Political Parties and Elections Bill

My Lords, this has been a very interesting debate in which many noble Lords have taken part. I hope that they will forgive me if I do not respond in detail to each point, but I shall touch on all the fundamental points that have been raised. However, there will be a couple of exceptions. I shall not respond to the very interesting speech of the noble Lord, Lord MacGregor, about our political life apart from commenting on what he said about donations. I am sure that part of his speech will resonate in many quarters. I hope that that debate continues and reaches a proper conclusion in the interests of the health of our democracy. I hope that the noble Lord, Lord Bates, will forgive me as I cannot possibly touch on all the detail of his speech as I am cognisant of our objective to complete Report stage today. This group of amendments relates to the establishment of a cap on donations, treatment of contributions under that cap and a system of tax relief for donations. Amendment 38 would establish a cap of £50,000 per year on the amount that an individual or organisation could donate to a registered political party. Contributions from trade union political funds would be subject to this cap unless they adhered to the conditions set out in Amendment 39. These conditions seek to create a clear link between the amount paid in individual contributions to a union’s political fund, by way of affiliation fees, and the amount of any subsequent donation made by the union. The Bill is the result of a painstaking search for consensus between the parties. The Government’s overriding priority throughout has been to ensure broad cross-party agreement to the changes that the Bill will make. It simply would not be acceptable to make far-reaching changes to legislation in this area without such agreement. The amendments before us today are identical to amendments that have already been debated both in Grand Committee and the other place. On each occasion they have failed to command support across the House. When Amendment 38 was put to a vote in the other place it did not receive support from either the Conservative Party or the Labour Party. When Amendments 38 and 39 were debated in Grand Committee, they again failed to find cross-party support. And, as we have heard in the debate today, the proposals contained in the amendments are simply not broadly supported in your Lordships’ House. I shall briefly set out again why they are not supported by the Government. The idea of a cap on donations is not a new one. Two recent major reports on party funding—the Constitutional Affairs Select Committee report of 2006 and the Sir Hayden Phillips review of 2007—both recommended that a cap should be instituted. The noble Lord may claim, as he did in Grand Committee and has again today, that his amendments "absolutely follow" what was put to the parties by Sir Hayden in the cross-party talks that followed the publication of his report. In fact, Sir Hayden proposed that a cap should be phased in gradually, beginning initially at a level of £500,000 and reaching the level of £50,000 only after a period of four years. The noble Lord must also be aware that both the Constitutional Affairs Select Committee and Sir Hayden were explicit that a donation cap could be introduced only alongside an increase in state funding. In considering the effects of the package of measures he proposed, Sir Hayden said they, ""would impose significant restrictions on the parties’ freedom to raise their own funds, and new obligations in terms of compliance and reporting. These measures are in the public interest, and it is fair and reasonable to use public funds to help offset their financial impact"." Sir Hayden was also quite clear that his recommendations on party funding needed to be considered as a whole package. So if the noble Lord wishes to pray in aid Sir Hayden’s review for his amendments, he must acknowledge that he is also arguing for an increase in the level of state funding of politics. The increase would be significant. The Government’s White Paper, Party Finance and Expenditure in the United Kingdom, calculated that a cap of £50,000 would result in a reduction of income of £5 million to £6 million each year for the two largest parties. The Government’s view on this matter is clear. We do not consider that an increase in the level of public funding, particularly of the magnitude that would be required to offset the imposition of a donation cap, is acceptable to either the political parties or the public. Public support for politicians and political parties could scarcely be lower than it is currently. It would defy all logic to test taxpayers’ patience even further by asking them to contribute more money to the parties. Noble Lords may argue that any increase in state funding should be made only as a result of reductions in government spending in other areas; however, we still think it highly unlikely that the public would support the general principle of an increase in the state funding of politics. Amendment 39 relates to how union contributions would be treated under the donation cap. It could not be agreed unless amendment 38 was accepted. The funding activities of trade unions are already very tightly regulated as a result of successive Acts passed during the 1980s and 1990s. In its 1998 report, the Committee on Standards in Public Life considered trade union political funds. It concluded: ""We have received no evidence to suggest that the legislation is not working satisfactorily, and no case has been made out for any reform. We do not propose any change in the law in this respect"." The Government agree with that conclusion. However, the noble Lord, Lord Tyler, and other noble Lords have today again raised concerns about the funding activities of unions. Perhaps I may put on the record, once again, the words of my right honourable friend the Minister of State in the debate on Second Reading in the other place. He noted that affiliated unions recently wrote to the Labour Party general secretary, ""to confirm that they will voluntarily provide more information to members about the collection and use of political funds and the individual member’s right to opt out, and that the affiliates will introduce a common text for incorporation into membership materials, including application forms. In addition, the affiliates agreed that full affiliation of the levy-paying membership is the most transparent form of political membership, and moves will be made to that end".—[Official Report, Commons, 20/10/08; col. 120.]" The Government consider that transparency in party finance is the key requirement. A cap on donations could increase the incentive to divert donations through other routes and could therefore have the ultimate effect of decreasing transparency. As I have set out, it would require a significant and unjustifiable increase in the state funding of politics. For those reasons, we are not minded to support its introduction and I hope the noble Lord will agree not to press the amendment. I turn now to Amendments 64 to 66. Amendments 64 and 66 would introduce a system of tax relief on donations to political parties. This would be along similar lines to the system of gift aid already in place for contributions to charities, albeit with certain key differences. They would perhaps be intended to compensate parties for the shortfall of income that might result from the imposition of the cap proposed in Amendment 38. The amount available to political parties under the system proposed in Amendment 64 would be capped at £500 per donor per year and would be limited only to basic rate income tax. In order to qualify to receive relief, a political party would have to have at least two MPs elected to the House of Commons at the preceding general election. These amendments were considered in Grand Committee and were well supported by noble Lords from all three main parties, although I note that of the main parties’ Front Benches only the Liberal Democrats spoke in favour of the amendments. My noble friend Lord Campbell-Savours spoke in favour of the amendments but suggested that the amount of relief available should, initially at least, be capped at £15 per donor per year, with the Government able to increase that amount by order in subsequent years. This is formally proposed in Amendment 65. As the noble Lord, Lord Goodhart, set out, a system of tax relief for political donations was first recommended by the Committee on Standards in Public Life in its landmark 1998 report on the funding of political parties in the United Kingdom, often referred to as the Neill report after the committee’s chairman at the time, the noble Lord, Lord Neill of Bladen. The Government at the time accepted the vast majority of the Neill report’s recommendations in the Bill that went on to become the Political Parties,Elections and Referendums Act 2000. However, we did not accept the recommendation to introduce tax relief and continue to oppose its introduction now. The Neill report set out a number of arguments in favour of introducing tax relief, some of which were repeated in Grand Committee and again today. The chief argument of principle advanced in the report is that it is more democratic and in the public interest for political parties to be funded by a large number of small donations than a small number of large donations. The report considered that, by introducing tax relief, parties would be encouraged to make greater efforts to obtain smaller donations. The Government entirely support the principle that it is preferable for parties to develop a broad base of support. However, that does not necessarily mean that the public purse should be employed to support that end. Parties are free to conduct their fundraising activities within the legislative framework. There are many steps that they could take to encourage a wider base of donors which would not require what effectively amounts to an increase in state funding of politics. Noble Lords may argue that there is a distinction to be made between state funding and what is proposed in the amendments, in that the money would not come directly from the state, as the allocation and amount of relief would depend on the choice made by individuals. That may be so, but the end result would still be an increase in the money diverted from public funds to support political parties. As I have already set out, at present, when politicians and political parties are held in particularly low esteem by the public, we do not consider that there is any public appetite for increasing the money paid out by the state to support political parties. We must also consider the cost of any such scheme. Under current legislation, donations below £200 are not recorded, so it cannot be known how many donations would be affected by the measure and what it would cost. However, the Neill report recommended tax relief on donations of up to £500 per year. In their response to that report, the Government estimated that the loss of revenue as a result would be some £4 million to £5 million per year. The Government do not consider that such an increase in the amount of state subsidy of politics is currently justified. Noble Lords may argue that, relative to total government spending, this would still be a small amount. The public perception, however, would be unlikely to take that argument into account, and would instead focus on the principle and the headline figure. My noble friend Lord Campbell-Savours has proposed in Amendment 65 that the amount of relief available should be set at a very low level, such that the cost to the public purse is low but that the principle of tax relief on political donations would nevertheless be established in legislation. As I set out, the Government do not agree that any increase in state subsidy of politics is acceptable to the public in present circumstances. In any case, any system of tax relief would be expensive for both political parties and HMRC to administer. That point was remarked on in the Neill report, in the context of considering a minimum donation which would qualify for relief. The report said: ""The cost of obtaining the signature by donors of the necessary forms, and the cost of keeping the necessary records will impose an administrative burden on political parties which means that, below some level, it will become uneconomic to claim tax relief on a donation"."