Political Parties and Elections Bill

My Lords, noble Lords laugh, but that is a little unfair. The advice that we have received from our officials and that I mention to the House in as moderate and as cautious a way as I can is that there is a risk. If I was advised that there was no risk, I would not say that there was a risk. If we are told that there is a risk, I think that I am duty-bound to tell the House that, even if I have to do it through the laughter of noble Lords. If we are to focus only on donations, as the amendments propose, rather than on the full range of democratic participation, we think that concern would be heightened because, for a restriction of this type to be lawful, it has to be justified and proportionate in the interests of a democratic society. Focusing only on donations, as this amendment does, begs a question when assessing the compatibility of the proposal with ECHR rights. Why place a restriction on donations in this way now, but not on other forms of participation, on the grounds of tax status? There may be no easy answer to that question, especially if we have not considered, at the same time, whether it would be justified and proportionate to impose similar restrictions on other rights as well as this one, or, indeed, instead of it. We see that a wider review of the range of possible restrictions is essential in order to ensure that the approach taken here is lawful and proper. Without it, the risk of a finding that the proposal is incompatible with the ECHR is increased. This sort of review is exactly what we propose and the position of the lawfulness of this sort of restriction will be much clearer for it. A review such as this, however, is a major piece of work and is not possible within the timescale to which this Bill is working. Finally, we must not forget that the effects of these amendments would, in some cases, be to restrict the rights of UK citizens to participate in the democratic system. This will add extra difficulty. Any proposal that seeks to link an individual’s taxation status to their ability to donate would require clear information on the taxation status of all potential donors to be readily available. That information would need to be accessible to political parties and the Electoral Commission for the purposes of checking whether a donation was permitted. There are obvious and serious concerns about data protection. Her Majesty’s Revenue and Customs is the body that can establish whether an individual is resident and domiciled in the UK for tax purposes. However, as this information is relevant only to the tax liabilities of certain people with non-UK income, it does not routinely hold this information for all taxpayers. Even for those individuals who self-assess their residency or domicile status, this information is not in an easily accessible, retrievable or list-based form. Of course, HMRC can, where necessary, undertake an investigation to establish the residence and domicile status of any particular individual. Such investigations can involve considerable time and expense and are made on the basis of a risk assessment. To conduct an investigation into every individual who makes a political donation would require an investigation into an individual’s status at a given point. This would be a very significant undertaking and would need to be based on facts that would require additional information gathering. An individual’s tax residence status can change from year to year and is, effectively, retrospective, as it is often based, among other criteria, on the amount of time that an individual has spent in the UK in the previous 12 months. Uncomfortable though it may be to hear, it could be very difficult to establish at a given point in the middle of a tax year whether an individual was or was likely to be regarded as resident at the end of that year. An individual’s domicile status is separate from his residence status. Domicile is a common-law concept relating to the country that a person thinks of as home. This is composed of a number of factors, such as the birth country of the father and the country with which a person feels that they have the most ties. It is not always straightforward for an individual to determine their domicile status. Many individuals are unlikely even to be aware of their domicile status, since it is irrelevant to their tax affairs, and they could therefore unwittingly commit an offence by making a donation that would be impermissible under these amendments. It is quite possible for someone to live in the UK for a number of years without acquiring UK domicile. For example, an Australian might live in the UK for 20 or more years but have family in Australia and intend returning to Australia on retirement. Despite the fact that this person was paying full UK tax on all earnings, their domicile could still be in Australia, meaning that, under these amendments, it would be an offence for them to give a political donation. I would be grateful if my noble friend would deal with that example in his reply and explain to the House why the amendments in his name would not lead to that completely unfair result for that individual. Even if Her Majesty’s Revenue and Customs were able easily to establish the taxation status of all donors, questions would remain as to how the requirement in the amendments could be enforced. Recipients of donations and the Electoral Commission would face great difficulty in verifying whether what a donor told them about their taxation status was accurate. As the House will know, the 2000 Act requires a donee to verify that a donation is permissible before accepting it. Requiring donees to be certain that a donation is from an individual who is both resident and domiciled in the UK for tax purposes would be a significant obligation that the House should be careful about imposing. The obligation could result in a reduction in the income of political parties. Realistically, the obligation could be satisfied only if parties and the commission were granted access to the information held by HMRC, either routinely or on a more limited basis. HMRC has a statutory duty under Section 18 of the Commissioners for Revenue and Customs Act 2005 to maintain taxpayer confidentiality. I hardly need say that the data-sharing and confidentiality implications of granting an exception in the case of all donors are, whether we like it or not, significant and would need to be thought through very carefully. I note once again that the Electoral Commission has expressed concerns about the workability of these proposals and their impact on political parties and other regulated entities in its briefing notes in advance of Committee and Report. On workability, the commission noted: ""In many cases it may be difficult for the recipient of a donation to verify whether the donor is a resident in the UK for taxation purposes and not a non-domiciled UK resident. Further, Parliament may wish to consider the administrative implications for HMRC should the amendment be agreed. Commission data suggests that more than 1,000 individual donations would need verification annually"." Commenting on the impact on parties, the commission said: ""In order to assess whether any donation from an individual is permissible, the recipient would need access to authoritative information about that individual’s tax status. The Commission would also need access to that information to confirm compliance. We think it highly unlikely that this will be achievable in practice, or (if so) that the resulting burden on regulated entities and on HM Revenue and Customs would be proportionate"." When we considered this point in Grand Committee and, of course, tonight, my noble friend Lord Campbell-Savours and others suggested a number of ways in which they thought that this problem might be addressed. My noble friend suggested that tax returns could include a tick-box for donors to indicate their taxation status and that the Electoral Commission could then certify with HMRC that a ticked return had been received. I have to advise noble Lords that tax returns already allow for people to declare whether they are resident and/or domiciled. However, most people are not required to complete a tax return at all. About 9 million people complete a return each year out of a UK population of 60 million—that is about 15 per cent. I remind the House that you have to make a return only if, first, Her Majesty’s Revenue and Customs sends you one or, secondly, if you have tax to pay and it has not sent you one. A vast majority of people pay the right amount of tax under PAYE or because tax is deducted at source, as with bank interest, so there is no tax to pay and no return needed. Fifty-one million people in the UK do not make a return each year; 9 million people do. Thus, for my noble friend’s suggested solution to work and to ensure that all donors had declared their residence status via a tax return, Her Majesty’s Revenue and Customs would have to issue many more tax returns for non-tax reasons. That would involve significant additional public expenditure, including potentially, we have been advised, the need to overhaul IT systems to enable them to cope with the routine of tax returns.