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Political Parties (Funding)

Volume 468: debated on Tuesday 4 December 2007

We now come to the debate on the Opposition motion on the funding of political parties. Mr. Speaker has selected the amendment in the name of the Prime Minister.

I beg to move,

That this House notes with concern the corrosion of public trust in democracy following the recent succession of scandals over the funding of the governing political party; regrets that a comprehensive package of proposals to reform electoral law was not achieved by the inter-party talks owing to the refusal of the Secretary of State for Justice and the Labour representative, Mr Peter Watt, to accept a comprehensive cap on donations; observes the unhealthy increase in back-door state funding through the £6 million of funds allocated to special advisers and the funding of over 3,000 press and communications officers across Whitehall and its quangos; asserts that the Communications Allowance is an unhealthy extension of taxpayer funding for party propaganda that advantages the governing party; and calls for a comprehensive package of reforms to restore public trust and to support a vibrant local democracy and voluntary activism, which must include an across-the-board cap and annually a genuine individual choice for union members on whether they wish to donate to their favoured political party.

This motion is in two parts. The first refers to the current admitted lawbreaking, and the second refers to the need for—

I would like to finish my first few sentences before giving way, if the hon. Gentleman will permit me to do so. I shall then be happy to give way.

The second part of the motion refers to the need for comprehensive reform of party funding to restore public trust in the political process. It is important to separate the two parts. The fact that one party admits having broken the law, as it stands, is no reason—

The fact that one party admits having broken the law is no reason to change the law. The events to which I shall return in a moment provide no reason to reform the law—it should merely be complied with. Let us be clear that we are not talking about oversights or late declarations. We know that such things happen—they probably always will—and no system is perfect.

The Secretary of State for Justice will doubtless say that all this is being inquired into. That is meant to be reassuring, but one of the inquiries is being undertaken by a former Labour party general secretary—so we know that it will be totally impartial. Another inquiry is to be carried out by the former Bishop of Oxford. Although he is undoubtedly admirable and intelligent, this situation is the last refuge of the desperate. I doubt that when he was appointed to the Bench of Bishops he was told that he would need to be qualified in electoral law and forensic accounting.

We wish the former Bishop well as he endeavours to peel away the layers of onion skin to disclose whose money this really was and how many people knew that the donations from Labour’s third largest donor were being illegally declared.

Let us consider Mr. Mendelsohn, who was personally appointed by the Prime Minister to raise money for the election that never happened. We are told that Mr. Mendelsohn sat next to Mr. Abrahams at a dinner in April, and according to Mr. Abrahams he knew at that time that the donations were being hidden. Mr. Mendelsohn admits that he knew, albeit from a later date, that the source of the donations was being hidden, but he maintains that he did not know that that was illegal, although he was uncomfortable—

I shall give way in a moment. So uncomfortable was Mr. Mendelsohn that a mere two and a half months later he wrote a letter—not to the Electoral Commission, as one might have expected, but to Mr. Abrahams. He says that he did so as a prelude to putting matters right. It was doubtless coincidental that the letter was sent on the very day that The Mail on Sunday contacted Labour with evidence of the lawbreaking.

I am most grateful to the right hon. Gentleman for giving way. On the question of illegal donations being made to political parties, will he confirm that Lord Ashcroft is domiciled in the UK for tax purposes and can therefore lawfully make donations to the Conservative party?

I can confirm unequivocally that any donations made by Lord Ashcroft or any companies associated with him are entirely permissible. I just say to the hon. Gentleman that he should be a little careful where he is going—[Interruption.]

Only one party is being accused of lawbreaking and only one party’s leader has admitted that the law was broken—just in case the hon. Gentleman has not got the message, it is his party.

Let me be clear that I am accusing the right hon. Gentleman’s party of lawbreaking, because Lord Ashcroft is not domiciled in the UK for tax purposes and is therefore a foreign donor. Will the right hon. Gentleman confirm whether or not Lord Ashcroft is a foreign donor?

Just in case the hon. Gentleman did not hear it, I said I can confirm that any donations made to the Conservative party by Lord Ashcroft or his companies are completely permissible, properly declared and on the record. The leader of the hon. Gentleman’s party—the Prime Minister—who promised that things were going to be cleaned up has admitted that his party broke the law.

The right hon. Gentleman will no doubt have seen the article in The Daily Telegraph today by Rachel Sylvester in which she says that yesterday she made a telephone call to ask whether Lord Ashcroft is resident in this country and whether he pays tax in this country. Rachel Ashcroft—[Interruption.]

Thank you, Mr. Speaker. Rachel Sylvester, a journalist for a Conservative newspaper, says that the public has the right to have precise answers to those two questions. So without dodging or evasion, are the answers yes or no?

I could scarcely have been more unequivocal than I was. If the right hon. Gentleman has evidence of any impropriety, he will no doubt provide it. The simple fact is that there is no evidence: our donations have been properly made and properly declared, and all have been made by permissible donors.

Order. We are having a debate, but it is getting far too noisy in the Chamber, and that is unfair to the right hon. Gentleman who is speaking—[Interruption.] Order. Others will seek my protection if they are shouted down.

If further interventions from Labour Members are of the same quality, I would prefer not to waste the House’s time.

Does my right hon. Friend share my concern about the potential tax liability of people who have, knowingly or unknowingly, received moneys from Mr. Abrahams in a potential partially exempt transfer, or have a matter to report to the Inland Revenue in terms of their own tax affairs? Are they not now in a very vulnerable position as a result?

My hon. Friend makes the point clearly that when it comes to concerns about propriety only one party has admitted breaking the law—the Labour party—and that has many more ramifications.

My right hon. Friend should continue with his forensic analysis. It is obvious that the Labour party Chief Whip has got the rough trade out, but they are cocking it up.

I do not think that my hon. Friend meant that rough, but he has given great offence to the hon. Member for Ealing, North (Stephen Pound), who is very sorry to be left out. I shall respond to my hon. Friend’s invitation to continue, although I understand why Labour Members want to distract attention from their current concerns. That is understandable, but they will not get away with it.

The most unbelievable part of the saga is the contention that neither Jon Mendelsohn nor Peter Watt knew that the practice was illegal. I have to say that that is literally incredible. The requirement to disclose the identity of donors was the central feature of the 1999 Bill that became the Political Parties, Elections and Referendum Act 2000, and that is not some arcane technicality, byelaw or obscure rule. The breach of that requirement is a criminal offence, and anyone involved in political fundraising knows that. It is page 1 of the fundraising manual. Labour functionaries know that; after all, they publicly complain about donations made by—

It may be that the point that I am about to make is the one about which the hon. Gentleman is so excited.

The Labour party has publicly complained about donations made by unincorporated associations, such as the Midlands Industrial Council, although those arrangements are signed off by the Electoral Commission and the membership of the MIC has been made fully public. Despite that, Labour made a complaint to the Electoral Commission and received a response. A letter to the then Labour party chairman from the commission cleared donations by the MIC and explicitly referred to the central legal requirement that no one in the Labour party now claims ever to have heard of. The letter was sent in October last year, and states that the Act

“requires that where a donor passes a donation to a political party via an agent, the agent must tell the party the original donor’s details so that the party can, first, establish that the donor is a permissible donor…and second, record the donation with the Electoral Commission as coming not from the agent but from the original donor.”

Now, it is possible that the letter went only to the chairman of the Labour party and was not seen by the then general secretary or by anyone involved in fundraising and that they have all been operating in complete ignorance of what I repeat is a central provision of the 1999 Bill.

I do not want the hon. Member for Ealing, North (Stephen Pound) to feel left out, so I shall give way to him first.

I am grateful to the right hon. Gentleman for giving way. To be described as “rough trade” is rather a step up for me. He has been speaking about the transparency of donations. Many of us were amazed to hear about the Midlands Industrial Council, from which many Opposition Members receive as much as £20,000 a year. In the spirit of frankness that he is espousing, will he support the release of the names of all the members and donors of the MIC?

I am afraid that the hon. Gentleman will have to go back to the drawing board, as we disclosed all the names at least a year ago and they are in the public domain. I give way to my right hon. Friend the Member for Wokingham (Mr. Redwood).

I am grateful to my right hon. Friend. Does he agree that a governing party in these circumstances should not misread the mood of the nation or the House? The nation expects an honest statement of everything that has gone wrong and of what the party will do to put matters right, as well as a little humility.

My right hon. Friend is absolutely right. The simple fact is that Jon Mendelsohn and Peter Watt must have known that the donations were illegal—

According to Mr. Mendelsohn’s own account, he knew from September that the donations were illegal. Surely it would have been completely extraordinary for him not to have told the Prime Minister, whose personal appointee he is, that there was a serious problem—

Order. I do not know what the right hon. Member for Horsham (Mr. Maude) intends to do about giving way but it seems, Mr. Simon, that he is not going to give way to you. Some quietness would therefore be of help.

I will give way in a short while, but I want to finish this passage in my speech.

Peter Watt, the Labour party’s former general secretary, sat with the Justice Secretary in the discussions that we held over recent months with Sir Hayden Phillips. He pressed for greater powers to be given to the Electoral Commission to probe exactly the issue that we are debating today—whether donations had been paid through proxies. He was Labour’s registered treasurer as well as its general secretary. Before that, he was the party’s legal and compliance officer, and the rules and laws that we are discussing are the stuff of what a compliance officer deals with, day in and day out.

I have a simple question for the Justice Secretary. Can he really say to the House that he believes Peter Watt’s claim that he did not know that the practice was illegal? He must know as well as we do how hollow that claim must be.

On knowing or not knowing, with hindsight can the right hon. Gentleman tell me why the Tory party did not know that Asil Nadir was a crook who stole £400,000 from shareholders? Why did the Tories not send the money back? Why did they take $1 million from a Chinese drug baron? They never sent that money back either. Who is on the moral high ground now?

We know that things are getting really difficult for the Labour party when the House’s ancient historian has to come to its rescue. That is ancient history.

The Justice Secretary was the Prime Minister’s campaign manager, so can he tell us what he knew about the attempted donation by Mrs. Kidd on behalf of Mr. Abrahams to the Prime Minister’s leadership campaign? The Justice Secretary was not ignorant of the law; as he often tells us, he took the 1999 Bill through the House so he knows very well what the law required. Will he tell us today what he knew about the Abrahams donation proffered through Mrs. Kidd? What conversations did he have with his fellow campaign manager, Chris Leslie, who having, as he put it, “torn up” the cheque, helpfully passed Mrs. Kidd’s details to the right hon. and learned Member for Camberwell and Peckham (Ms Harman), now deputy leader of the Labour party? It is to that hospital pass that I turn now.

The longer this saga goes on, the more unanswered questions arise. The right hon. and learned Lady’s husband is the treasurer of the Labour party. Her defence is that she took donations only from people her campaign knew personally or who were registered donors to the Labour party, so who at Labour headquarters did her campaign call to check Mrs. Kidd’s identity? How was it that Baroness Jay, on behalf of the Environment Secretary’s campaign, knew that Mrs. Kidd was not the true donor and that it was some kind of proxy donation? If both Peter Watt and Jon Mendelsohn knew—as they admit—that Mrs. Kidd was not a bona fide donor, anyone at Labour headquarters who was equipped to respond to such a check on Mrs. Kidd’s identity must surely have known that she was not the real donor.

I turn to the curious incident of the illegal donation—we now know for sure that it was—to the Scottish leadership campaign of Wendy Alexander, or, as we must now call her, the human shield. Here again, there are more and more unanswered questions. There was clearly an illegal donation. Mr. Gordon, who solicited the donation, said he thought it came from a UK company and was therefore permissible. It then emerged that the campaign knew that there was literally a question mark over the donation; it appears in a schedule of donations, with the word “permissible?”—with a question mark—attached to Mr. Green’s name. We read that the schedule apparently originated from Wendy Alexander’s husband’s computer.

At first, Wendy Alexander said she did not know about the donation. That is not true. How do we know? Because it turned out that she had written a thank-you letter to Mr. Green, to thank him not for a donation from his company, but for his donation. If that were not enough, the letter seems to have been sent to his home address in Jersey, so it rather gives the game away. It is not for us to speculate about Wendy Alexander’s position, but we note that the message has gone from Downing street for her to stand at her post lest the fallout is even closer to Labour’s high command.

I am impressed with the right hon. Gentleman’s assiduous attention to detail in naming donors. Will he answer a question for me? How is it that Coleshill manor, the campaign headquarters of the Conservative party, is funded by the Midlands Industrial Council? It is described by the right hon. Gentleman’s leader as an intricate part of the Tory party but it is registered with the Electoral Commission as a regulated donee—

Can the right hon. Member for Horsham (Mr. Maude) explain why there is such an intricate web of finance for that centre? Why is it not straightforward and easy for people to understand?

The hon. Gentleman is struggling a bit, as I think the House can appreciate. All those arrangements are registered with the Electoral Commission, which has been through them all and has approved them. There is only one party here that has admitted breaking the law, and that is his party.

I turn to the discussions that have taken place over the last 18 months under the chairmanship of Sir Hayden Phillips. These followed discussions between Tony Blair and my right hon. Friend the Member for Witney (Mr. Cameron) in March and April last year, in the aftermath of the revelations about loans. We have consistently argued for comprehensive reform that would deal finally with the perception that large donors have undue influence on political parties. I have to say that Tony Blair seemed to share that view.

Dealing with that perception requires, above all, a cap on donations. Everybody now agrees that a cap of £50,000 would accomplish that. But there is an important point here: the cap has to apply to all donations, from whatever source—whether individuals, companies or trade unions. Sadly, it has gradually become clear that Labour simply could not agree to genuine reform. As Tony Blair’s authority ebbed away and as he finally departed the scene, it became clear that Labour is so deeply in hock to the trade unions that it would not be allowed to accept even minimal reform.

I will give way in a moment.

The key to this is trade union affiliation fees. I want to set this out very clearly. It is not straightforward territory and it is important that it is properly understood. Trade union affiliation fees currently funnel £8 million to Labour. We are invited to agree that those fees should escape the cap on donations because, it is claimed, they are individual donations. [Interruption.] I see Labour Members nodding sagely and thoughtfully, but that claim is about as far from the truth as it can be.

Trade union law requires a union member to be able to opt out of paying the political levy, but in most unions it is incredibly difficult to opt out and members are not told of their rights. [Interruption.] If hon. Members will contain themselves and remain patient, I will disclose the evidence for that. If union members do happen to find out that they have that right, they have to be quite extraordinarily tenacious to exercise it. Of 17 trade unions that have online application forms, only three mention the right to opt out of the political levy. It is true that a small minority of union members—

I want to finish this passage, if the hon. Lady will forgive me.

A small minority of union members have succeeded in opting out of the levy, but polling has consistently shown that fewer than half of trade union members vote Labour. More than half vote for parties other than Labour. It beggars belief that those people are cheerfully making a voluntary contribution to a party that they do not even vote for. Indeed, it emerged during our discussions that a Liberal Democrat MP was surprised to find in the post a ballot paper for Labour’s deputy leadership election. [Interruption.] We do not know who that hon. Member voted for. Completely unknowingly, an MP elected for a different political party had become a member of the Labour party as a result of the supposedly voluntary donation.

It does not end there. In most unions, if someone does succeed in opting out of the political levy, they do not even get any money back. Their union subscription remains completely unchanged. The truth is that in most cases—not all—the money given to Labour under the guise of affiliation fees is entirely in the hands of the trade union barons. After all, it is the trade union leaders who decide how many affiliated members they are going to declare. Let us look at the numbers. Unison is one of the unions that does put the right to opt out up front on the application form. More than half its members have exercised that right and decided to opt out. Other unions, such as the Union of Shop, Distributive and Allied Workers, and the National Association of Colliery Overmen, Deputies and Shotfirers, declare that 100 per cent. of their members pay the levy, with no opt-outs whatever.

Even that is not enough for two of the biggest beasts among Labour’s paymasters. Amicus and the Communication Workers Union both calmly state that more than 100 per cent. of their members pay the political levy. I am grateful to my hon. Friend the Member for Huntingdon (Mr. Djanogly) for his research on the subject. Amicus shows that 109.4 per cent. of its members pay the political levy, and the CWU declares that 104.1 per cent. of its members do; I am sure that that would not have happened in the Health Secretary’s time at that union. That shows what a sham the situation is. We are expected to allow what are plainly block donations by the trade unions to be treated as individual voluntary donations. It is laughable.

As the discussions drew on, it became increasingly clear that Labour was simply not committed to delivering, or able to deliver, on Tony Blair’s promise of comprehensive reform. We went the last mile in an attempt to secure agreement. Eventually, it emerged that Labour was intransigent, even on the most basic of changes. We suggested that the right to choose whether to pay the levy should appear on the membership application form. We thought that that was completely uncontroversial and would go through on the nod. The law requires a right to opt out; and what could be more simple, straightforward and obvious than putting a little tick-box on the application form, so that one can make that choice when filling it in? We put that proposal forward—uncontroversially, we thought—and the answer was no. The proposal was unceremoniously rejected. There was no argument about it and no explanation of why it was turned down—just a flat, straightforward no. That tawdry story need not be the end of reform. We would rejoin the discussions tomorrow if the Prime Minister showed that he was serious about real reform, but so far he has not done so.

I am drawing my remarks to a close.

Nothing that the Prime Minister said last weekend changed that one iota. If union members had a clear, accessible choice of whether to pay the political levy, and a choice of which party should benefit from that political levy, it could be said with a straight face that the money was genuine individual donations, although even that would leave the unions in a uniquely privileged position. Any renewed discussions need to focus on donations, not on spending limits. All the scandals that have disfigured party funding have arisen from giving to parties, not from parties spending.

Before people start talking about the arms race, let us deal with that issue. The Hayden Phillips team made a study of spending trends over the past 15 years. It showed that my party spent less in the last election than we did, in real terms, in 1992. It showed that the bulk of the increase in spending by the major parties in recent years is accounted for by big increases in what the Liberal Democrats spend.

No, I am drawing my remarks to a close.

In his speech at the weekend, the Prime Minister claimed, no doubt inadvertently, that Sir Hayden Phillips had recommended local spending controls. He said that Sir Hayden

“recommends spending limits at both the local and national levels.”

That was simply not correct. In the draft agreement that Sir Hayden circulated, which is now in the public domain, Sir Hayden said:

“A single overall limit will apply to the expenditure of each party, including all its constituent organisations whether national, regional, local or other. It will be a matter for the party itself to decide how to disaggregate its spending within the overall limit between the years of the parliament and among the various organisations in the party.”

I am sure that it was inadvertent, but I am afraid that what the Prime Minister said at the weekend was simply not the case; it did not accurately reflect what was said. How monstrous it would be if, at a time when the amount that sitting MPs can spend promoting themselves in their constituencies out of taxpayers’ money has increased so much, their competitors would be barred by law from spending money that they themselves had raised from private supporters. I know that Labour MPs and Lib Dems are feeling a little vulnerable at present, but even they must see how indefensible such a move would be.

There must be not a penny more of additional state funding for parties without comprehensive reform that addresses the concerns that the public have about party funding. This has been a sorry tale of lawbreaking at the highest levels by one of Britain’s major parties. For the second time in two years, the police are investigating a Labour Prime Minister. I hope the Minister will provide some genuine answers and will also provide the public with some hope that long-term comprehensive reform can eventually be delivered. Given the way that his Government have stumbled from incompetence to chaos to lawbreaking, we may have to wait some time.

I beg to move, To leave out from “House” to the end of the Question, and to add instead thereof:

“notes that political funding reform is essential to the future health of democracy in the UK and that Her Majesty’s Gracious Speech said that the Government would bring forward proposals on the regulation of party finance and expenditure; regrets that a comprehensive reform package was not achieved by the inter-party talks owing to the unilateral decision of the Conservative Party to walk away from a draft agreement put to the parties by Sir Hayden Phillips, despite the fact that the draft agreement faithfully reflected recommendations in Sir Hayden’s 15th March 2007 Report, which they”—

the Conservatives—

“had earlier welcomed; and urges all parties to engage constructively in order to achieve lasting reform in the public interest.”.

Let me begin with a proposition that, I hope, receives the approbation of Members on both sides of the House. In any modern society a well functioning democracy depends critically on the vibrancy of its political parties. It is the parties that are able to offer clear choices to the electorate. In turn, the activities of those political parties have to be paid for. Democracy does not come free.

Until the last quarter of the 19th century, British politics was famously corrupt, but the introduction of the secret ballot and then of funding limits led to a rapid change in the activities of parties and to the conduct of elections—a change that has been sustained to the present day. Yes, there have been some well publicised problems, and in some cases, as we have heard, breaches of the law, which have occurred over the past 15 years and, by turn, have affected all the main parties and whose impact I do not seek to minimise.

However, in comparison with our own history and with many comparable countries today, our party politics is clean, there is a remarkable absence of corruption, and almost everyone who gives to a political party, whether in large amounts or small, does so not to gain undue favour, but because they are committed to the principles of that party and regard it as their civic duty to support it. But it is right, too, that when issues have arisen, the House has sought to deal with them and, whenever possible, to do so on a consensual basis.

I am grateful to the right hon. Gentleman. Last week, when the Prime Minister said that unlawful activities had taken place, he said that the money would be returned. Has the £650,000 left Labour party accounts, and where is it now?

Perhaps I can ask a question that the Secretary of State can answer. He piloted the 1999 Bill so will he tell us in what circumstances an illegal donation to a political party is not sent back to the donor, but forfeited to the Electoral Commission?

We have made it very clear that the donation will be sent back, and the law is very clear. May I just say this? A number of questions have been raised by the right hon. Member for Horsham (Mr. Maude), and will no doubt be raised by others, in respect of what is unacceptable and plainly unlawful, as my right hon. Friend the Prime Minister has said. The right hon. Gentleman mentioned internal party inquiries, and that is quite right, but he omitted to mention that there is currently an inquiry by the Electoral Commission and also by the police. It would be improper for me to seek to answer questions that should properly be a matter for the police and for the Electoral Commission.

Does my right hon. Friend know what the following have in common: Tanbridge, the East Surrey Business Club, the Midlands Industrial Council, which is an unincorporated association, Westminster Circle, Conway Patrons Club, the 66 Club, the Ladies Luncheon Club, Marginal Magic and the Chelwood Club? Here is a clue—

I will in a moment, but let me first make some progress.

We had committed to introducing legislation to oblige political parties to declare the sources of all donations above a minimum figure and to banning foreign funding. When we came to government in 1997, the then Prime Minister, Tony Blair, widened the terms of reference of the Committee on Standards in Public Life. I point out to Conservative Members that throughout the 1990s we were seeking a full-scale inquiry into party funding in the face of the substantial scandals that were emerging among those on their Benches. A full-scale independent inquiry was consistently refused.

As I said, when we came in, the committee’s terms of reference were widened so that it could conduct a major inquiry on those matters. Under the chairmanship of Lord Neill of Bladen, it reported in October 1998. I worked closely with other parties to achieve broad agreement on its recommendations, and the legislative result was the Political Party, Elections and Referendums Act 2000. The 2000 Act was the first comprehensive reform of the regulation of political parties for more than a century, and I am proud that it fell to that Administration to achieve it. On the whole, as subsequent reviews have shown, it has worked well, although not as well as we had hoped. In one key area—that of local spending—it has had unintended consequences.

Will the Secretary of State say why the Prime Minister’s campaign tore up the cheque from Mrs. Kidd, but recommended her as a possible donor to the right hon. and learned Member for Camberwell and Peckham (Ms Harman)?

I shall be happy to tell the Electoral Commission and the police should they ask that. We will wait until the inquiry is made.

On a point of order, Mr. Speaker. Is it in order for Conservative Members to make interjections without declaring an interest in respect of donations from secretive patrons’ clubs and others?

Do the Lord Chancellor and the Government anticipate making acting in good faith a reasonable defence in the next criminal justice Bill?

I notice that the Conservative party has adopted a holier-than-thou approach on this issue. Its Members are now saying that there is one approach for the Labour party and another for them. Yesterday, the leader of the Conservative party was asked about some of these matters and said, “You know, that was a completely innocent mistake. The rules are quite complex in some places and when you are asking, say, every Conservative association to make sure that every donation it gets has got to be properly declared to the Electoral Commission and all the rest of it, you are going to get mistakes.” So there are mistakes by the Conservative party, but, apparently, much more egregious errors by us.

It is gracious of my right hon. Friend to give way. On innocent mistakes, Lord Ashcroft promised in 2000 that he would clarify his tax domiciliary status, his residence and where he pays tax. It is now 2007 and the matter has still not been clarified by him or by the right hon. Member for Horsham (Mr. Maude), who ducked the question disgracefully. Is that an honest mistake or something rather more sinister?

That is not a question that I can answer, but I noticed that, when the right hon. Member for Horsham was asked about the matter, he had carefully rehearsed replies, which failed to answer the direct question.

As the right hon. Gentleman said, the Government decided, with all-party support, to establish in March 2006 a further review of the funding of political parties, led by Sir Hayden Phillips. Along with the right hon. Member for Horsham, the hon. Members for Chichester (Mr. Tyrie) and for Somerton and Frome (Mr. Heath) and others, I have been heavily involved in that review. I express my admiration of Sir Hayden for the skill, professionalism and patience that he brought to the task.

Consequent to the intervention of my hon. Friend the Member for Birmingham, Erdington (Mr. Simon), may I draw my right hon. Friend’s attention to Rachel Sylvester’s comments in The Daily Telegraph today? She wrote:

“The problem is that Lord Ashcroft chooses not to say publicly whether he is resident, and pays tax, in this country. I rang his office yesterday to ask the question again. ‘It is a private matter,’ was the response of his spokesman. But it isn’t. People who fund political parties should live in this country and contribute to the public services they hope to shape.”

As I said to my hon. Friend the Member for Birmingham, Erdington (Mr. Simon), we noted that the answers from the right hon. Member for Horsham were carefully phrased.

Will my right hon. Friend assure the House that any reforms that he introduces ensure that no rich business people can buy a party’s manifesto? I refer to the fact that Brian Souter, the owner of Stagecoach buses, gave the Scottish National party £500,000, only to find that the party dropped its proposal to reregulate the bus industry. My question will not cost £1 million, but the incident seems to me to be one of cash for favours.

Of course, I will give way, but I want to make some progress first.

Sir Hayden published an interim report in October 2006 and a final set of proposals in March 2007, which formed the basis for intensive discussions led by him, with a view to securing detailed, all-party agreement on the way forward. In that, we were helped by an agreed, unanimous report by the Constitutional Affairs Committee in December last year.

Sir Hayden’s report dealt with four sets of issues: the Electoral Commission and the regulatory framework; spending limits; donation limits; and state funding. On the first, there is all-party agreement, backed by the Constitutional Affairs Committee and the recent report of the Committee on Standards in Public Life. All agree that the Electoral Commission should have a tighter focus on the regulation of political parties and the conduct of elections, and that it should be more proactive in policing the system overall. Reforms to that end will be included in legislation.

The second issue is spending limits. When the original reforms were introduced in 1883, election campaigns were conducted over a relatively short period, and almost exclusively locally. However, huge sums were spent—equivalent to well over £100 million at today’s prices. Those limits worked well so long as campaigning was mainly confined to local constituency campaigns, but with the development of national campaigning from the late 1950s onwards, the old regulatory system became very defective.

On the subject of the complicated mechanism that my right hon. Friend mentions, I am sure that the right hon. Member for Horsham did not mean to mislead the House earlier when he stated, in reply to my intervention, that all members of the Midlands Industrial Council had had their names published, given that we hear that the names were still emerging as recently as two hours ago. Does my right hon. Friend agree that that is either confusion or just coincidence?

The simple truth on unincorporated associations such as the Midlands Industrial Council is that they have been used, albeit lawfully, as a means of avoiding disclosing the identity of the original donors. That is why Hayden Phillips’s Committee recommended—and we will do this—that the identity of beneficial donors to unincorporated associations should be made clear.

To help the House in relation to what the right hon. Gentleman has just said, could he confirm the tax status of Lord Mittal and of Sir Ronald Cohen?

An individual’s tax status is a matter for them and for the Inland Revenue and the Electoral Commission.

Neill looked very carefully at the question of overall spending limits and said that the majority of his Committee had concluded—

Neill said that the majority of his Committee had concluded, at paragraph 10.31 that

“the imposition of national spending limits on political parties and other campaigning individuals, is justified”.

It must be a self-evident truth that the overall level of spending is the key driver of the demand for donations and of the problems that may arise over those donations. The Constitutional Affairs Committee was eloquent in warning about an escalating arms race between the parties, stating correctly that

“where the regulatory environment permits it the spending trends are all upwards”.

The Committee recommended that there should be a

“tighter cap on overall party spending”.

In his March report, Sir Hayden Phillips commented:

“However robust the controls we put in place over the sources of the parties’ income, the current problems of financial instability must be expected to recur unless we also do more to curb campaign spending. We should limit it through generally accepted, easily understood, and enforceable rules.”

It is true that, as the right hon. Member for Horsham said, spending had come down from the ludicrous levels that were reached in the early 1990s—that is thanks to our Act, not the Conservatives’ proposals. However, as Hayden Phillips recited, spending between the two parties at the last election stood at some £90 million in the year of the election, when it should have been a combined limit of £40 million, and some £60 million the year before leaving aside local expenditure. He went on to say:

“A vigorous election is good for democracy and we should not expect it to be cheap. But this sharp upturn is excessive and it cannot be in the public interest.”

He concluded:

“PPERA sought to control the level of spending, but it has proved inadequate to the challenge. Parties may be complying with the letter of the law, but not the spirit. The current approach is built around a definition of ‘campaign expenditure’ which is at one and the same time inadequate and excessively complicated. One expert has compared it, aptly, to building a dam in the middle of a stream. As the CASC noted in its report, the time has come for a new approach…All parties accept that campaign spending in an election period must be cut, and the cuts made to stick.”

He added:

“Spending limits could be set to embrace all national and local party spending, with the national party held accountable for delivering an auditable set of consolidated accounts demonstrating compliance with the limits.”

Does the Secretary of State accept that it is ludicrous for an inquiry is to report to someone—the Leader of the House—who is herself under investigation for the receipt of illegal donations?

My right hon. Friend is rightly considering further legislation, but when he brought in the Political Parties, Elections and Referendums Act 2000, what prompted him to conclude that that legislation was necessary? We have heard about Chinese heroin barons and about Asil Nadir, but was it the research that revealed that 50 per cent. of peerages and knighthoods went to directors of companies that had given donations to the Conservative party?

My hon. Friend is entirely right. There was widespread concern, and Conservative Members have extremely short memories about unacceptable practices that took place in the Conservative party, above all, at that time. That was why we set up the inquiry under the chairmanship of Lord Neill, and we delivered on it on an all-party basis.

On Sunday, Labour Ministers said that the money from David Abrahams had been paid back. The Secretary of State says that he does not know whether it has been paid back. Labour Back Benchers have been free to smear Lord Ashcroft on his tax status, but the Secretary of State says that he does not know the tax status of Lakshmi Mittal or Sir Ronald Cohen. Does the Secretary of State feel that he has come to this debate properly prepared?

I was answering a specific question about two donors whose tax status had never been an issue. It is Lord Ashcroft who has clearly raised questions about his own tax status that so far he has refused to answer.

The right hon. Gentleman is going through the Hayden Phillips recommendations and it must be obvious to all reasonable people that the three political parties should feel obliged to reach an agreement along the lines of those recommendations as quickly as possible in order to restore some confidence in our political system. Would he move on to the key point of how trade union block grants should be treated under any system? Is he content to say that members of trade unions should be allowed to contribute like anyone else, giving voluntary contributions, and subject to the same overall limits that every other individual ought to be subject to?

I am extremely grateful to the right hon. and learned Gentleman for what he has just said. He said that it is important that all parties move ahead to implement the Hayden Phillips recommendations. That is exactly our position and that of the Liberal Democrats, but it is not the position of the Conservative party. What is absolutely clear is that donation limits are an issue, and I shall come to the issue of trade union contributions. However, the fundamental issue that Hayden Phillips raised alongside those two was that of spending limits. The Conservative party was signed up to overall spending limits. When I made my oral statement on 15 March on the publication of Hayden Phillips’s report, the right hon. Member for Maidenhead (Mrs. May), speaking for the Conservative party, said:

“We accept his main recommendations...we are happy to discuss spending caps on all year round non-election campaigning and proposals for tighter controls on third-party expenditure”.—[Official Report, 15 March 2007; Vol. 458, c. 469.]

The right hon. Member for Horsham endorsed that. It is, therefore, something of a surprise to all of us engaged in those negotiations—I am glad to hear that the right hon. and learned Member for Rushcliffe (Mr. Clarke) does not take the view of his party leader—to hear the Leader of the Opposition say that he does not believe

“a global spending limit year by year is right or necessary”.

If the right hon. Member for Horsham is now ready to stand up and say that he accepts what he and the right hon. Member for Maidenhead accepted on 15 March, and not the position of the Leader of the Opposition, we can make good and consensual progress on this issue.

No, no. I want the right hon. Member for Horsham to intervene.

Let me say to the right hon. Gentleman about this stuff on Government press offices, the communications allowance and so on, that if the only issue between us is whether there should be a discount for incumbency, we are happy to talk about it, but the truth is very different.

I do not mind the right hon. Gentleman dilating on this matter because I am a general supporter of the Hayden Phillips recommendations. However, the right hon. Gentleman has to answer the point about trade unions. It seems to most people in the country that that is the principal obstacle standing in the way of what is otherwise an obviously desirable agreement.

I said that I would come to that and I will. But I will also say to the right hon. and learned Gentleman that he understands the point, which the Conservative party leadership now does not—it had a different point of view six months ago—which is that the key driver of donations is the totality of spending. [Interruption.] Of course there is an arms race, and there has been one for many years. We sought better to control that in the 2000 Act. We controlled it somewhat, but not sufficiently. Unless we accept what the Constitutional Affairs Committee recommended and what is explicit in Hayden Phillips’s proposal, we shall not be able to secure far better control of overall spending and donations, which is what the whole House and, I hope, the whole country wishes.

No.

Let me come to the issue of donation limits. Neill considered whether donation limits should be established back in his 1998 report, but came down firmly against them. The Liberal Democrats have consistently argued for them, but Neill’s view was shared by both the Conservative and Labour parties, so no provision was made in the 2000 legislation. In the light of Sir Hayden Phillips’s review, both parties now accept the case for such limits. Sir Hayden recommended that limits should initially be set at £250,000, reducing over a number of years to £50,000.

I said that I would come to the matter of trade union affiliation fees, which is exercising the right hon. and learned Member for Rushcliffe and others. I said at the outset of this speech that we all had to have a care for the health of our political parties. We should also have a care for the fact that the history and current structure of each party is different. I learned a lot about how the other two parties operate—each of them is different—and I think that those present learned a lot about my party, too. In particular, they learned that, far from sitting around at the end of the 19th century deciding which party to support, the trade unions decided with others to form their own party, which in time became the Labour party.

On the question of different political parties having different structures, will my right hon. Friend turn his attention to the Tory golfing society, which appears to donate to a number of Conservative associations? May we have a transparent system for such societies, so that we can see whether any of their members actually play golf or whether they are simply funding mechanisms for the Tory party?

I am grateful to the Secretary of State for giving way. Given that £127,000 has been given by trade unions to a number of Cabinet Ministers’ local constituency offices, including £10,000 to the Prime Minister’s local constituency office since the beginning of last year, does the Secretary of State not agree that the word “transparency” is meaningless unless the funding of political parties by trade unions is put on the negotiating table for full and frank discussion?

I do not know why the hon. Gentleman is busting a gasket saying that. The system is transparent—that is how he knows.

The Secretary of State seems to have missed the point. He does not seem to appreciate that the phrase “conflict of interest” comes into play and that unless the funding by trade unions is put on the table, the Cabinet and the Prime Minister will be accused of having a vested interest in the debate.

Order. Regardless of the office that any right hon. or hon. Member holds, we must be careful when we are making an accusation or a personal attack on anyone and ensure that we do not say anything that we might regret later. I ask the hon. Gentleman to be careful—I know that he did not mean it that way, but that is the way it came out. Let us just leave it at that.

The system is completely transparent—that is how the hon. Gentleman knows, as I have said. It is a great deal more transparent than many of the dining clubs that in the past have supported the Conservative party.

The hon. Member for North-West Cambridgeshire (Mr. Vara) talks about contributions from trade unions, but I wonder whether he would like to declare to the House his 50:50 Club contribution of £4,980 in 2006.

I look forward to that.

On the issue of the lack of symmetry in the constitution of different political parties, the Constitutional Affairs Select Committee warned that

“any move to change the nature of party funding must not stray into prescriptive devices to require political parties to organise internally in ways which violate the democratic relationship with other institutions”.

Sir Hayden Phillips endorsed that recommendation and the Select Committee was referring specifically to trade unions.

On donations, can the right hon. Gentleman help me? Is it fair and credible to claim ignorance of the law as a defence, particularly when it comes from a senior legislator such as the leader of the Labour party in Scotland? The right hon. Gentleman is the Justice Secretary, so what does he say to members of the public who look at this bizarre defence and expect to get away with it, too?

What I would say directly to the hon. Gentleman, who is so keen on devolution, is that my writ does not run in Scotland.

When a trade union is affiliated to the Labour party, the individual will—as the right hon. Member for Horsham parodied earlier—normally pay a small part of his or her subscription as a political levy, which goes to the Labour party in turn, but the individual has a clear right to opt out of paying, and many thousands actually exercise it. Trade union members can opt out any day of the week: they can choose which union to affiliate with and the union itself can choose to disaffiliate.

Does my right hon. Friend agree that outside the House, this debate is seen as bit like the pot calling the kettle black? What the British people want to see us do is resolve the issue of party funding. I assure him that they will not mind a cap on spending if it means getting fewer DVDs and fewer leaflets from political parties; what they would mind is state funding of political parties, which we should not introduce.

I think that there is probably widespread agreement with my hon. Friend on that matter. I am quite clear that overall party politics and our democracy would benefit if there were controls on both spending and donations, which is what Sir Hayden Phillips proposed.

Let us reflect on what Sir Hayden Phillips had to say on this issue, as it is central to the argument between our two parties. He said that

“much will turn on the treatment of the decisions by individual trade union members to pay money to the party to which their union affiliates. In my view these payments may be regarded as individual donations for the purposes of the new limit if, and only if, the decisions reached are clearly transparent and it is possible to trace payments back to identifiable individuals.”

That brings me, in turn, to the talks led by Sir Hayden Phillips over the summer. In July, we agreed that we would meet again on 3 September.

Can the right hon. Gentleman explain why more union members are affiliated than actually pay the political subscription?

We accept that there are some defects in the system, and we have made that clear. That is why we were ready to sign up to these proposals. If the hon. Gentleman and his party were prepared to do so, we could agree. This is a comprehensive package, as set out in Sir Hayden Phillips’s proposals at the end of August. A meeting was due on 3 September, of which all parties had good notice. It is a matter of record that the Conservative party cancelled that meeting at short notice and it then took eight weeks to resurrect it. As the hon. Member for Somerton and Frome (Mr. Heath) made clear, when we finally met on 30 October, the Conservative party walked away from the talks. I very much hope that the official Opposition will think again. We announced in the Gracious Speech that we would bring forward proposals in respect of party funding and regulation.

My right hon. Friend may be interested to know—I am sure the House will—that Lord Ashcroft says on his website:

“If home is where the heart is, then Belize is my home”.

Would my right hon. Friend like to comment on that?

Given that and all the unanswered questions raised by Rachel Sylvester, I am not surprised that the right hon. Member for Horsham was so unwilling to give a direct answer to a direct question.

Finally, let me deal with the issue of state funding. There has long been a significant element of state funding for political parties, through the free post and similar means and through the Short money, which we as a Government ensured was trebled and which now runs at £4.5 million a year for the Conservative party.

The Secretary of State has referred to various Hayden Phillips proposals. In fact, he has elided a number of proposals made by Hayden Phillips over a number of months. At the end of the talks in which I participated, I asked for all the papers produced by Hayden Phillips—including the background working papers and earlier proposals—to be published and put before the public. Why did the right hon. Gentleman flatly refuse to allow them to be published? Why will he not allow the public to see all Hayden Phillips’s work?

I should be perfectly happy for people to see it, but as the hon. Gentleman knows very well, the reason is that this was a matter for Hayden Phillips and not for us. [Interruption.] The hon. Gentleman knows that. Hayden Phillips was running the inquiry, and we were not.

The Neill committee noted that the arguments for and against state funding were “finely balanced”. The Phillips review concluded that there should be a degree of state funding, and presented proposals based on electoral support and the recruitment of members. We made good progress on three of the pillars outlined by Hayden Phillips in his draft agreement: on spending limits, on donation caps and on reform of the Electoral Commission. As the Prime Minister has said, we are yet to be persuaded of the case for a significant extension of state funding, but we recognise that it will be a source of continuing consultation.

Notwithstanding the clear and partisan decision of the official Opposition to walk away from the Hayden Phillips talks, I very much hope that they will think again. In the Gracious Speech, we announced that we would produce proposals in respect of party funding and regulation. The case for a comprehensive and fair package is overwhelming. It is set out in the report by the Constitutional Affairs Committee, and in Sir Hayden Phillips’s report and his later draft agreement. My right hon. Friend the Prime Minister expressed his backing for it at the weekend. A White Paper is currently being prepared; we shall publish it as soon as possible, and present legislation thereafter.

We came very close to a consensus before, and I believe that with good will and with the assistance of Sir Hayden Phillips we can achieve one for the future. In any event, it is clear that we need the legislation. I commend the amendment to the House.

I suspect that any member of the public watching the debate and entertaining the perverse hope that he or she would be edified will have been sadly disappointed by what has been said so far. I think the country reasonably expects the House to treat a serious matter that underlies our democratic system with a degree of sobriety and perhaps, in some parts of the House, remorse.

This issue has been around for a good many years. Indeed, it was one of the subjects of the talks between the late Robin Cook and my noble Friend Lord Maclennan before the advent of this Labour Government, and there was a clear expectation that legislation would be presented to deal with what were perceived to be clear and mounting irregularities in our system. That was given added impetus by the Neill Committee. Let us remember why the Neill committee was engaged. It was engaged because of the Bernie Ecclestone affair—again, an example of clear abuse. The Neill Committee made a series of recommendations that eventually formed the basis of the Political Parties, Elections and Referendums Act 2000, the legislation on which all this is based.

It may be valuable to look back at what was said by the Lord Chancellor in his previous position as Home Secretary in a statement on the funding of political parties back in 1999. He said:

“We came to office committed to reform. Our three commitments were, first, to require large donations to political parties to be disclosed; secondly, to outlaw foreign funding of political parties; and thirdly, to invite the Committee on Standards in Public Life to look into the wider question of the funding of political parties in the United Kingdom.”

He went on to say that

“for too long, public confidence in the political system has been undermined by the absence of clear, fair and open statutory controls on how political parties are funded”,

and he concluded by saying:

“By providing greater honesty and openness to our political system, we hope to restore public trust and to promote greater confidence in our democracy.”—[Official Report, 27 July 1999; Vol. 336, c. 134-136.]

I entirely agree with every word that the Lord Chancellor said on that occasion, and the tragedy is the degree to which we have fallen short of those expectations.

The hon. Gentleman can help that process by telling us on behalf of his party when it will give back the dodgy £2 million it received from the convicted criminal, Michael Brown.

I expected that intervention at some stage, so I thought I might as well give way to the right hon. Gentleman right at the beginning.

My hon. Friend is absolutely right: it was boringly predictable. There has never been any question about disclosure of that sum; as a right hon. Gentleman, the right hon. Member for Warley (Mr. Spellar) will, I hope, accept that there has never been any attempt not to disclose the provenance of that money.

Let me read out the Electoral Commission’s statement, because that is the body set up under the provisions of the recently mentioned legislation to look into such matters. It says:

“The Electoral Commission has previously made clear its view that it was reasonable for the Liberal Democrats—based on the information available to them at the time—to regard the donations they received from 5th Avenue Partners Ltd in 2005, totalling just over £2.4 m, as permissible.”

It goes on to say:

“It remains the Commission’s view that the Liberal Democrats acted in good faith at that time, and the Commission is not re-opening the question of whether the party or its officers failed to carry out sufficient checks into the permissibility of the donations.”

If the Electoral Commission takes a different view—it has indicated that it will revisit this once law cases are complete—we will abide by whatever it says. That is the end of the matter. We have been perfectly open.

No; the right hon. Gentleman had his chance and he blew it.

The concern is not only that the Government have fallen short of the expectations they themselves set out when introducing that legislation. I do not blame the Lord Chancellor for this, nor do I blame the plurality of Members of his party, just as I do not blame the plurality of Members of any party for the actions of a few within their parties. There is, however, a concern that the party of Government have systematically subverted their own legislation, and that is a very serious matter indeed.

The levity that has been displayed on the current occasion is entirely inappropriate. This latest episode has been described in the newspapers as a fiasco and a farce, and one commentator was prompted to employ a word I would not normally use in a debate: “dégringolade”. I have no idea whether it is a dégringolade, but I do think it is a tragedy. It is a tragedy not because of the particular circumstances, but because the consequence is further to undermine confidence in, and the standing of, not only the Labour party, but all the parties represented in this House, and that is a matter of concern to all of us.

Let me briefly deal with the present situation. There are questions that still need to be asked; the Lord Chancellor, or whoever replies to the debate, will probably not be able to give the answers, but they are questions that the country is still asking. I have no idea whether this is incompetence on a grand scale in the higher echelons of the Labour party or conspiracy—I think that the investigations will show that. I must say, however, that if it is incompetence, that is very difficult to believe given the calibre of some of the people involved and given the very clear instructions in the law.

The right hon. Member for Horsham (Mr. Maude) was right to say that what we are talking about is not to do with just some petty rule book—this is about not the rules of a game, but the law of the land. There is not only a prima facie case of it having been broken in this instance, but that is also by the admission of the Prime Minister.

We hear that the Prime Minister’s party leadership campaign team rejected the donations from Janet Kidd. Why did it do that, and did it tell anyone else in the party when it did so?

Is the hon. Gentleman aware that the hon. Member for Eastleigh (Chris Huhne) has recently been pursuing his leadership campaign in the north-east, and that in doing so he has asked Durham police to look into certain planning applications without a shred of evidence that anything is amiss with any of them? Should the costs to Durham police of pursuing those investigations be considered to be a donation to the hon. Gentleman’s election campaign or should he be prosecuted for wasting police time when nothing is found?

The investigation will be a matter for the Durham police. If they feel that there are matters to be investigated, they will investigate them, but if they feel that there are no such matters, they will not investigate. That is the answer to the hon. Gentleman’s question.

The refusal of the donations by the Prime Minister’s campaign team is a matter of public interest. Given the climate of opinion following the cash for peerages affair, did the Labour party’s treasurer, chairman, secretary or chief fundraiser—or indeed anyone in a position of responsibility in the party—ask about the processes in place for clearing donations? Was guidance given to anyone who might be in receipt of such a donation? Were systems in place to apply the guidance given by the Electoral Commission? Does the Lord Chancellor seriously want the House to believe that the general secretary of the Labour party, who not only received the guidance from the Electoral Commission but was asked to comment on it, was ignorant of the meaning of the words that he read on the paper? He struck me as a very intelligent man who purported to have some integrity, yet he apparently did not understand the words that were put in front of him. I find that difficult to believe.

Was any guidance given to the candidates in the deputy leadership election about what their donation rules should be? If so, why did several candidates apparently not declare donations given, in clear contravention of the rules? What role did Mr. Chris Leslie play? Why did he put the Leader of the House’s campaign team in touch with Mrs. Kidd? Why did he turn down the money? Did he know the connection with Mr. David Abrahams? Baroness Jay apparently did know that a proxy donor was involved. How did she know that? Did she know the connection with Mr. Abrahams? Did she know Mr. Abrahams? Did she tell anybody else?

What precisely led Mr. Abrahams to want anonymity in the first place, given that he gave many donations with no recourse to anonymity in many other areas of public life? He was not reticent in his pattern of donations, so why was it only in the case of the Labour party that he wanted to hide a donation? Is it true that Wendy Alexander has been advised not to resign because to do so might have a knock-on consequence for the Leader of the House’s position? If so, who gave that advice and why?

These serious issues will not go away, but we have had many other donation rows—on cash for peerages, on the Bernie Ecclestone affair, on the Midlands Industrial Council, which has been mentioned, and on several other issues. Labour Members can cite several examples from a sedentary position; I am sure that it all helps the argument.

I have listened carefully to the hon. Gentleman’s speech, but he really cannot get away with the answer that he gave earlier about the Michael Brown money. Has he been approached by any of the people who have suffered from the fraud by Michael Brown, and has the Liberal party given any consideration to how he came by that money and whether it is morally obliged to give it back?

The hon. Gentleman raises an interesting question, but I have not been so approached. Does he propose that the money be returned to Mr. Michael Brown, pending the court cases, or to some other person or persons unknown? The hon. Gentleman needs to think through his position.

On the broader issue of rich donors, I have to say that they are nothing but trouble, whether they give to my party, the Conservative party or the Labour party. That is demonstrably true and it demeans the political process when so much effort is made to woo people with large amounts of money. Apart from any due diligence that is required under the law, there are two key questions that the parties should ask. The first is how, and the second is why. How did the donors become as rich as they are? Was it by ethical means, and did it happen in this country?

On the point about rich individuals bankrolling political parties, is it not scandalous that the Conservative peer Lord Laidlaw, who is a tax exile, gave £6 million in gifts, loans and donations to the Conservatives, they brush that to one side as yet though it were of no consequence?

It is scandalous. It is also scandalous that any member of the legislature—of either House of Parliament—should choose not to be domiciled in the UK for tax purposes. The law should be changed to that effect. I listened to the circumlocutions adopted by the right hon. Member for Horsham and I fail to understand why he did not answer the perfectly proper question that was put to him about the position of Lord Ashcroft. However, the right hon. Gentleman was following in the footsteps of the right hon. Member for Witney (Mr. Cameron), who also found himself strangely tongue-tied on the subject in a press conference earlier.

When we are considering ethical issues and investments, I can give another example. I invite the Conservatives to take this one seriously, because it relates to them. They have received a series of donations from a company called Fidelity. The last such donation was for £25,000 in July. Fidelity deals with those who are creating the circumstances of genocide in Darfur. Darfur is a matter of great interest to hon. Members on both sides of the House and the Leader of the Opposition has often spoken about that issue—

So it is all right, then, to invest in the murderers in Darfur—[Interruption.] It is politics, someone suggests. Well, it may be the politics of the Conservative party, but it is not the politics of some of us. I hope that it will not be our politics in the future.

The second question that we need to ask about the big donors is why. Why are they giving money? Is it for preferment—

If Michael Brown thought that he was going to get preferment from the Liberal Democrats, he was delusional. [Laughter.] The right hon. Gentleman underlines the fact that if people give large donations, they seek preferment, baubles, influence, policy changes or something even worse that comes under the heading of corrupt practice. The political process can do without that. That is why it is so important that we have effective caps on donations.

The Prime Minister has made it clear that the Labour party has apologised for what happened with the donations in question. Indeed, many of us wonder how the general secretary could have been so stupid. However, the hon. Gentleman must realise that he is on a very sticky wicket in talking about ethics and procedures, when it comes to Michael Brown. It is not every day that someone gives £2.4 million to the Liberal Democrats. Checks on the probity and sanity of that individual were clearly not made.

The Electoral Commission looked into the matter and said that the checks were all right, whereas it has said that the latest Labour party debacle was all wrong, and that is why it has been passed to the police for investigation.

I turn now to what we need in the future. It seems to me to be transparently obvious that caps on donations are only one side of the coin, and that we also need caps on expenditure. The third element that we must secure is stronger powers of scrutiny and investigation for the Electoral Commission.

That is why the talks with Sir Hayden Phillips, in which I participated, are the firm ground on which all parties can stand. There is no other, and it is no good for each of us, separately, to set out our own prescription and expect that to pass any test of objectivity. The importance of Sir Hayden Phillips’s proposals appeared to be recognised by the right hon. and learned Member for Rushcliffe (Mr. Clarke)—

No, no. I am extraordinarily pleased that the right hon. and learned Member for Rushcliffe stood up to ask, from the Conservative Back Benches, why on earth the parties were not working together to adopt Sir Hayden Phillips’s proposals. I accept that they are not perfect: for example, I should prefer lower caps than the ones that have been proposed. The Lord Chancellor was right that my party has a long record of wanting caps on donations, and I think that the Phillips proposals do not go far enough. Neither do I like the time scale, which I believe is far too elongated, although I think that that displays the natural caution of a senior civil servant more than anything else. I should prefer an accelerated procedure, but it is a matter of enormous regret to me that the Conservatives walked away from the deal.

The hon. Gentleman, from a sedentary position, invites me to talk about the unions, but we did so and in fact reached a broad consensus about them. That was fine until June, but then something happened in central office—I do not know what it was; perhaps someone came in and said something—and then for some reason the attitude of the Conservative party’s negotiators changed and we were not able to have the meeting in July. When we came back, it was clear that there would be no conclusion to the talks.

I am grateful to the hon. Gentleman for giving way, but what he suggests is simply not the case. We had reservations about the proposals all the way through the negotiations. We wanted an agreement so that that long-term, sustainable reform could be put in place, but from the outset we said that the question of union funding had to be addressed. During the course of the discussions, it transpired that the system of affiliation fees was far more backward, and far more of a racket, than we had realised. In those circumstances, the reforms needed to be more radical than was originally envisaged, although their goal—that is, genuinely individual donations—needed to remain the same.

That is where I do not understand what the right hon. Gentleman is saying. It is true that we found disgraceful abuses in the way in which some unions administered their political funds, and we dealt with them in the negotiations. We asked people to go away and work on those problems: they came back with recommendations and, as a result, the proposals from Sir Hayden Phillips contain ways to deal with egregious abuses of the system. For example, unions will not be able to affiliate more members than they actually have, or pay over money that they have not received.

Such abuses would no longer be possible, because the system would be even more transparent than the present regime, which was introduced by the previous Conservative Government to control union finances. Unless we recognise that the Labour party has had to move some distance to accept those changes towards greater transparency—and to accept the cap on donations from unions outside of affiliation fees, which is also an important part of the equation—we will not make progress.

No. I am not going to give way again, and I hope that saying so will save a lot of time. The right hon. Member for Horsham negotiated with us and he knows that my account is correct, although I still do not understand what caused the Conservative party to change its position.

From a sedentary position, the hon. Gentleman tells me something that we knew from day one of the inquiry.

The hon. Gentleman tries me. I have given way to Members on both sides of the Chamber throughout my remarks, so it really is not acceptable to say “This is meant to be a debate” because I have not given way to him.

Order. It is very apparent that at the moment the hon. Member for Somerton and Frome (Mr. Heath) is not prepared to give way to anyone.

I am grateful, Madam Deputy Speaker.

We must have proposals that we all agree will take us away from the culture of big donors. We must have proposals to deal with transparency and linkage in respect of trade union affiliation fees. We must accept that trade union donations beyond affiliation fees come within the rules on donors. We need real caps on expenditure, which need to be both local and national and both between and during elections. We need to end the abuse that has been growing over recent years, and which I tried to address in previous legislation that the Government did not support, whereby central parties spend large amounts in certain marginal seats on material that does not specifically refer to a candidate and thus falls outside the existing expenditure limits, but which is clear abuse of the spirit of the legislation. We need to give the Electoral Commission real teeth so that it actually becomes an investigating body rather than merely a reactive one.

The matter is urgent and we will not accept any party reverting to tribal type and simply trying to get the best deal in its own interest. We will not accept partisan legislation that deals with only part of the problem and not the whole. Consensus is possible and it should embrace all the parties in the House. I include the minority parties, which have an important locus in the matter. Throughout the course of the negotiations so far, I have said regularly that we must include not only the minority parties in the House, but also parties not represented in the House because they, too, have a legitimate voice.

The hon. Gentleman has made a raft of suggestions. Does he think we need an anti-corruption Bill with teeth, which would separate donations to political parties from places in the House of Lords, or vice versa?

There is scope for all sorts of legislation. In the last Session, I introduced a Bill on corruption and there is a case for strengthening the legislation. I do not want legislation that could be construed as partisan, but something that will pass the test of time. Perhaps something good can emerge from the demeaning and disgraceful episodes of the past few weeks.

We need a solution that is fair, transparent, sustainable and effective. We need parties that subscribe to the spirit as well as the letter of the law. Nothing less will be satisfactory to an increasingly disaffected electorate or for the health of our democracy.

Yes. Of course, we are sorry. There is a degree of synthetic anger among Opposition Members, but there is not a Member on the Labour Benches who is not rightly angry and annoyed at being so badly let down during recent events. There is no doubt that puts us in a difficult position before the British electorate.

People watching in the Gallery and on television are probably dismayed by the tone of parts of the debate, which descended into mutual cat-calling—I may do the same in a moment—but it is worth reminding the House that none the less the public are entitled to expect that we clean up our political act and do so in a non-partisan way that is not seen to be in the interests of any one party or any grouping of parties. That is why, like others, I regret the fact that the Conservative party chose to pull out of the Hayden Phillips process at a late stage, having previously made a public commitment in the Chamber, which we thought at the time was a genuine attempt to be constructive. Sadly, that proved not to be the case because in the end the Conservatives’ vested interest outweighed the need to reach a proper conclusion.

As the hon. Member for Somerton and Frome (Mr. Heath) is not a leadership candidate, it will not be to his detriment when I say that I normally have a lot of respect for him. However, I think he dissembled a little on the question of Michael Brown. He said there were two questions to be asked—how and why. How did a rich donor become so rich? In the case of Mr. Brown, that question was not asked. Why was the donation made—what did the donor seek to gain? That question, too, was not properly addressed by the hon. Gentleman today.

More important, the Liberal Democrats should be considering not simply whether they complied with the spirit of the legislation in accepting the donation—I recognise that it was accepted in good faith—but whether it was legitimate to hold on to it when the money obviously came from crooked sources. They must consider whether their position on the matter is consistent with the cleanness and openness they now propose.

Does the hon. Gentleman agree that the Liberal Democrat spokesman might have sounded a little less sanctimonious if his party were committed to pay back other creditors of Mr. Michael Brown from the donation it received rather than waiting for the outcome of a court case?

The hon. Gentleman makes an interesting point. In fact, the hon. Member for Somerton and Frome said it would be unreasonable for the money to go back to Mr. Brown. He also said that he had not been approached by any of Mr. Brown’s creditors. Should they come forward, I hope that the hon. Gentleman will say that it is right and proper that those who were defrauded will be recompensed from Liberal Democrat sources.

Does my hon. Friend think that the spirit of the law allows political parties to accept money from someone described by a judge as showing “deliberate and pointed” dishonesty?

We have to look at the spirit of the law is. The Labour party is entirely in the wrong place at present and we have no excuses, but I hope that all parties will look at the spirit of the law.

I want to make two points. Today, the Conservatives were questioned about the role of Lord Ashcroft and whether he is a tax exile. They refused to answer those questions and Lord Ashcroft has made it clear that he will not answer them either. That completely contradicts the spirit of clean politics that the right hon. Member for Horsham (Mr. Maude) spoke about earlier. He told my hon. Friend the Member for Ealing, North (Stephen Pound) that questions about the origins of money from the Midlands Industrial Council had already been answered. That is not true and the right hon. Gentleman either knows it or should know it, because the MIC secretary, David Wall, announced that the names of new MIC donors would not be revealed. He said:

“If you’re asking me would we make public announcements when we have a new member then no we wouldn’t.”

That is a clear statement, so I invite the right hon. Member for Horsham to confirm that from now on, in the spirit of openness, the Conservative party will make it absolutely clear who funds the MIC and bodies such as Scottish business groups, Focus on Scotland, the Carlton club political committee, Fresh Start and many others. We know that over the last few years, the Midlands Industrial Council has given some £2.8 million either to the Conservative party directly or to Conservative support organisations.

I will not, if my hon. Friend will forgive me.

If we are talking about openness and transparency, I invite the right hon. Member for Horsham to make sure that he operates on the same transparent basis as he asks of the rest us.

I want to put a slightly different hat on and talk about the role of the trade unions. The Conservative party would love to turn the debate on to that subject. Let me say this, without any fear of contradiction: the money coming from the trade unions into the Labour party is the most scrutinised money in British politics. The money given to my party and the one or two other parties that benefit from trade union moneys is so regulated that every pound is properly traceable. I say to Opposition Members that not only has that money not at any stage been challenged by the Electoral Commission or the certification officer, but the Neill inquiry said that it was satisfied with the way in which matters were handled. It is important that we establish that.

I will not, if the hon. Gentleman will forgive me.

In this country, we have a democratic trade union movement—one that even Opposition Members should be proud of. Our trade unions are not like the fixed trade unions in other countries. The trade unions have never run away from the idea of modernising their relationship with the Labour party. They are making it quite clear even now—when the leader of my party spoke at the weekend—that the relationship will be modernised.

There will be discussions within the ambit of the labour movement on a basis that will make it absolutely clear to trade union members where their money goes. In the end, it is accountability to members, and transparency, that matter. If my party had had that level of transparency with respect to private donors, none of us would be facing the allegations and charges that we face today. In that context, I am very proud of the trade union movement. I am proud of its link with the Labour party—a link that we do not intend to break. It is important that the Labour party continues to maintain links with the trade unions. That is an important part of Labour’s democracy and the democracy of this country.

I make the following challenge to Conservative Members. The trade union movement has always offered to work with the spirit of the times and in the national interest. Will they ask Lord Ashcroft to do the same? Will they ask him to make it clear where his money comes from and whether he is prepared not to treat the Conservative party as a wholly owned subsidiary of Ashcroft enterprises—one that he has completely bought? Frankly, that is the only explanation for the Conservative party—under orders from its paymaster—turning away from the Hayden Phillips process.

Will the hon. Gentleman accept that the amount of money that Lord Ashcroft gives through his companies to the Conservative party is considerably less than that given by either Lord Sainsbury, who after all became a Minister in the Labour Government after being a major donor, or Mr. Mittal? The hon. Gentleman may recollect that there was outstanding a very substantial loan from one of Lord Ashcroft’s companies to the Conservative party, which got repaid in full with interest.

I would accept an awful lot more from the right hon. Gentleman if he would get Lord Ashcroft to make it quite clear where his money comes from and whether he pays tax on it in this country. That is the real challenge. Is the Tory party prepared to wean itself off the Ashcroft moneys and clean up its own house? In the end, that is the measure that the British public will judge the Conservative party on—not whether we can have an agreement across the different parties on a cleaner political system, but whether that agreement will operate only between the Liberal Democrat party and the Labour party, leaving the Conservative party once again on the sidelines, facing the allegation that it does not want to clean up British politics.

Order. I am sure that the House is aware of the fact that the 10-minute rule on Back-Bench speeches applies from now on.

The answer to the question from the hon. Member for Manchester, Central (Tony Lloyd) is that we certainly will be prepared to wean ourselves off the Ashcroft money if the Labour party is prepared to engage in meaningful trade union reform. Unfortunately, we have not seen that from Labour so far.

The occasion for this debate is another massive scandal about the way in which Labour has been funding itself over the past 10 years, but the real reason we are here goes much deeper and concerns both parties. We are here because a large proportion of the electorate believes that donations to political parties buy influence, access and honours—and, frankly, the public may be right. That is the canker at the heart of our otherwise largely uncorrupt system. I have never believed that the honours awarded in the 1980s were wholly unrelated to party donations, but since 1997 things have got much worse. It has not just been cash for honours. We have had Ecclestone, Mittal, PowderJect, Enron—the list goes on and on.

The Labour party received £36,000 from Enron. The Secretary of State seems to have forgotten about that. I notice that he did not challenge the reference to PowderJect and all the others, either.

There is only one solution to the problem of large donations: to impose a cap on them. That cap has to be comprehensive and binding on trade unions—which wield enormous influence—companies and individuals, including Michael Ashcroft. The leader of my party, to his great credit, has recognised that and has been prepared to propose bold reforms. The reason we are here today, and the reason we have not got a settlement, is that so far the Labour party has not been prepared to come with us.

Under the current Prime Minister, we have not seen any evidence of real commitment to reform. Perhaps I should contrast that with what happened when I was initially involved in the negotiations two years ago. Then, it was quite clear that Tony Blair was prepared to undertake fundamental reform. He knew how dangerous it was for Labour to become too dependent on the unions for cash. That is probably why he got Lord Levy in at the beginning, more than a decade ago, to find some big donors to counterbalance union influence. It may have ended in tears, but it worked for Tony Blair for a time. He always knew that if he had to do without the unions, he could, and the union bosses knew that too.

It is so sad that we have had no substantive response to the scandal from the current Prime Minister. His statement on Saturday was completely substance-free. It was little more than an effort to deflect attention from what was going on in his party. In some ways, it was worse than that, because he distorted the truth. He alleged that Hayden Phillips had recommended local spending limits when he had done nothing of the sort.

Order. I am not happy with “distorted the truth”. Perhaps the hon. Gentleman would like to use a different phrase.

Certainly not. I would be very grateful if the hon. Gentleman chose a phrase that is suitable.

I used that phrase only because it happens to be the one that the Prime Minister used, and that was not ruled out of order, at the Dispatch Box a few weeks ago—

I think that we can say that those listening to the Prime Minister might have found it difficult to work out exactly what he was proposing.

May I say to the hon. Gentleman, in rather more temperate language, that what he is claiming is simply incorrect? Paragraph B3 of the draft agreement from Hayden Phillips states:

“A single overall limit will apply to the expenditure of each party, including all its constituent organisations whether national, regional, local or other.”

Of course there is an issue about the discretion that will be exercised, but it is quite clear that Hayden Phillips has it in mind that local spending would be covered.

The right hon. Gentleman knows very well that it is up to each party to decide how to allocate spending locally, within the overall envelope. He also knows that he mentioned only one of a number of proposals made by Hayden Phillips. We want to put those other proposals in the public domain, but the right hon. Gentleman has flatly refused to allow us to publish them. All he has to do is tell Hayden Phillips that he would like to see them in the public domain; then the public could have a wider debate about all the other suggestions that have been put to us by him.

The right hon. Gentleman continues to contribute to the debate with views that any reasonable person might conclude appear to mislead. He repeated, mantra-like, the view that we started off with in the talks, together: that we were engaged in an arms race. He completely ignored the fact that during those discussions, comprehensive research was commissioned that shows the opposite to be the case. Hayden Phillips’s team produced a detailed, thorough research paper, which I am not allowed to show the House because the right hon. Gentleman will not allow me, showing that the arms race had been greatly exaggerated, yet he persists with that mantra.

Does the hon. Gentleman deny that the limit that should have applied to both main parties was £40 million, and that as Hayden Phillips recites in his report, £90 million was spent in the year before the last general election?

Does the right hon. Gentleman agree that the paper produced showed decisively that in real terms there had been scarcely any increase at all in overall spending by the major political parties? Indeed, the lion’s share of the increase that had been noted came from the Liberal party.

The main issue on which there has been obfuscation and denial is affiliation fees. They are not individual donations. How could they be? Some 55 per cent. of affiliated trade union members do not even vote Labour, never mind want to make a donation to the Labour party. The Labour party really has to make up its mind: either it wants affiliation fees to continue to be treated as a collective donation, in which case they will have to be subject to the £50,000 cap proposed in the negotiations, or they should be treated as individual donations, in which case individuals should be allowed to choose whether they give the money, and to which party. I note that the right hon. Gentleman is not prepared to get to his feet and respond to that point.

Another of the myths that we often hear is that breaking the financial link with the trade unions destroys the Labour party. That of course is complete nonsense. The head of Tony Blair’s policy unit, Matt Taylor, was refreshing in his honesty. He wrote:

“trade unions cannot be treated differently from any other donor…Individual trade unionists could be encouraged to join Labour directly…this could strengthen their relationship”—

that is, the relationship between the unions and the Labour party—

“rather than weaken it.”

The New Democratic party, Labour’s sister party in Canada, went down the road of reform and realised that it was extremely beneficial for it, both electorally and as regards its ability to formulate policy. Indeed, when the Select Committee on Constitutional Affairs went to Canada, Labour Members on the Committee were surprised and impressed by the enthusiasm for imposing a cap on unions’ donations, and for breaking the financial link.

If the hon. Gentleman will forgive me, I will not; I have already given way a number of times, and I want to make only one more short set of remarks on what is needed now. First, in the immediate future, it will be difficult to restart talks until Labour’s position is more stable. I am still reflecting on the fact that for a year I have been sitting opposite Labour negotiators, one of whom has admitted systematically breaking the very rules that we were trying to improve in the negotiations. In our talks, that same man supported stronger investigative powers for the Electoral Commission. There are to be inquiries by Lord Whitty and the police, and we need to wait until we know where those inquiries are taking us, and with whom we will be negotiating.

Secondly, we must keep focused on the real source of the problem. When Tony Blair wrote Hayden Phillips’s terms of references, he made that absolutely clear; the issue was about donations and transparency, not expenditure. The then Prime Minister was right. The crisis has been caused by the big donations culture over many years.

The ball is now in Labour’s court. It must know by now that it cannot secure a meaningful or lasting agreement from the House while it is in a state of denial about the need to reform the union link.

The plain fact is that right now Labour is financing itself with the donations of millions of people who do not even vote Labour, never mind decide to donate to it. That is morally unacceptable, and it has to stop. The current treatment of affiliation fees is a legacy from a bygone era. In the 21st century we should have gone beyond the age of corporatism and collectivism. We Conservative Members want to work with Labour to clean up that tawdry area of politics, but to do so, we need a counter-party. If Labour comes forward with serious proposals to give genuine individual choice to millions of affiliated members, the talks can resume immediately. I very much hope that after reflection, the Prime Minister will deliver what is required to get the talks going again.

We have been asked to shorten our contributions. It will not come as a surprise to anyone in the House to hear that the debate has not helped us to advance towards a solution on party funding. No one expected that it would; Opposition day motions do not normally lead to a calm atmosphere. We are in the same position that we were in previously.

I intend to make what might be described as critical comments about contributions to my party, but first, as far as Lord Ashcroft is concerned, it would have been much better if we had clarified his tax status. It is simply impossible to believe that a person who bankrolls Tory candidates in marginal constituencies does not even pay tax in the United Kingdom. They will not say so in this debate, but privately a number of Conservative Members must have at least some reservations about the role that Lord Ashcroft plays, even more so if he does not pay income tax in the United Kingdom. As for the Liberal Democrats, it would have been far better for their party’s integrity if the £2.5 million had been returned, somehow or other. I was not altogether impressed by the excuse that was given.

When we hear about accusations such as those made today, at least we can say that no Member of Parliament is being accused of being paid for asking questions, and no money in brown envelopes is being passed around, so I suppose that, to some extent, we have made some progress. It should not be forgotten that the Committee on Standards in Public Life only came about as a result of the media’s exposure of what was going on in those days. Of course I accept that only a small minority of Conservative MPs was responsible, but their actions undoubtedly brought Parliament into disrepute. When the Committee was set up—it was known of course as the Nolan Committee, after its first chairman—John Major was clear that it would not be able to look into party funding; that was excluded. The present Government are to be congratulated on removing the bar on the Committee looking into party funding. Legislation was introduced and other reforms were carried out. Those reforms were absolutely essential, and many of us campaigned for them when we were in opposition.

Having said all that, I am concerned that my party has been lax—I might say far too lax—in receiving donations from very rich individuals. I have had concerns and apprehensions about that for some time. No, I have not raised it on the Floor of the House, but I did mention it on one occasion at a private meeting of Labour MPs. I felt that those donors, with some exceptions, wanted to be on the winning side in 1997, but they had no genuine commitment to what my party has always stood for. I understand that in all those circumstances, if they were willing to donate, the leadership of the party took the view, “Why shouldn’t we receive the money?”

The hon. Gentleman is a veteran parliamentarian and he is suggesting that 1997—year zero—was the first time that such benefactors came forward to assist the Labour party, but he will well remember the lavender list, Sir Eric Miller, Peachey Properties, Lord Kagan, Poulson and T. Dan Smith in the north-east, where Mr. Abrahams hails from. Is he going to whitewash everything that went before 1997, or is the Labour party, too, culpable in these matters?

The hon. Gentleman will get his brownie points for making such party points. He has got it off his chest. I am aware of all those names. If he is asking me whether I am proud that such people were involved—they go back to the 1970s and were few in number—of course I am not proud of it. I am ashamed. That goes for everyone in the Labour party, whether we are Labour Members of Parliament or not. All those who are active in our political movement and in the trade unions are ashamed of all those matters. We have never said otherwise.

Why do these very rich individuals want to contribute? In my view, with some exceptions, as I said, they want rewards. They want to end up in another place or get a knighthood. The hon. Member for East Devon (Mr. Swire) smiles. I have a list of the top 10 companies that donated to the Conservative party between 1979 and 1992—United Biscuits, Hanson, Taylor Woodrow, George Weston Holdings and the rest. It is interesting that in eight of those 10 companies, every company executive or chair received some kind of reward: in the case of United Biscuits, that was one peerage and one knighthood; in the case of Hanson, two peerages; Taylor Woodrow, one peerage and one knighthood; P&O—we know about P&O, do we not?—one peerage and three knighthoods, and Glaxo, two knighthoods. Of the two companies that did not receive anything, one, George Weston Holdings, was headed by a Canadian, and the other company had two directors, of whom one was a hereditary peer.

Can my hon. Friend tell the House whether Mr. Abrahams has been given any peerages for his donations?

I think we can all work on the safe assumption that Mr. Abrahams will not be getting a peerage of any kind from anybody at any time.

I have been listening to the hon. Gentleman’s long list. Is he telling the House that the Labour party and the Conservative party are as bad as each other?

I am not suggesting anything of the kind. The Scottish national party is not in a state to give us lectures on integrity, bearing in mind some of the remarks that have been made.

I have criticised my own party, but all the political parties should be far more reluctant to receive money from very rich individuals. I am suspicious of their motives for contributing and I have given an example. No doubt examples could be given of those who have contributed to my party and received awards in the past 10 years.