it acceptable that MPs should, given the enormous responsibility they shoulder, be required, or indeed allowed, to have other jobs or business outside Parliament? I think there is a balance to be struck here, given the instability inherent in the role of an MP (or more accurately, a member of the House of Commons), who runs the recurrent risk of being thrown out of his or her job at a moment’s notice every four or five years.
Personally, I would like the MPs of this country to be devoting all of their working time to the vitally important task of government and would be prepared to see them paid significantly more on the basis that they would give up all outside jobs and business interests for the duration of their stay in Parliament, and that they would abide by the expenses in employment rules that apply to the rest of us.
I fully accept that there are arguments both ways on this one. One of the big advantages from my perspective would be that legislation could be properly scrutinised line by line rather than being passed on the basis of often extremely cursory scrutiny in committee. For example, the lack of scrutiny undergone by tax legislation before it finds its way on to the statute book is probably the main reason for a number of the main problems with the UK system, such as:
Sheer volume of legislation
Loopholes exploited by abusive tax avoiders
Lack of clarity leading to a massive backlog of Tax Tribunal cases
Frequent U-turns on tax provisions
The other factor that seems blindingly obvious to me is that the job of governing this country is so important that it is bizarre to treat it as a part-time role. To those who might argue that having to give up outside roles and business interests would deter particularly able candidates for office from putting themselves forward for election, I might cynically ask what has deterred them in the past, but more seriously would argue that being an MP is as much a vocation as a job, and that those who are not prepared to make sacrifices to take on such positions of power and responsibility are probably ill-suited for them in the first place.
And of course the sacrifices would be less in a financial sense if MPs salaries were more commensurate with the responsibility and power that they exercise. They are already generously compensated for the upheaval when they lose their seats, and I would argue that people of sufficient quality and stature to be worthy of the role of MP should have no problem in swiftly finding their way back into the world of business or employment should the worst happen. Indeed, lobbying firms and others already appear to be queuing up to engage former MPs, and certainly former ministers, which is an interesting issue in itself.
I rather get the impression that MPs might not like this proposal, but if we are serious about improving the government of this country, I do think that it needs to be seriously considered. Otherwise, difficult as it might be to contemplate, the standing of MPs in the public mind may fall even lower, and cynicism apart, that is a really dangerous thing for a democracy to allow to happen.