Birmingham MP and Government Minister Sion Simon is to repay up to £21,000 to the House of Commons after admitting he used his allowance to rent a flat from his sister.
Mr Simon (Lab Erdington), the Minister for Creative Industries, rented the London property for four years, at a cost of £1,000 a month to the taxpayer.
But he is only repaying part of the cost - because the rules did not always ban MPs from renting property from relatives.
The MP insisted he had paid a standard commercial rent, and the cost to the taxpayer was the same as if he had rented from anyone else.
Mr Simon stayed in the flat from 2003 until the end of 2007 and used the Additional Cost Allowance, which is provided to all MPs outside London, to reclaim the cost of rent.
There were no rules banning MPs from renting property from relatives when the arrangement began.
However, in April 2006 the Commons authorities published new guidelines, which stated: “Additional Cost Allowance must not be used to meet the costs of a mortgage or for leasing accommodation from: yourself; a close business associate or any organisation or company in which you - or a partner or family member - have an interest; or a partner or family member.”
Mr Simon said he was not aware of the change, and continued to rent the property until December 2007.
He has also been told there were no problems with his expenses by Sir Thomas Legg, the auditor who examined claims made by every MP, dating back to 2004.
But he has now been informed his claims broke Commons rules by The Daily Telegraph, the newspaper which has obtained uncensored copies of MPs’ claims, which include home addresses and rental agreements.
The MP said he would repay all the money he had claimed to rent his sister’s flat after the new rule came in. This is expected to be between £20,000 and £21,000.
Mr Simon said in a statement: “Between 2003 and the end of 2007 I rented a second home in London, costs of which were met by the Parliamentary Additional Cost Allowance. Before entering into this agreement, I sought confirmation in writing from the House authorities that it was proper to rent from my sister.
“They confirmed that, as long as it was a formal written agreement, the arrangement was perfectly in order. Legal rental agreements were supplied to the House authorities for the entire period in question.
“I paid a full commercial rent, the rate of which, £1,000 per calendar month, was set according to independent advice, which rent was declared and on which tax was paid. There was no extra benefit to either party except convenience, nor any additional cost to public funds.
“Today, I was contacted by the Daily Telegraph, who informed me that the rules had changed in April 2006 to exclude the rental of property from family members. Until today, I had no notion that the rules had changed in this way.
“I would have expected that in the case of a rule change which specifically affected me like this I would have been notified. I received no such specific notification and the arrangement continued until December 2007, when I moved out.
“At all times I have acted wholly transparently and in good faith. Nevertheless, now that I have been made aware of the April 06 rule change, I accept full responsibility and apologise unreservedly. I intend to agree with the House authorities a schedule for repayment of rent claimed between then and December 07.
“I am issuing this statement to the Birmingham Post and Mail now, in advance of the Daily Telegraph’s publication, because it is the opinions of my constituents and fellow citizens in Birmingham which matter to me.”