Paper spent £150,000 to buy damning dossier

On a quiet Wednesday afternoon in March three journalists from a national newspaper took a taxi from their offices in the House of Commons to a small city public relations firm.

They were following up on a phone call, from out of the blue, offering to put them in touch with a businessman who said he had access to explosive information on the vast expenses claimed by MPs. The businessman, they were told, was acting on behalf of a mole in the Parliamentary fees office, who had a disk containing the uncensored receipts of all 646 MPs, including spurious and outrageous claims from all parties. He wanted the information to be leaked, his PR agent said, because the public needed to know the truth.

It was a tantalising offer. During the 30-minute meeting with the businessman he said he could offer CD-Rom discs containing the complete scans of every MP's receipts, dating back five years. The receipts would include information about MPs' home addresses and where they bought their goods and services. He added that he had taken legal advice over the matter, and had been reassured that he was acting within the law and was not committing any criminal offense.

But it also became clear that besides the public interest the businessman had another more pressing and base motive: money. The price for the documents was £300,000, including £250,000 for the data, £50,000 for "analysing it" and a guarantee of complete legal indemnity. The reporters telephoned the paper's lawyers and editor who rejected the idea of paying anything for the disks and the meeting was terminated.

But others were not so picky. Eleven days later copies of Jacqui Smith's expense receipts were published in Sunday Express. They revealed that Ms Smith had used Commons expenses to reclaim the cost of two pornographic films watched by her husband as part of a £67 Virgin media bill. A handwritten receipt also showed that she had claimed for an 85p bath plug. They clearly had also met the businessman.

The Express revelations also prompted other papers to start investigating the source of the documents. One tabloid struck an initial deal to buy the receipts of a number of named high profile MPs for around £50,000 but the deal came unstuck when they saw the material – they didn't think it was sensational enough.

But The Daily Telegraph did not take that view and by the time they got into negotiations the price had dropped. The paper refuses to say how much it paid for the haul, or indeed whether it paid for the receipts at all. However it is believed the paper paid around £150,000 for the complete dossier.

Yesterday, MPs were bracing themselves for what one called a "couple of months of painful catharsis" as details of the expenses are slowly released by the newspaper. "There are a few people sitting nervously," said another. "The worst thing is the slow drip, drip of stories to come."

There was a growing chorus of backbenchers calling for the parliamentary authorities to "bite the bullet" and publish all the receipts now to spare them from spending the coming days wondering if they would be next in line to have their dirty linen, paid for by the nation, paraded in public.

Data protection has also become an issue. Several members of Parliament are deeply concerned that their personal information is now at risk as the Telegraph has the unredacted version of the receipts, with addresses and other personal details clearly visible. The information was due to be blacked out when the records were released in July.

The Commons authorities say that they have a "pretty good idea" of how the security of the receipts was compromised, but as for the identity of the mole who stole the information, little is known.

Suspicions are that the person who took the disk may have been an outside IT employee, working for the fees office under contract. The disk seems to have been duplicated without the knowledge of officials within the office. That could be a criminal offence and now the police have launched an investigation the story of the story is also likely to run and run.

Creative claims: How MPs milk the system

*"Flipping" the address of their designated second home allows MPs to first force taxpayers to foot the bill of refurbishing their constituency home, then make them pick up the tab for improving their London home.

*MPs can improve a property using expenses and sell it at a profit without reimbursing Commons authorities.

*With a large slice of their expenses allowance remaining late in the financial year, MPs can engage in a Spring spending spree to "max out" their permitted spending.

*MPs preparing to step down can make a last-minute profit from the expenses system by ordering improvements to their second home at the taxpayers' expense.

*Hungry Members of Parliament are entitled to claim a monthly food allowance of £400. The perk is available even during the recess.

*Capital gains tax can also be avoided through the expenses system. MPs do this by claiming that their second home is their main home when they come to sell it.

*A larger chunk of their outgoings can be billed to the taxpayer if an MP claims that their family home is actually their second home. Rules state that a second home must be the address where an MP spends the lesser amount of time.

*An MP can pay less council tax on their main home by telling the local council that their family home is actually their second home.

*Until last year, MPs had to submit receipts only for items costing more than £250.

Michael Savage