02.04.2008  Ministry of Truth

Since, at least, 1997, when flights were provided to Peter Lilley in support of his campaign to replace John Major as leader of the Conservative Party, a small number of Conservative MPs have had the benefit of having flights, taken as part of overseas visits, by a Bermuda registered company called Flying Lion Ltd.

Flying Lion, which actually operates out of Boca Raton, Florida, is owned by Lord Ashcroft, who was formerly the Conservative Party’s treasurer and who now holds the position of deputy vice-chairman.

Ashcroft is one of the Conservative Party’s major funders, with Electoral Commission records showing donations, since 2002, of £3,441,689.44, the majority of which were made via Bearwood Corporate Services. Ashcroft also loaned the Conservative Party £3.6 million in January 2006, a loan which has since been repaid.

Electoral Commission records show the value of donated flights provided by Flying Lion to be £175,460.04, however calculations of the actual costs of these flights, which have been provided to seven Conservative MPs including David Cameron, William Hague and Caroline Spelman, show the true value to be in the region of £787,000, amounting to an undeclared subsidy of £611,000 on flights provided by Lord Ashcroft.

Calculations

The estimated cost of each flight is made up of two components.

Variable costs – these are calculated on the basis of cost per flight hour and include fuel, routine maintenance, engine insurance, etc.

Fuel costs have been calculated for each flight using the spot price of a gallon of aviation fuel on the New York derivatives market for the week in which the flight took place. To get an estimated retail price, a mark up of 100% has been applied to the spot price to reflect the costs of distribution and retail/wholesale margins applied by suppliers – this gives a very conservative estimate of the retail price per gallon as, based on current data, the typical mark up on jet fuel is in the region of 125%-150%

Other variable costs are based on data provided by this profile of the jet used by Flying Lion, a Dassault Falcon 900EX, which estimates the non-fuel variable costs for this jet as being in the region of $1000-$1100 per flight hour. For these calculations, the lower figure ($1000 per hour) has been taken as the current (2008) cost and estimated costs for previous years have been extrapolated backwards, deducting 5% of the cost for each year to allow for inflation. Again, this is generous in relation to actual inflation rates in the UK and US over this period, giving a very conservative estimate of cost.

The cost per flight hour is, then, multiplied by the estimated flying time for each flight/trip, using the most direct route, to give the total variable cost for each flight.

Fixed costs – these include salaries for flight crew and maintenance technicians, charts, hanger costs, liability insurance and maintenance of the hull, etc.

The same profile used above estimates the annual fixed costs relating to this jet to be somewhere between $516,000 and $733,000 and, again, the lowest figure has been taken as the 008 figure and extrapolated backwards for each preceding year by allowing for an inflation rate of 5%. Finally the annual cost has been divided by 365 to give a daily fixed cost rate, which is applied to each flight/trip according to its recorded duration.

Finally, flight costs in Dollars have been converted to Sterling using the exchange rate at the date of the start of the visit.

The Data

Since 2002, six Conservative MPs have received donations of flights provided by Flying Lion; William Hague (8 visits), Michael Ancram (9 visits), Andrew Mitchell (11 visits), Caroline Spelman (2 visits), Mark Simmonds (1 visit), Richard Spring (1 visit). There were, in addition, two visits recorded as donations to the Conservative Party, both of which related to official visits undertaken by David Cameron as leader of the Conservative Party. One five occasions, two of the above MPs took part in the same trip and for each of these occasions the total cost of the flight(s) has been divided equally between the two.

The total number of visits undertaken by Conservative MPs for which flights were provided by Flying Lion is, therefore, twenty seven, giving a total mileage of 223,000 miles. Three of these visits, two by William Hague (to Prague and to Pakistan and Bahrain) and one by Michael Ancram (to Sudan) appear not to have been registered with the Electoral Commission, even though these all took place in 2006. On one occasion, Andrew Mitchell was accompanied on a visit to Africa by an employee, Jessica Lever, who also received flights from Flying Lion, which one would assume to be incorporated in Mr Mitchell’s entry for that particular trip.

The table below gives a summary, by MP, of the number of visits, the total value of donations recorded for each MPs visits and the total actual cost for each MP of the flights provided by Flying Lion – figures in bracket gives the number of visits taken individually. (See attached document)

Sample Calculation

In July 2006, Andrew Mitchell made a two day visit to Dhaka, Bangladesh – a two-way distance of 9960 miles – with flights provided by Flying Lion, for which he recorded a donation to the value of £5,366. The estimated flight time for a return trip to Dhaka is 33.2 hours.

The cost of aviation fuel at the time was $4.34 per gallon and the Falcon 900EX uses 308 gallons per hour when in flight, giving an estimated fuel cost per hour of $1336.72. Other variable costs for 2006 are estimated at $907 per hour, giving at total cost per flight hour of $2.243.72.

Fixed costs for 2006 are estimated to be $1283 per day.

For Mitchell’s two day trip, these figures give a total variable cost of $74,491.50 plus fixed costs of $2566, giving a total cost of $77,057.50.

The exchange rate at the time was 0.549 pounds sterling to the dollar, giving a total cost for the flight of £42,304.57 and a discrepancy in the amount recorded on the Electoral Commission’s register of donations to regulated donees of £36,938.57.

A complete breakdown of all visits, showing individual donations and costs can be obtained by emailing me at talkpoliticsuk[at]gmail[dot]com.

What The Law Says.

The regulations covering donations to individuals are contained in schedule 7 of PPERA 2000 and are somewhat unclear in relation to overseas visits.

For non-cash donations of goods and services the rules are straightforward; these must be recorded at their market value and where an MP pays for an item or service but receives a discounted price, the difference between the discounted price for the item/service and its market value must be recorded as a donation.

For overseas visits, the law states that MPs should, if they do not receive a cash donation to cover the cost of a visit, they should calculate a notional value for the trip based on the equivalent commercial cost of travel, etc. It is this use of ‘equivalent commercial cost’ which is being exploited to hide the true extent to which Lord Ashcroft has been subsidising these flights because the Conservative Party has taken ‘commercial value’ to mean the equivalent cost of scheduled first class or business class flights to and from their destination, even though this bears no relation to the actual costs incurred by Flying Lion when providing these flights or the costs of a private charter flight, which would be the true equivalent of the flights provided by Ashcroft. A revaluation of the flights at commercial charter prices would double the value of the donated flights received from Flying Lion Ltd, giving a total value of around £1.56 million and a discrepancy in reporting of just shy of £1.4 million.

Have the Conservative Party broken the law?

It is difficult to say for sure as the guidance on the recording of overseas visits is far from clear.

They have certain exploited uncertainties in the law to effectively conceal the true value of flights donated by Flying Lion Ltd (i.e. Lord Ashcroft) although whether that is by deliberate design or simple omission is unclear. My view is that it is likely that the MPs in question have not been provided with the actual costs of these flights by Flying Lion Ltd and have resorted, instead, to citing the costs of scheduled flights so as to be in a position to record something in the Electoral Commission’s register, even if this bears little or no relationship to the actual cost of these flights.

This view is supported by correspondence, released under FOIA, between Andrew Mitchell and the Electoral Commission relating to a visit to Uganda in 2005 in which Mitchell responds to a request for the cost of the flight by stating:

Thank you [Electoral Commission] for your letter dated 1 July 2005. The easiest way to cost the flight to Uganda provided by Flying Lion Ltd would be to take the cost of a first class flight. We have checked what the cost would be under Emirates; this would be £2,667 return per passenger.

This may be the easiest way, but it is far from being an accurate reflection of either the costs incurred by Flying Lion, which have been calculated as having been £28,595.63, or the cost of a commercial charter by private jet, which would have been closer to £60,000.

At the very least, therefore, the fault lies with Flying Lion Ltd insofar as it seems reasonable to assume that it has failed to provide MPs with the information necessary to accurately record the value of its donated services. One cannot, however, rule out the possibility that MPs have been specifically advised to cite the costs of scheduled commercial travel in lieu of the actual costs of these flights and this is one area that the Electoral Commission should investigate given the size of the discrepancies in reporting involved.

What happens next?

So far as I am aware, concerns over the reporting of the value of these donated flights have been raised with the Electoral Commission, and this information, together with the detailed calculations of costs per flight, will be forwarded to the MP in question, and to the Electoral Commission, to assist them in reviewing this matter.

There is, in addition, the matter of three flights, dating from 2006, which do not appear to have been registered with the Electoral Commission, two of which certainly should have been registered long before now as there is no possibility that flights in question, a return flight to the Sudan and a visit entailing flights from London to Pakistan and Pakistan to Bahrain, could have been valued at less than the £1,000 limit at which donations have to be registered with the Electoral Commission. The third visit, by William Hague to Prague, is slightly more questionable as the value of a scheduled business class return flight would have come in under the £1,000 limit. However, as with the other flights, the cost of such a scheduled flight is some considerable distance short of the costs incurred by Flying Lion in providing the flight, which would have been £5,742.49.

Conclusion

There is clearly a serious problem with the current regulations regarding the donation of flights for overseas visits as these current appear to permit flights using private jets to be registered at less than a fifth of the actual cost of the flight and at around a tenth of the commercial value of an equivalent private charter.

If the Electoral Commission is serious about enforcing transparency and openness in political funding then it needs to revise its guidance to specify the precise meaning of ‘equivalent commercial value’ in relation to flights made using private jets and review the valuations of donations already recorded on its registers, revising the value of these flight upwards to reflect, at least, the actual cost of providing each flight.

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