Legg Letter

ACA REVIEW THE REVIEW'S APPROACH TO THE ACA RULES Note bv Sir ThomasLegs

This note gives background information about the Review's approach to the interpretationof the rulesgoverningthe Additional CostsAllowance (the ACA).

Executivesummary The main points can be summarisedas follows:1) To judge the validity of payments,the Reviewhas to interpretand determine the rules and standardsgoverning the ACA during the review period; this is not a straightforwardtask; 2) The ACA was governed by the Green Book rules, supplementedby the practiceof the FeesOffice; but this was also subjectto fundamentalprinciples of propriety derived from the Green Book itself and from the Code of Conduct; 3) ACA paymentsthereforehad to be both within the defined scopeand purpose of the allowance, and also compliant with the fundamental principles (together,the' overridingprinciples'); 4) It followed, in particular, that the ACA was to be regarded, not as a supplementary source of income, but as a support for specific and proportionate expendifureon accommodationneededfor the performanceof Parliamentaryduties; 5) The validity or otherwiseof ACA paymentsunder the rules was not affected ' by the views, words and actionsof the FeesOffrce at the time; 6) Recommendationsfor repayment of invalid ACA payments carry no implication aboutthe conductor motivesof the MPs concerned;

were requiredby the 7) Mortgageintereststatementsand similar formal records rulesand are essentialto justiff ACA payments; g) MPs who did not provide suchevidenceat the time will thereforebe requested allowanceinvolved to do so now, in default of which repaymentof the whole will be recommended; evidence' certain de 9) In other comparatively minor cases of insufficient wili be allowed,for reasonsof proportionality; minimis "*r.piiorrs Book rules, they will be 10) Where ACA paymentsbreachedspecific Green judged invalid; 11)

Heretoo, certainde minimisexceptionswill be allowed;

principles,they will alsobe 12) where ACA paymentsbreachedthe overriding judged invalid; claims for 13) One frequent example of this was allowing disproportionate to have been in secondaryitems; in such cases'specificlimits must be taken place; maintenancewill be 14) on this basis, the costs of cleaning and garden and f'1'000 a year regardedas having been acceptableup to limits of f2,000 respectivelY,but not more; include conflicted 15) Other cases affected by the oveniding principles transactionsand multiple householdpurchases' The needto determinewhat the rules were ACA madebetween2004 1. The Review's core task is to identiff paymentsof the any repayments and2009which shouldnot have beenmade,and to recornmend to apply the rules which Mps shouldmake.In doing this, the Review is required purpose' the Review and standardsgoverning the AC--Aat the time. For this standardsin force at therefore has to int.rpr"I and determinewhat the rules and the time were.

As other authorities,including the 2. This is by no meansa straightforwardtask. comptroller and Auditor Information Tribunal, the court of Appeal and the was flawed in various Generalhave publicly observed,the wirble ACA system tensions between the respects. One of these was that there were gaps and gaps and tensions are elementsof the rules governing the allowance. These of interpreting and difficult to reconcile, Jnd this In turn complicates the task applyingthe rules. Elementsof the rules during the review period ('the rules') consisted 3. The rules and standardsin force 'Green Book rules', based on Resolutionsof the of three elements:(a) the of Resources)in House; (b) the practice of the Fees Office (Department principles' also interpretingand applyingthe rules; and (c) certainfundamental or the Speakeron its in the Green Book or otherwiseapprovedby the House Housein 1995' behalf,or containedin the Codeof bbnduct adoptedby the less specific, though not 4. The Green Book set out a framework of more or This framework exhaustive,rures under which the ACA was to be administered. for identifuing, was basea on the principle that MPs were primarily responsible and for the claiming urrJ ,"iigrirr! their own .*p.nditutr on allowances, audit check on the propriety of that ."i.naiture. At that iime, there was no on the ACA or other amount or proprieta of individual items of expenditure Parliamentaryallowances. the scopeand purpose 5. The relevantsectionof the GreenBook beganby defining Membersfor expenses of the ACA as follow s;- "The allowance reimburses away from their main wholly, exclusivelyand necessarilyincurred when staying duties' This excludes UK residencefor the purpose of performing Parliamentary political purposes" expensesthat have been fnruiia-for puiely personal or (formulationof APril 2005)' the GreenBook rules,in line with 6. The practice of the Feesoffice supplemented for example' the Fees rulings and guidancefrom the House authorities'Thus, for certain heads of office ,ror-iuy allowed claims of up to f250 a month (until 2008-09' when the expenditure,and up to f,400 for food, without receipts officially informed limit was set at f1i);and it applied,althoughMPs were never 'John Lewis list' as a benchmark for certain household of it, the so-called: purchases.

7 . The fundamental principles requiredMPs personallyto ensurethat their use of the ACA was: (a) necessaryfor the performanceof their Parliamentaryduties;(b) not extravagantor luxurious; (c) in accordancewith the Nolan principles of selflessness,accountability,honesty and leadership;(d) strictly in accordance with the rules goveming the allowance;(e) abovereproach;(f) took accountof the needto obtainvalue for money;and (g) avoidedany appearance of benefit,or a subsidyfrom public funds, or diversion of public money for the benefit of a political organisation.Theseprinciplestogetheramountto a generalrequirement of propriety. 8 . In short,all ACA paymentshad to be both within the definedscopeand purpose of the allowance, and also compliant with the requirement of propriefy as embodied in the fundamentalprinciples. These requirementsmay together be calledthe 'overridingprinciples' of the ACA. 9 . It followed, in particular, from the overriding principles that the ACA was to be regarded,not as a supplementarysourceof income,but as a supportfor specific and proportionateexpenditureon accommodationneededfor the performanceof Parliamentaryduties. Apnlication of the rules 10.TheReview has identified over 147,000individual ACA paymentsmade by the FeesOffice to MPs during the review period. Most of thesepaymentsappearto have been valid. However, a number of them either (a) cannot yet be judged valid, becausethey were not supportedby sufficient evidence,as requiredby the GreenBook; or (b) must be judged invalid becausethey breachedspecificGreen Book rules; or (c) must be judged invalid becausethey significantlybreachedthe essentialrequirementof propriety,as ordainedby the overridingprinciples. 11.TheReview'sjudgmentsthat ACA paymentswere invalid cannotbe affectedby views, words or actions of the Fees Office at the time to the effect that they regardedthem as proper and acceptable. l2.Equally, a recommendationby the Review that an MP shouldrepay all or part of an ACA payment carries no implication or innuendo about the conduct or motivesof the MP concerned.

Insufficient evidence 13.The most important single class of evidence to support ACA payments is mortgageinteiest statements.Thesestatementsare essentialto supportwhat were substantialpaymentsfrom the public purse, and their production "u-rrlJirrely and is an explicit requirementof the Green Book. Other similar types of was essential supporting evidence include rental statements and completion statementson salesand purchasesof housesand flats. ACA paymentsmade in suchcasescannotbe regardedas valid unlessand untii theseessentialrecordsare supplied. Bank statementsor other secondaryevidence are insufficient for this purpose. 14.Mps who failed to producetheserecordsat the time will thereforebe requestedto do so now. If on reisonablenotice an MP is unwilling or unableto producesuch statements,the paymentsconcernedshouldin defaultbe determinedto be invalid and the Mp wilibe recommendedto repaythe whole of the allowancegrantedfor the mortgageetc. 15.Onthe other hand,the practiceof the FeesOffice before2008-09of not requiring receiptsfor a variety oi expenditureslessthan 9250a month (€400 in the caseof foodj has been acceptedfor the purposesof the Review. However, where subsequentclaims or other evidencesuggestthat suchearlierpaymentsmay have been materially incorrect,the Review will requestevidenceto substantiatethe earlierpayments. 16.In addition,on a de minimis basis,the Review will not requirefurther supporting evidencefor single paymentsof less than f,1,000 not forming part of a latger pattern, and wheie there is no other reasonto doubt the validity of the payment. This implies no judgment about the validity of the payments concerned, but merely a recognilion that it would not now be a proportionateuse of public resourcesto pursuethe evidencefor suchpaymentsfurther. Breach of specificrules l7.Where a payment made by the Fees Office was incorrect on the face of it, by reference to specific rules in the Green Book, then the payment will be determined to have been invalid and the MP who received it will be recommendedto repaythe amountinvolved.

l8.However, heretoo and on the samebasis,certainde minimrsexceptionswill also be allowed.Theseare:a) singlepaymentsof lessthan f 100,erroneousunderthe GreenBook rules,but not cumulativewith othersforming part of a larger connectedpattern; and b) standingchargesfor utilities, Council Tax, etc. (but not more significantitems like mortgageintereststatements)mistakenlyclaimedduring the Dissolution that took placeduring the review period,in 2005. Breach of overriding princinles l9.Where a decisionor practiceof the FeesOffice was significantly contraryto the overridingprinciples,it must bejudged to havebeenin breachof the rules. 20.Onefrequentexamplewas the practiceof allowing MPs to makedisproportionate claims. For the central purposeof the ACA, namely putting a roof over Mps' headsto enablethem to perform their Parliamentaryduties,the upper limit of the {J allowance may normally be taken as the relevant and sufficient control. T.he fI Reviewwillthereforenotquestionthesizeandscaleofsecondhomesfinanced by the ACA, or the necessityof providing them at all. However, for secondary pufposes,though legitimate in themselves,some limits must be regarded as 5 having been in place to prevent disproportionateand unnecessaryeipenditure i from the public purse. 2l.In some areas,such as householdfurniture and equipment (see paragraph6 above),the FeesOffice did in fact imposesuchlimits. In others'theydid iot, and in these areasthe Review has to establish the limits which -rrsi be taken, in compliancewith the overriding principles,to have been in place at the time for certain recurring heads of subordinate expenditure. Two cases in point are cleaningand gardenmaintenance. 22.On this basis,the cost of cleaningin the secondhome will be regardedas having been acceptableup to f2,000 a year, but beyondthat will normally be held tJ have been invalid; and paymentsabove that limit will be recommendedto be repaid. 23.Similarly,costsup to f 1,000 ayear but not more will be regardedas having been acceptablefor garden maintenance,and paymentsabove that limit wiil Jso be recommended to be repaid. 6

7 \ ) {

24.Amongother casesalso affectedby the overriding operationof the fundamental principlesare thoseinvolving conflictedtransactionsand multiple purchases. 25.Wherean MP usedthe ACA to enterinto a conflictedtransaction,for exampleby buying or renting a secondhome from a closerelative,a companyin which he or she had shares,or a close associatesuch as an employee,the transactionwill be regardedas tainted, ffid the whole paymentaccordinglyinvalid. This will be so even if the MP can show that it was effected at arms-length or that the public pursehasnot suffered. 26.Further,exceptwherethere is an obviousand sensiblejustification on the face of the record, tufpr will be recommendedto repay the cost of over-frequent of householdequipment. replacements Sir ThomasLegg 9 October 2009