Flipping (United Kingdom)

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Flipping
Location: United Kingdom
UnitedKingdom map.png
Author: Jonathan Webb
Affiliation: University of Sheffield

Original Text: Jonathan Webb, University of Sheffield

In the context of UK politics, ‘flipping’ refers to the practice of MPs manipulating the classification of their second home to maximise their parliamentary allowance. By designating a property as a second home, money can be claimed for it through Parliament’s Additional Costs Allowance (ACA) system, which allows second homes to be financed and renovated through the expenses system. The system also exempts second home sales from capital gains tax. In cases of ‘flipping’, an MP changes which of their homes is registered as their official ‘second home’ with the apparent aim of maximising financial gain.

The etymology of the term ‘flipping’ is the English language verb ‘flip’, which can mean to put something into motion, and also to turn something over (Oxford English Dictionary 2015)[1]. This second meaning is implied in the practice of flipping because MPs changed, or ‘flipped’, the status of a particular home for the purpose of claiming expenses. Flipping also has a specific business definition and refers to the practice of purchasing an asset with the intent of quickly reselling the asset at a higher price (Ii, Hollans, and Swidler 2009: 249)[2]. This definition is relevant to the accusations levelled at some MPs, who were alleged to have made substantial profit by selling taxpayer-funded second homes at the market rate and exempting any profit from capital gains tax.

Photograph showing a satirical effigy representing the expenses scandal being paraded at Lewes Guy Fawkes night. Artist: Peter Trimming

The practice of flipping came to prominence with the so-called ‘expenses scandal’ that broke in 2009. The Daily Telegraph first brought the expenses scandal into the public eye and in doing so, focussed heavily on flipping as one of the most financially significant and unethical abuses of the parliamentary expenses system (Daily Telegraph 2009)[3]. As the expenses scandal gained public notoriety by mid-2009, particular attention was placed on flipping as one of the most deviant abuses of the expenses system. Many high-profile MPs including cabinet ministers were accused of flipping. Perhaps the most high-profile resignation to result from the scandal was that of the Secretary for Communities and Local Government, Hazel Blears. Blears brought a property in Kensington, London that was sold after four months at a profit of £45,000 (BBC 2009)[4]. Because the property was designated as a second home, it was exempt from capital gains tax and mortgage repayments, leading to widespread criticism that the property had been bought with the intention of making a profit by ‘flipping’ it under the second home allowances system.

A nuanced analysis of parliamentary procedure is necessary to understand how and why flipping has developed as an informal practice. MPs did not receive any kind of pay or allowances until 1911, since historically parliamentarians were from the upper classes of society: they viewed their position as a civic duty and were opposed to sullying their work with the application of a formal salary (Kelso 2009: 330)[5]. The payment of an ‘allowance’ (a fixed sum that was effectively a salary) began in 1911, and enabled increasing numbers of non-aristocratic Members to enter parliament. In 2015, an MP’s salary was £74,000 (Independent Parliamentary Standards Authority 2015)[6] – significantly higher than the average UK salary, but significantly lower than that of many senior civil servants and comparable professionals. The Additional Costs Allowance (ACA) was introduced in 1972, to cover the additional accommodation expenses incurred by MPs with constituencies outside of London when sitting for long hours in Parliament. From 1985, MPs could claim for mortgage repayments under the ACA, which soon gave rise to the phenomenon of MPs outside of London owning properties substantially paid for through public funds (Kelso 2009: 331)[7]. By 2009, the funds that could be drawn on to support second homes stood at £24,222 per annum and included mortgage interest payments, furniture, fixtures and utility bills.

As the allowance system relied heavily on trust and was subject to light auditing, it became easy to systematically abuse the system. A weak system of auditing in combination with the comparatively low rate of pay offered to MPs resulted in many MPs viewing the expenses system as a supplement to their salary. Consequently, allowances were understood as an entitlement and MPs sought to gain financially from practices such as flipping. While the media has widely represented flipping as a ‘corrupt’ practice, many MPs believed their behaviour was legitimate within the context of Parliamentary culture (Kelso 2009: 330–331)[8].

In spite of the complex systemic origin of flipping, the British media has overwhelmingly portrayed the practice as unethical and even immoral, with little attention given to the institutional mechanisms that have allowed MPs to take advantage of the system. Although the practice is technically legal and within Parliamentary rules, it is commonly presented as a form of corruption. The issue of flipping has further been problematised in the context of a perceived decline in the integrity of British politics (see also entry on Cash-for-access in this volume). In 2015 public trust in politicians stood at just 22 per cent and at the height of the expenses scandal it reached an all-time low of 13 per cent (IPSOS Mori 2015a)[9].

Few solutions to eliminate the practice of flipping have been presented, despite an extensive review of the Parliamentary expenses system being promised. To reduce the occurrence of flipping, one solution may lie in recognising the resources needed by MPs to serve in a modern democracy, as well as the salaries typically available to such individuals in other professions. By failing to significantly provide these resources on a personal level through a competitive salary and attempting to supplement pay through a poorly regulated expenses scheme, flipping became a parliamentary norm (Kelso 2009: 335)[10]. As a consequence, a review has recommended that the salaries of MPs increase whilst the existing expenses system is much more tightly regulated (Independent Parliamentary Standards Authority 2015)[11]. However, increasing MPs’ salaries is also unpopular with the public. In 2015, 72 per cent of people thought that MPs should refuse the 10 per cent pay increase that had been recommended by the Independent Parliamentary Standards Authority (IPSOS Mori 2015b)[12].

Although a reform process of the expenses system is taking place that may curb the continued occurrence of flipping, the damage done to Parliament’s reputation by the practice may be difficult to repair. Understanding the institutional dynamics that caused flipping to emerge is necessary to explain its occurrence and provide solutions for preventing further abuse of the Parliamentary allowance system.

Notes

  1. Oxford English Dictionary. 2015. ‘Flip, v.’ OED Online. Oxford University Press. Accessed December 30. http://www.oed.com/view/Entry/71654#eid4108895.
  2. Ii, Craig A. Depken, Harris Hollans, and Steve Swidler. 2009. ‘An Empirical Analysis of Residential Property Flipping’. The Journal of Real Estate Finance and Economics 39 (3): 248–63. doi:10.1007/s11146-009-9181-3.
  3. The Daily Telepgraph. 2009. ‘MPs’ Expenses: Six Figure Profits from Sale of Taxpayer-Subsidised Homes’. December 13. http://www.telegraph.co.uk/news/newstopics/mps-expenses/6797620/MPs-expenses-six-figure-profits-from-sale-of-taxpayer-subsidised-homes.html.
  4. BBC. 2009. ‘Blears Will Pay Tax on Flat Sale’, May 12, sec. Politics. http://news.bbc.co.uk/1/hi/uk_politics/8047005.stm.
  5. Kelso, Alexandra. 2009. ‘Parliament on Its Knees: MPs’ Expenses and the Crisis of Transparency at Westminster’. The Political Quarterly 80 (3): 329–38. doi:10.1111/j.1467-923X.2009.02005.x.
  6. Independent Parliamentary Standards Authority. 2015. ‘MPs' pay in the 2015 Parliament. Final report’. http://parliamentarystandards.org.uk/payandpensions/Pages/default.aspx.
  7. Kelso, Alexandra. 2009. ‘Parliament on Its Knees: MPs’ Expenses and the Crisis of Transparency at Westminster’. The Political Quarterly 80 (3): 329–38. doi:10.1111/j.1467-923X.2009.02005.x.
  8. Kelso, Alexandra. 2009. ‘Parliament on Its Knees: MPs’ Expenses and the Crisis of Transparency at Westminster’. The Political Quarterly 80 (3): 329–38. doi:10.1111/j.1467-923X.2009.02005.x.
  9. IPSOS Mori. 2015a. ‘Politicians Trusted Less than Estate Agents, Bankers and Journalists’, 5 January, https://www.ipsos-mori.com/researchpublications/researcharchive/3504/Politicians-trusted-less-than-estate-agents-bankers-and-journalists.aspx
  10. Kelso, Alexandra. 2009. ‘Parliament on Its Knees: MPs’ Expenses and the Crisis of Transparency at Westminster’. The Political Quarterly 80 (3): 329–38. doi:10.1111/j.1467-923X.2009.02005.x.
  11. Independent Parliamentary Standards Authority. 2015. ‘MPs' pay in the 2015 Parliament. Final report’. http://parliamentarystandards.org.uk/payandpensions/Pages/default.aspx.
  12. IPSOS Mori. 2015b. 'Most believe MPs should refuse 10% pay rise recommended by IPSA', 22 June, https://www.ipsosmori.com/researchpublications/researcharchive/3590/Most-believe-MPs-should-refuse-10-pay-rise-recommended-by-IPSA.aspx