Ken in line for £30,000 tax-free bonus

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The Greater London Authority recently rubber-stamped a "resettlement" package of a 50 per cent pay-off should Londoners sack Mr Livingstone on 1 May.

Now the Treasury has enhanced the pay-off calculated on the Mayor's near-138,000 package by ruling that the first £30,000 of his pay-off will be tax-exempt.

The improved terms were immediately attacked by rival Brian Paddick. "It's nice to see Labour looking after its own," said the Liberal Democrat candidate.

Pay-offs for elected representatives are a little-known perk and the Mayor's redundancy package is significantly more generous than those for MPs and ministers.

While MPs on £63,000 a year are entitled to negotiable "resettlement allowances", ministers get three months pay. Thus a £135,000-a-year minister would get around £35,000 when voted out.

Most of that would be tax-free because Revenue & Customs rules dictate that the first £30,000 of a redundancy payment should be tax-exempt. But hidden away in the Revenue & Customs notes after yesterday's Budget is a ruling that the Mayor and the GLA will be brought under the same regime for the first time.

The note said: "Legislation will be introduced in Finance Bill 2008 to ensure that payments under the new GLA severance pay scheme will be tax-exempt up to the first £30,000 thereby bringing their tax treatment into line with that of payments under similar schemes for Westminster MPs and members of the devolved administrations."

Tax experts said the ruling sorted out an obvious anomaly. "Depending on your viewpoint it could be the best use of £30,000 of taxpayers' money this year," said a leading tax adviser.