Flipping outrage! Scandal of second homes is swept under carpet

On Wednesday, Harriet Harman will announce to the Commons the reforms that Gordon Brown, David Cameron and hundreds of other MPs hope will bring an end to the outcry over MPs' expenses.

The details of the reforms, by the standards watchdog Sir Christopher Kelly, have been widely leaked: bans on MPs claiming for second homes less than 60 minutes from Westminster, on claiming mortgage interest, on £64,000 "golden parachutes" and on employing relatives. While MPs remain angry that the Kelly review has, in their eyes, gone too far and is too punishing, they hope it will mark the final chapter in the expenses saga.

Yet one of the most serious and widespread abuses of the system – known as "flipping" – has been swept under the carpet. It is not expected to feature in the Kelly review, because his reforms will not be applied retrospectively, meaning all "flippers" will escape censure. Sir Thomas Legg's report into expenses last month, even though it enjoyed the power to punish past sins, also steered clear of the practice. A separate investigation into flipping was blocked last week by the Speaker, John Bercow – who himself happens to be a "flipper".

At every turn, the wide-reaching reforms that the public was promised have steered clear of this attempt to play the system. Instead, they have focused on the trivia of claims for Kit-Kats and tins of dog food, critics say.

In fact, it emerged that Sir Christopher's reforms could allow existing MPs to carry on flipping for up to five years, because his new rules on banning mortgage interest claims – which restrict MPs from playing the property market – will be phased in over that period.

The Liberal Democrat leader, Nick Clegg, and a senior member of the Commons standards committee yesterday demanded that action be taken against MPs who have profited from the lax rules on second homes that allowed flipping to take place.

Conspicuously, both Mr Brown and Mr Cameron, while calling on their MPs to accept the "tough measures" of the Kelly review, have remained silent on the flipping scandal. Insiders who have been involved in the Westminster clean-up point out that there are high-profile Labour and Conservative MPs, including senior frontbenchers, who have flipped their second homes, claiming tens of thousands of pounds in the process, among them Alistair Darling and George Osborne.

Future flipping will effectively be outlawed because claims for mortgage interest on second homes will be banned by Sir Christopher. This will force many MPs into rental accommodation. But, crucially, the measure is being phased in over five years for existing MPs.

At the same time, Revenue & Customs officials are looking at the cases of 27 MPs who avoided capital gains tax in their expenses claims.

Mr Clegg said yesterday: "Serial flipping for personal gain and avoiding capital gains tax were by far the largest abuse of the system. Unless there is a clean-up of these past abuses there will always be a stench of double standards around the whole expenses scandal."

Meanwhile, Elfyn Llwyd, a member of the standards and privileges committee and leader of Plaid Cymru's MPs in Westminster, said he believed that "three or four" MPs would face criminal prosecution for expenses misdemeanours, over and above the ones who claimed "phantom mortgages" – loans that never existed.

Mr Llwyd refused to give further details, but said there were "several aspects" that could warrant prosecution or penalty, and the police could move "within months". However, this would not include flipping, because this was within parliamentary rules and no apparent law has been broken. "I believe there will be prosecutions," he said yesterday. "They may end up with quite severe penalties."

Mr Llwyd also called for a probe into the flipping scandal. He said: "Legg and Kelly have focused on a lot of minutiae, but the biggest abuses of all have been on flipping. No one seems to bother very much about it, which is a very strange sort of affair. I cannot explain it. Running after a tin of cat food is one thing, but allowing someone to get away with flipping to the tune of tens of thousands of pounds is another."

Changing the designation of a second home allows an MP to claim up to £24,000 in expenses for mortgage interest and the cost of furnishing and renovating more than one property. Some MPs also flipped in order to avoid paying capital gains tax, which applies to the sale of second homes. Hazel Blears, who resigned as Communities Secretary in June after being criticised by the Prime Minister over her expenses, is one of the highest-profile flippers.

In 2004, she claimed second-home expenses on three different properties: a home in her Salford constituency and two flats in London. Ms Blears owned one of the flats, in Kennington, for four months before selling up, making £45,000 in profit and escaping capital gains tax. She has always insisted she was not liable for the tax but was one of the first MPs to repay money – more than £13,000.

The Chancellor nominated three separate properties as his second home within the space of four years. Mr Darling claimed £9,837 in second-home allowances in 2007-08, the latest year for which figures are available. In 2004, he nominated his Edinburgh townhouse as his second home, before "flipping" to a flat in south London in 2005.

In 2007, after becoming Chancellor, his second home was designated as Downing Street. In 2008, he "flipped" again – naming the Edinburgh flat once again as his second home. He also claimed £2,260 for the payment of stamp duty on a new flat.

Last month Mr Darling said that he would return £554 claimed for a chest of drawers to furnish his second home after Sir Thomas imposed a limit on items of furniture.

Mr Bercow – who pledged a fresh start when he was elected Speaker in June – last week rejected a call by Mr Clegg for auditors to investigate flipping. He said it would require "significant retrospective changes to the rules", while a spokesman said redesignation of second homes was "explicitly permitted under the rules".

Mr Bercow flipped his second home designation in 2003, from his constituency in Buckingham to London. This year he flipped back to his Buckingham home. Mr Bercow has insisted the moves were due to changes in family circumstances. He did not pay capital gains tax when he sold his London flat and constituency home in 2003. Mr Bercow insisted his accountant said he was not liable for CGT, but he has agreed to pay back £6,500.

Mr Osborne, the shadow Chancellor, has been accused of flipping his second home from London to a house in his Cheshire constituency. In 2001, he designated the London house as his second home after being told to do so by the Commons Fees Office. In 2003, he flipped the second-home status to Cheshire. The shadow Schools Secretary, Michael Gove, claimed money for his home in London before he changed the second-home designation to a property in his Surrey constituency, for which he claimed £13,000.

The Labour MP for Luton South, Margaret Moran, who is standing down at the election, flipped her designated home three times – first claiming for a flat near Westminster, then for a property in her constituency and finally a home 100 miles away. It was at this third property that she claimed £22,500 for dry rot treatment, in what became one of the most notorious expense claims of the scandal.

All MPs involved in flipping have denied wrongdoing.

George Osborne

Two properties in two years

In 2001 designated London house as second home after being told to by the Commons Fees Office. In 2003, flipped the second-home status to Cheshire

Alistair Darling

Four properties in three years

In 2004, the Chancellor rented a London flat while claiming second-home expenses on his home in Edinburgh. In 2005, he flipped to a flat he bought in south London. In 2007, he called 11 Downing Street his second home, but switched back to Edinburgh

John Bercow

Two properties in a year

Buckingham's Tory MP and current Speaker of the House swapped the designation of his main home between London and Buckingham twice in 2003, to avoid CGT

Hazel Blears

Three properties in one year

The former communities secretary emerged as a serial flipper, switching between her various London and Salford homes

David Chaytor

Seven properties in five years

The Labour MP for Bury North switched between properties in Vauxhall and Westminster in London and a house in Yorkshire, where the council tax was registered in his son's name

Stephen Crabb

Three properties in four years

The Conservative MP for Preseli Pembrokeshire initially designated his flat in London, which he later sold, only to switch designation to his family house in Pembrokeshire before switching back to a new London flat

Keith Vaz

Three properties in one year

Labour's MP for Leicester designated a flat in Westminster as his second home, despite his main home being in north London. He later switched to Leicester and then back to London

Margaret Moran

Three properties in four years

The Labour Luton South MP began in Westminster, switched to Luton, then to Southampton, where she claimed £22,500 for dry rot

Geoff Hoon

Two properties in a year

Until 2006 the former defence secretary designated a house in his constituency as his second home while living rent-free in Admiralty Arch

John Redwood

Three properties in five years

The Tory MP changed his designation three times: from London to his Berkshire constituency and back again to London.

Mr Redwood did not sell any property that he claimed for, nor did he claim first home exemption from Capital Gains Tax.