Electoral Administration Bill

moved Amendment No. 119B:"After Clause 55, insert the following new clause—" ““DEFINITION OF DONATIONS (1)   Section 50(2) of the 2000 Act is amended as follows. (2)   In paragraph (e) after ““than”” insert ““by a bank as part of its business and””. (3)   After paragraph (f) insert— ““(g)   the giving of a guarantee of debt of a registered party.”””” The noble Lord said: We now come to the highly topical subject of undisclosed loans to political parties. I start by making my personal position clear. I have never made a loan to the Liberal Democrat Party, any part of the Liberal Democrat Party or indeed any other political party. This is unnecessary for me to add perhaps: I make donations which bring me above the disclosure limit every year—but not by all that much. Amendment No. 119B makes two simple but important changes to Section 50 of the Political Parties, Elections and Referendums Act 2000, which, for convenience, I will refer to as the 2000 Act. That section defines donations for the purposes of Part 4 of the Act. These amendments were put down by us last week, following the disclosure that 12 supporters had made loans adding up to nearly £14 million to the Labour Party, which were not disclosed because they carried what was said to be ““a commercial rate of interest””, and the disclosure that large loans had also been made to the Conservative Party by supporters who remain unidentified. I should here make it clear that my own party has also received, on a much smaller scale, loans which were not disclosed as such. In the case of the three largest ones, which are the only ones to come anywhere within miles of the smallest of the loans to the Labour Party, interest was waived. The interest foregone exceeded £5,000 per year and was disclosed under the existing law, which enabled of course the approximate amount of the loan to be calculated. It is clear that the receipt of undisclosed loans is a breach of the spirit of the 2000 Act and of the commitment of the Labour Party in its 1997 election manifesto to the:"““Reform of party funding to end sleaze””." These disclosures have triggered a crisis of confidence in the party system. They have also opened up a new debate on the whole subject of party funding. For the first time the Labour Party is prepared to consider, and the Conservatives even to support, changes that have been advocated by the Liberal Democrats for years, such as placing a cap on donations, a further reduction in the cap on national election spending and an increase in the current state funding for political parties. Those broader issues will be referred to the inquiry to be conducted by Sir Hayden Phillips. They could, of course, have been raised in debate on this Bill, but I think it is better to leave those issues to Sir Hayden. They will need fuller debate and analysis than can be had in debating amendments to the Bill. There are, of course, many remaining difficult issues, such as the treatment of political funds of trade unions. The resignation, announced today, of Rod Aldridge as the chairman of Capita, after the disclosure of his £1 million loan to Labour, raises the question of what restrictions ought to be placed on businesses or senior executives of those businesses if they are already providing or considering bidding for services to local and central government. I should add that if the limit on donations were reduced to £50,000, that would probably be unnecessary as £50,000 is not an amount which can buy influence with any major political party. On one issue there seems to be a broad consensus. Treating loans at any rate of interest, or no interest, as donations, and disclosing them in accordance with the rules for disclosure of donations, has now become necessary. In excluding loans in the 2000 Act at commercial rates of interest from the definition of donations, the Government were following the recommendation of the Committee on Standards in Public Life, of which I was a member at the time. I do not in any way seek to blame the Government for accepting those recommendations. In retrospect, we in the Committee on Standards in Public Life were, I fear, somewhat na&-uml;ve in not realising that loans, even if nominally at a commercial rate of interest, could be used to evade the rules of disclosure of donations and should be treated as donations. Loans at a full rate of interest can of course also be used to evade the ban on gifts by individuals not on the electoral register or companies not carrying on business in the United Kingdom which are not, under the 2000 Act, permissible donors. We are therefore anxious to find out whether any such loans were made to the Conservatives. It is obvious that people do not lend money to political parties because they think it is a good commercial investment. They do it because they think the success of that party will be in their interest or because they want something from the party or perhaps, in many cases, it is a mixture of both. Indeed, it is apparent that loans can be more dangerous than outright gifts because the power to ask for the return of the loan gives the lender more leverage over the party to which he or she lends the money than a donor who has parted with all interest in that money. Our amendments aim to block the loan loophole by amending Clause 50 of the 2000 Act. The first amendment requires all loans to be treated as donations, except those made by banks lending on commercial terms in the course of their business. That exception, we believe, is reasonable and desirable for practical reasons, otherwise any increase in bank overdrafts would have to be treated as a donation, which would obviously cause considerable administrative difficulties. The second amendment requires guarantees of the debts of political parties also to be treated as donations. If guarantees are not treated as donations, that will obviously be the next loophole. A guarantee by an individual or a corporation of good financial standing would enable banks to make loans that they would not otherwise have made to a political party or loans at a lower rate of interest than they would otherwise have charged. It is of course at least possible that that already happens, although we do not know whether it does or not. I recognise that the amendments can be improved and they are certainly not intended to be the final version. On reconsidering them, I can see at least three improvements. The first is that the exemption for bank loans should be limited to banks that would be permissible donors under Section 54 of the 2000 Act. That means banks that carry on business in the United Kingdom and are incorporated either here or in another state of the European Union. The second improvement is that the treatment of guarantees as donations should also extend to other forms of security for debt. For example, a supporter could give security by way of a mortgage over property owned by him or her without giving a personal guarantee of the debt. Thirdly, the amendment does not state what value is to be allocated to a guarantee. I think it should be the largest amount covered by that guarantee. We very much welcomed the announcement that the Government will introduce their own amendments before Report. Plainly, if we are satisfied with the government amendments, we will withdraw our own. But we believe that this is a matter of some urgency. If we are to overcome public contempt for politics and politicians, we must show that we are taking effective steps to block sleaze and to secure full transparency. This is a crisis in our political system. The first step to end it is to stop the evasion of rules that require those who give financial aid to political parties to disclose it. I beg to move.