Tuesday, 7 April 2009

Capital gains in the trough, an answer

Following on from the interesting comments under my previous piece I want to make clear my position about what MPs should and should not be allowed to claim by way of the second home allowance.

For the reasons I set out on Sunday, I think it is only fair that MPs who have to take on an additional home in order to fulfill their duties should have the reasonable costs of doing so reimbursed from the public purse. The main reason I believe this is that it would be quite wrong for an MP for a far-flung constituency to have to spend a substantial proportion of his salary on something that is necessary for his work whereas an MP for a London seat would not have to do so. From that starting position a number of questions arise.

First, how much should they be allowed to spend? Clearly there must be an upper limit. Currently it is just under £24,000. I am not minded to disagree with that figure because I am not in a position to say whether it is too high or too low.

Secondly, what particular expenses should be included? To my mind the only supportable answer is that the additional costs the MP incurs, over and above the costs he or she would incur if living in their constituency home. This means that it is not just the acquisition or rental costs of the second property that should be allowed but also a reasonable sum to kit it out with furniture and the usual kitchen and laundry appliances. In most cases it would also be fair to include things like cutlery, crockery and bed linen because it will not be practicable to split existing supplies used by the MP in the constituency home.

Thirdly, what should happen to the things paid for out of the public purse? This, I think, is the key to the whole issue. We needn't worry about a few napkins or fish knives, it really is neither here nor there whether these are retained by an MP when he is voted out. The honest ones will donate them to a charity shop or pay the Treasury a rough estimate of their value. The greedy will just take them anyway but at such minor cost to the taxpayer that there is no need to make a fuss. It's houses and flats that cause problems because substantial capital profits can be made during the course of a five-year Parliament, profits that result from money spent by the taxpayer not the MP. I'm not sure why this is seen to be an insoluble problem, because it arises frequently in the real world and the law has had an established answer for many years.

Let me introduce you to the resulting trust.

Say Alice, Bill and Charlie have been flatmates while at university. They graduate and start work, still sharing a rented flat. They decide to buy a property together and each chips-in a different proportion of the deposit and a different proportion of the interest on the loan required to buy the property. Who owns what? They might all have their name on the Land Register as owners of the property, or just one might be the registered owner, it doesn't matter either way. The law imposes what is known as a resulting trust so that each owns a share of the property equivalent to the proportion of the purchase price he or she has paid (interest payments being treated as contributions to the purchase price because they are a necessary part of the process of purchase). There are circumstances in which this general rule does not apply, but we needn't trouble with those for present purposes.

The general principle of the resulting trust is very simple and very fair. If you have paid 60% of the purchase price and someone else has paid 40%, you receive 60% of any profit or incur 60% of any loss on the transaction. You can't say fairer than that, you pays your money and you takes your chance. If Alice, Bill or Charlie pays less than one third they can hardly complain if any capital gain accrues to the benefit of the flatmate who has put more into the deal.

It seems to me that the resulting trust provides the perfect answer to allegations of MPs profiteering from houses and flats bought in their names but at taxpayers' expense. To the extent that an MP makes payments towards the purchase price out of his own resources, it is fair that he should share in the proceeds of any subsequent sale in proportion to his input. If all he has done is live in the place he can have no complaint about those who have paid for it receiving every single penny when it is sold.


Anonymous said...

The law imposes what is known as a resulting trust

Baroness Hale would beg to differ. Though it's still unclear how far that goes beyond cohabiting couples, see Laskar v Laskar

Mark Wadsworth said...

TFB, yet again, Land Value Tax rides to the rescue.

It would keep house prices low and stable (so there would be neither gains nor losses) and no temptation for MPs who all own second and third homes to desperately try to reinflate the house price bubble out of naked self interest (and at huge cost to the productive economy).

In economic terms, you'd own the bricks and mortar and rent the location from society in general, i.e the society that creates the location value in the first place.

TheFatBigot said...

Mr Mous, I chose "resulting trust" rather than "implied, constructive or resulting trust" (which, I think, would be the other legally permissible option) because (i) this is not a technical legal blog so I wanted to keep things uncomplicated and (ii) in the context of an "employer" (yes, I know that's not strictly accurate) paying for a house for an "employee" I think it is accurate in law.

I'm a great fan of Baroness Hale and Stack v Dowden is one of her finest moments. In para 69 of her speech I think she vindicates my use of "resulting trust" in this context. Lord Walker might disagree (see paras 31-32 of his speech), but I can claim the support of Lord Neuberger (paras 106 and 117).

Dan said...

Perhaps a better solution would be to do what the FCO does for its officers posted abroad: maintain a stable of appropriate houses owned and maintained by the Crown and let MPs whose constituencies are an uncommutable distance from Westminster live in them while they are serving Members.

This way MPs don't have to faff around with expenses and the taxpayers' money used to buy and maintain the properties goes into a tangible asset with a (potential) return rather than disappearing into the black hole of MPs' own pockets.

Pete said...

"The honest ones will donate them to a charity shop or pay the Treasury a rough estimate of their value."

I wonder if this has happened in recent times...

Pete said...

Via Guido:
...MP who boasted he had 400,000 airmiles as a result of junkets and wouldn’t have to pay for his family holiday.

Don't miss a trick, do they?

(If they worked as hard for us as they do for themselves maybe we wouldn't be in quite as bad a situation...)

TheFatBigot said...

Fine idea, Mr Dan.

Mr Pete, I don't know whether any have paid for cutlery and the fluffy drip-collecting mat around the loo in recent times, but it wouldn't surprise me if some have. It rings a vague bell that a displaced old Tory sold the stuff from his London flat in 1997 and gave the proceeds to charity, somehow I doubt he also gave the flat away.

I also saw that report from Guido. It's really quite depressing to know they think in that way. Since he, presumably, ran up the air miles in his official capacity one might have thought it appropriate to use them on future official flights. But no. Oink oink.