MPs are allowed to keep their families on the payroll

MPs will still be allowed to employ family members under their new expenses system after initial proposals to outlaw the practice were thrown out, it has emerged.

Much of the new Commons expenses regime, outlined by the Independent Parliamentary Standards Authority (Ipsa) yesterday, was tougher than expected and will see the maximum amount handed to MPs slashed by almost a third. Those needing second homes will be forced to move into rented, one-bedroom flats, while no expenses will ever be paid out without a receipt. "No ticket, no laundry," said Ipsa's chairman, Sir Ian Kennedy.

But the key concession to allow the employment of wives and children, described as "connected parties" under the new rules, was immediately criticised by both Sir Christopher Kelly, who conducted the wide-ranging review of the old system in the wake of the expenses scandal, and the Commons Speaker, John Bercow.

The decision also ignored Ipsa's own consultation on the issue, in which 59 per cent of public responses demanded a ban on the employment of family members, with only 22 per cent backing the practice. But Sir Ian, who was lobbied by MPs, said Ipsa had been convinced by the "quality" rather than the "quantity" of responses. Last night, Sir Christopher branded the U-turn on employing wives and children as "a mistake" that should be reversed as soon as possible. "We took the view that the important thing was that the new expenses scheme should be beyond any suspicion of abuse and that meant that family members should no longer be employed," Sir Christopher said. All three main party leaders had backed Sir Christopher's proposals.

Damaging revelations about the employment of family members played a key part in the erosion of trust in Westminster after an MP was found to have paid his children for doing very little work. Derek Conway, the MP for Old Bexley and Sidcup, was thrown out of the Conservative Party and told to pay back almost £4,000 in money wrongly paid to his eldest son, Henry.

Documents published yesterday showed how MPs convinced Ipsa not to back a ban. Tom Levitt, Labour MP for High Peak, said: "We are being asked to identify the longest-serving, most loyal, most sympathetic, most flexible members of our staff, who are most likely to work extra hours for nothing – and sack them." Sally Hammond, who works for her Conservative MP husband Stephen, wrote: "The job of an MP is not just a job but is a lifestyle."

Reforms designed to convince a disillusioned electorate that MPs will now be treated like any other employee include the banning of first-class train travel and the scrapping of a "golden goodbye" payment of up to £64,000 for those voted out of office. However, Sir Ian said he would look at the "resettlement grant" afresh if Ipsa was given control of MPs' pay. Only MPs whose constituencies are more than 20 miles or an hour's commute from Westminster can claim for a rented London property, ruling out 128 from taking up a second home. MPs will no longer be able to claim mortgage payments for second homes nor profit from the sale of those properties.

Instead, those entitled to rented accommodation will be forced to use one-bedroom flats, meaning many will have to downsize to meet the new rules. Many will sell their second homes rather than pay the mortgage themselves, much sooner than expected after the proposed five-year transition period to rented second homes was slashed to just two years. Profits from any house sales will be recouped by the taxpayer, although that mechanism has not been decided.

The maximum available for the office costs and accommodation of MPs outside London will be slashed by £16,000 a year, from £56,915 to £40,957. Those with constituencies within the capital will see a £13,000 cut, from £40,192 to £26,915. From June, all expenses requests from MPs will be posted online, together with Ipsa's response. "Never again will the public be prevented from seeing how their money is being spent by those they elect to represent them," Sir Ian said.

For MPs or candidates with young children or major caring responsibilities, extra help will be given if they prove they need additional support.

The new regime: Claims restrictions

*A total ban on the purchase of tax-payer funded second homes. MPs entitled to extra accommodation will only be able to claim £1,450 a month in rent, equivalent to a one-bedroom flat.

*MPs currently claiming for mortgage repayments will have to find rented accommodation within two years, much sooner than the five-year transition period originally proposed.

*Only MPs whose constituencies are more than 20 miles or an hour's commute from Westminster can claim for a rented London property. This will exclude 128 MPs from claiming for an extra property.

*MPs will be permitted to employ one family member, or "connected party". The rule will also apply to anyone co-habiting with an MP and their family, as well as any financial partners.

*The "golden goodbye" payment of up to £64,000 will be abolished, although the issue will be revisited if Ipsa is given control of MPs' pay. The costs of winding up an office will be granted, but only for two months.

*Receipts will be required for all expenses claims. MPs will be allowed to claim up to £15 for an evening meal, if the Commons sits beyond 7.30pm.

*MPs will have to pay for their own daily commute, but can claim for standard class travel between London and their constituency.

*In the future, no MP will be allowed to profit from the sale of a home bought with taxpayers' money. The money will be recouped, although the exact mechanism for this has not been finalised.

*To ensure that no one is barred from running for office, any MPs caring for children under five, single parents, or those caring for a disabled adult, will be given extra help.

*All expenses claims will be published online, together with Ipsa's response to them, on a weekly basis. The first expenses will be paid from June.

*Any MPs with a publicly-owned grace and favour property will be barred from claiming for a second home.