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Political Parties: Funding

Volume 690: debated on Thursday 15 March 2007

My Lords, with the leave of the House, I shall repeat a Statement made earlier today by my right honourable friend the Leader of the other place. The Statement is as follows:

“With permission, I would like to make a Statement about the report of the review of party funding by Sir Hayden Phillips, entitled Strengthening Democracy: Fair and Sustainable Funding of Political Parties, which he published earlier this morning. Copies are available in the Vote Office and the Library.

“My right honourable friend the Prime Minister, in a Written Ministerial Statement this morning, thanked Sir Hayden on behalf of the Government for his hard work over the past 12 months. During the course of his review, Sir Hayden received submissions and held discussions with representatives of all the major political parties, as well as consulting the public, the Electoral Commission and various academic experts.

“Sir Hayden’s report identifies important principles which could form the basis of a lasting settlement of the party-funding system. However, as Sir Hayden himself concedes, a number of practicalities remain to be worked out and will require further discussion between the parties. We will play a full and constructive part in these talks.

“The issue of political party finance and spending is central to the debate about the health of our democracy. There is a keen public interest in securing lasting reform in a way which curbs wasteful spending, does not gratuitously advantage any one party at the expense of others and does not interfere in the internal structures of any political party. If the various parties can agree upon a reform package which meets these objectives, then we will have a funding regime which will increase public confidence in the probity of the democratic process and help to stimulate grass-roots renewal of political parties.

“The most compelling need identified by Sir Hayden is to end the political spending ‘arms race’, which has seen expenditure spiral upwards, even as party memberships have declined. In the 1997-2001 Parliament, the Government, with all-party support, sought to tackle the problem of excessive spending with what became the Political Parties, Elections and Referendums Act 2000—PPERA. This reflected key recommendations of the Committee on Standards in Public Life, chaired by Patrick Neill QC, now the noble Lord, Lord Neill of Bladen. PPERA introduced a national limit on campaign expenditure, created the Electoral Commission and made the funding system more transparent by requiring that all donations above £5,000 nationally and £1,000 locally be made public.

“By introducing such transparency, we all believed that public confidence in the system could be assured. But the recent revelations about unpublicised loans to parties by individuals, resulting from a loophole in PPERA, have clouded that transparency. In addition, the line between local and national spending has become blurred by developments such as political campaigning facilitated by the internet and other advances in telecommunications. As a consequence, a modest relaxation of spending controls in the 2000 Act at the local level has been exploited way beyond that intended by the legislation.

“Sir Hayden draws attention to the fact that spending by the two main parties in the 12 months before the last general election rose to £90 million, up nearly 40 per cent on the £65 million spent in a similar period in 2001. He must be right to say that the PPERA,

‘sought to control the level of spending, but it has proved inadequate to the challenge’.

“The immediate problem of transparency in relation to party loans has been resolved by means of the Electoral Administration Act 2006, which requires that loans be publicly declared in the same manner as donations. However, Sir Hayden has now advanced proposals for further reform. Crucially, he shows support for continuous spending limits at local and national level. He also proposes tighter controls on third-party expenditure and a reformed Electoral Commission with the power, capacity and practical experience to perform its role as an effective regulator.

“The importance of effective spending limits cannot be overstated. As the Constitutional Affairs Select Committee observed in its report, Party Funding, published in December, the United States offers an instructive example of what can happen when political spending is left unchecked. It said that in 1976 the total cost of all US elections was $40 million; in 2004, the cost of federal elections alone was $3.9 billion—a 97 times increase.

“Sir Hayden also recommends the introduction of caps on donations. All three main parties are agreed in principle to some form of donation cap. The Constitutional Affairs Select Committee recommended a voluntary arrangement. We agree and think this would work, by providing enough flexibility to respect the different structures and traditions of the various parties. Sir Hayden offers welcome backing to the judgment of the Constitutional Affairs Committee 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 that violate their democratic relationships with other institutions’.

“Finally, Sir Hayden recommends the introduction of a higher level of state funding for political parties. The Constitutional Affairs Committee came to a similar view, but recognised the need for further debate about the values and principles which should govern such funding.

“As a 1976 report on party funding showed, there has long been a degree of state funding in UK politics. All political parties have had the opportunity to claim free television and radio broadcast slots, along with free postage. Since the 1970s, the provision of Short money and Cranborne money has given millions of pounds of state aid to the main opposition parties. This funding has increased more than threefold since 1997. In 2006, the total amount of Short money was £6.3 million, with over £4 million being paid to the main opposition party.

“The Neill committee noted in its 1998 report that arguments for and against state funding were ‘finely balanced’. Although Neill did not recommend a major extension, his committee concluded:

‘We can envisage circumstances in which substantially increased State funding of the political parties—including the funding of their general activities—might become an imperative’.

Sir Hayden concludes that these circumstances now exist, and has put forward proposals for increased state funding based on electoral support and the recruitment of members.

“Our democracy could not function without the organisation of political parties of all shades and opinions, the platforms for debate and the exploration of ideas which they provide. Their work, and in particular the work of party foot-soldiers who devote time and energy to their cause, is fundamental to the health of the democratic process.

“To command high levels of public support, the funding arrangements for political parties must be fair and transparent. Through earlier legislation, Parliament has taken significant steps to put such a system in place. Sir Hayden Phillips' report has identified areas for further reform and identified some key principles. The task for the political parties is now to work out the practical arrangements of a fairer, more sustainable and more transparent funding regime. The public would expect nothing less”.

My Lords, that concludes the Statement.

My Lords, I thank the noble and learned Lord for repeating the Statement. Given the importance of the debate we have just had, I hope the House agrees that it was appropriate to have this Statement at this slightly late hour on a Thursday rather than break into that debate.

At the outset, I would like to express our appreciation for the diligence of Sir Hayden Phillips, the clarity of his report and his recommendations on a way forward. These past few days, we have discussed the room and this Statement addresses the elephant in it. Public confidence in the funding of parties has been severely shaken by recent events. No party is whiter than white and none should throw stones, not even the Liberal Democrats or UKIP, which has not met the exacting standards expected of Caesar's wife recently. It is no time for name-calling; no time for special pleading; no time for prevarication.

The Conservative Party put forward constructive proposals a year ago for a cap on donations and limits on expenditure. Since then Sir Hayden has been seeking agreement from the party of Government, which so far has been unable to agree on the matter. In reply, perhaps the noble and learned Lord will tell us whether he thinks that agreement will now be forthcoming. We on this side welcome the report. We accept its main recommendations. We want cleaner and cheaper politics and we agree with Sir Hayden that outstanding issues should be addressed swiftly and by direct talks.

Do the Government accept Sir Hayden's view that we need an across-the-board cap on large donations from big business and wealthy individuals; and trade unions cannot be excluded? Does he accept that if affiliation fees are to count as individual donations then trade union members must be able to opt in to political funds, rather than them being left to opt out? Will he give an undertaking that, despite the threat by the Labour Party’s NEC that it will vigorously oppose plans for a cap on donations, the Government will consider it positively? Does the imminent retirement of the Prime Minister not present a real opportunity to achieve agreement on such a cap without pressure on the leader from elements of the Labour Party? Should he not now seize that chance as part of his legacy?

Will the noble and learned Lord also accept that, if we are to have tighter caps on local spending, it must be done at a level, and in a way, ensuring that allowances, including the new £20,000 communications allowance now proposed for MPs, do not give unfair advantage to incumbent MPs, most of whom are, naturally enough, from the Labour Party? Does he agree that if we are to increase engagement with politics, as we all wish, then grass roots participation is an important part of all of this? It is surely essential that we do not centralise control at the expense of muting local enthusiasm and local political activity.

I agree with the noble and learned Lord that, while there may be arguments for state funding in some forms, it cannot happen until public confidence is restored. Grafting state funding on to an unreformed system would increase, not diminish, public cynicism and alienation. Does he agree that any state funding must be introduced in a way that promotes more democratic engagement, like tax relief on small donations or matched funding for non-taxpayers as recommended by the Committee on Standards in Public Life?

We note, and do not disagree with, Sir Hayden’s view that the Electoral Commission needs substantial reform and improvement if it is to carry out more effective regulation. I hope that the noble and learned Lord agrees that this must not mean major extra spending. The Electoral Commission’s activities in pushing new-fangled voting systems have not strengthened confidence in democracy. We would be better served by a body that focused on securing confidence in the existing system, rather than dreaming up new ones that have proved open to fraud and abuse.

Finally, can the noble and learned Lord set out a timetable on which the Government will now pursue the direct talks with parties that Sir Hayden recommends? Our door has been open for a year. It still is.

My Lords, I, too, thank the noble and learned Lord the Lord Chancellor for repeating the Statement. Before I start on the topic, the monetary terms in these proposals come to perhaps £25 million. It is amazing that we are discussing this today, yet there has been another Statement, which neither the Government nor the Opposition wish to take in this place, about the London Olympic Games rising from £2.4 billion to £9.35 billion, nearly four times what it had previously been on the guess of two years ago. Well, perhaps this Statement on political funding is more important in the long term. I declare an interest: for the past 32 years, I have been a director of the Joseph Rowntree Reform Trust Ltd, which has been involved in political funding since 1905.

We welcome the report as a basis for continuing negotiations. Sir Hayden Phillips has done a valuable job, much of it shuttle diplomacy. Will he be retained for further service? He seems to have gained expertise in the past few months of shuttle diplomacy, and his retention could be important if these objectives are to be achieved. We accept his broad analysis and principles. The number of times he uses the word “fairness” in the report is interesting; fairness is incredibly important.

There is a need to end the arms race in political spending. I see the two points that could make the whole business of trade union money difficult. But there is another point about the way in which money and big donations are used in particular constituencies. It is one thing for the noble Lord, Lord Strathclyde, to try to link us with UKIP but one of the biggest problems is his colleague, the noble Lord, Lord Ashcroft, ploughing money into certain constituencies and trying to buy the seat.

There is a triple objective here: reducing the national spend, stopping the buying of the political system by a handful of individuals and introducing state funding. I congratulate Sir Hayden on the neatness of his system in terms of state funding: on the one hand, linking political funding to votes polled—in votes polled you can see the support for a particular cause—and, on the other hand, just as importantly; perhaps more so, linking to a form of membership. He is suggesting that you pay £5 which is backed by a further £5 from the Government. There is, as has been indicated, the possibility of tax relief or the other possibility that the Power inquiry has suggested of ticking a box when people are in the polling station. But it is important to achieve a twin objective here of encouraging the political parties to enhance their membership, their interest in their causes and their activism.

I referred earlier to my connection with the Joseph Rowntree Reform Trust. This very day an opinion poll has been published. It was in the Independent newspaper and it suggests:

“Political parties should try and agree on proposals for constitutional reform, such as changes to the way parties are funded, before these proposals are voted on by Parliament”.

Some 76 per cent agreed to that and 12 per cent did not. On the other hand, it suggests:

“The party in power should develop its own proposals on significant constitutional issues, such as the way political parties are funded, and push those proposals through Parliament, even if other parties disagree with them”.

Forty-five per cent were in favour and 44 per cent against.

What is the Government’s view? How long is it going to take? What is the timetable for getting consensus? Reference has been made to the report of Lord Houghton, in 1976. He was my opponent at the first election I fought in 1970 and he asked me to put in a submission to that report. That was 31 years ago. If we are not careful, it is going get like House of Lords reform. So where is this going?

It is important that there is public backing. Sometimes the public do not realise the position. I recall some years ago putting in my return of expenses following an election and the person I was speaking to—this has happened more than once—seemed to think it was a claim. Many members of the public do not know the extent of political funding that is paid for by public sources. A vibrant democracy is important but it does cost money. These proposals in the round are modest and appropriate.

My Lords, I entirely agree with the noble Lord, Lord Strathclyde, that it was sensible to wait until the Armed Forces debate had concluded and that we all owe thanks to Sir Hayden Phillips for his work. I agree with him that funding of our political process is important; public confidence depends on it. It was typically discreditable of him to say that the Conservative Party put forward proposals and we did not agree them. What is the Conservative Party’s position in relation to, for example, caps on expenditure? The chairman of the Tory party, someone called Mr Francis Maude, said:

“Let’s be quite clear: the reason party funding needs reform is nothing to do with how much is spent”.

It would therefore appear that the Tory party does not agree with the idea of caps on expenditure.

As the noble Lord, Lord Strathclyde, knows, all three main parties agree in principle to some form of donation cap. The Select Committee on Constitutional Affairs recommended a voluntary arrangement. We agree, and think that this would work by providing enough flexibility to respect the different structures and traditions of the various parties. That is our position on the trade union link, and it is reflected in much of what Sir Hayden says.

The noble Lord, Lord Strathclyde, asked about the timing. Our position on timing also answers the question asked by the noble Lord, Lord Shutt of Greetland. My right honourable friend the Prime Minister has said that he welcomes Sir Hayden Phillips remaining involved and he believes that further discussions,

“should begin soon and conclude before the summer recess, in order to build a platform for legislation in the next Parliamentary session”.

That is the timetable indicated. I very much agree with the noble Lord, Lord Shutt of Greetland, that one of the great concerns is expenditure buying constituencies in the course of general elections. He obviously has in mind the book Dirty Politics Dirty Times by the noble Lord, Lord Ashcroft, which analysed the election in May 2005. The noble Lord, Lord Ashcroft, said that,

“it soon became clear that we had been wasting neither our time nor our resources. Of the 33 candidates who won seats from Labour or the LDs, no fewer than 25 had received support from the fund that I had set up with Leonard Steinberg and the Midlands Industrial Group”.

This says a lot about campaign expenditure.

My Lords, perhaps I should declare an interest as a former chairman of the Conservative Party. There is a rather delicate party dance going on in reaction to this report. The Government love talking about the political spending arms race but are not very keen to talk about caps on donations. They are particularly not keen to talk about donations from trade unions. My party is keen on donation caps but—how can I put it?—is perhaps rather more coy about spending restraints. Is the noble and learned Lord the Lord Chancellor aware that, if we are to clean up the system, we need both of these? Surely Sir Hayden Phillips is quite correct when he says that the present position is unsustainable. Surely he is also right when he says that caps on donations must include trade unions, which otherwise remain open to the charge of buying influence. Equally, there must be limits on spending. I am not sure about “rich Conservatives”, which was rather suggested. I was chairman of the Conservative Party when we fought the 1994 European election with no national posters whatever. We launched a lot of posters on vans, but we could not afford to put them up anywhere else. The odd thing is that it did us no harm whatever.

As the noble and learned Lord the Lord Chancellor said, the two main parties got through £90 million in the 12 months leading up to the 2005 election. Surely if parties are to spend at this ever-increasing rate, it is entirely unthinkable that they can say to the public, “We want more taxpayer funding”.

My Lords, I greatly welcome the noble Lord’s enthusiastic support for limits on expenditure. I also take his remarks to be enthusiastic support for Sir Hayden’s proposal that national expenditure limits should be equal. That was absolutely clear from the splendid words that he used at the end of his intervention when he mentioned the £90 million. I also take it that he utterly condemns the words of the noble Lord, Lord Ashcroft, which I read out, to the effect that it would be wholly wrong to spend money outside the 12 months to which he referred in order to buy seats.

My Lords, is the noble and learned Lord the Lord Chancellor now going to endorse my words about caps on trade union spending?

My Lords, the noble Lord heard what I said, because he was here. I do not want to be wearisome, but I repeat that all three main parties agree in principle to some form of donation cap. The Select Committee on Constitutional Affairs recommended a voluntary arrangement. We agree, and think that this would work by providing enough flexibility to respect the different structures and traditions of the various parties, including the trade union movement. I am gratified by the noble Lord’s support for caps on expenditure.

My Lords, the noble Lord, Lord Fowler, referred to cleaning up the system. Does my noble and learned friend agree that the origin of the Hayden Phillips inquiry was nothing to do with the trade unions, the point on which he concentrated. The noble Lord, Lord Strathclyde referred to “opting in”. Does my noble and learned friend agree that this proposal, which was not made by Hayden Phillips, goes beyond the 1927 Act enforced by a Conservative Government after the General Strike? Does he further agree that, in regard to monitoring individual trade union member subscriptions and the right to opt out, as with many organisations such as the National Trust—I am sure many noble Lords are members of such organisations—when one joins, one signs one mandate? There is no further paperwork apart from a banker’s order or however you pay your subscription. Is the approach not totally consistent with how other organisations carry on their financial affairs?

My Lords, my noble friend makes a perfectly valid point. No doubt that is the kind of detail that can be discussed in the cross-party talks.

My Lords, I welcome the Phillips report. It is one of those reports that seems to be about a detail of the democratic process but actually goes to the heart of it. First, at the heart of the democratic instinct, which is one we hope to foster in our society and which needs more fostering, is the equal value of all individuals symbolised in the votes that we cast. In a money-driven culture, there is a risk that people will feel that, although individuals are equal when they stand with their pencil in the polling booth, the real influence in the political process lies somewhere else. This report is to be welcomed, and noble Lords have addressed it with great energy.

Secondly, a problem we face is that there is the sort of public suspicion now about political parties that used to be attached to trade unions. There used to be talk of “union barons”. Perhaps parties need to recognise the degree of public suspicion that they are not really controlled by their members and no longer meet members’ aspirations. That is perhaps why membership has declined. It is important that we address party funding not by trying to find the loophole in each other’s arrangements but in recognising that in all our arrangements there is a need to recover public confidence in the parties themselves.

My Lords, the right reverend Prelate makes a number of very important points. At the heart of this debate is the recognition by all people that we need political parties and that the good functioning of our democracy depends both on political parties and on the public having confidence that they will appropriately reflect their views and be able to prioritise in the public interest. The political party, unlike the “one issue” adherent to politics, must try to prioritise and make choices. I agree with the right reverend Prelate that the more people trust political parties to do that in a way that reflects their interests, the more we will have their confidence and be able to lead change where appropriate.

My Lords, as someone who was a member of the Neill committee when it produced its report on party-political funding, I am very pleased with the report of Hayden Phillips. I am also pleased with the extent to which the Government have agreed to accept it.

At chapter three, on limiting donations, on page nine of the report, when discussing how to fix what the limit should be, Sir Hayden says:

“My hope is that the talks that I am recommending will lead to an agreement on a limit on which the Government will then bring forward legislation for Parliamentary approval”.

The Statement says:

“The Constitutional Affairs Select Committee recommended a voluntary arrangement. We agree and think this would work by providing enough flexibility to respect the different structures and traditions of the various parties”.

However, the Statement does not say anything about something that was originally a voluntary arrangement becoming the subject of legislation, as Sir Hayden suggests. Is it correct, as I suspect, that in this Statement the Government are indicating that the limit on donations will remain voluntary? If so, how does the noble and learned Lord expect that it will be possible to enforce it? A purely voluntary arrangement will have no sanctions—except, perhaps, that the other parties will also break the limit—and any party that is in a particularly strong financial position will be greatly tempted to break it. What value can be placed on a purely voluntary agreement that has no sanctions attached to it?

My Lords, the noble Lord identifies particular issues that have not been resolved in Sir Hayden’s report. Under the heading “Remaining obstacles”, Sir Hayden identifies where issues have not been resolved. I cannot answer the noble Lord’s questions, not because there are no answers, but because Sir Hayden explicitly envisages that the discussions will seek to address the sort of issues that he has identified; for example, the extent to which it would be enforced by regulations or legislation is yet to be discussed. I am sorry that I cannot provide a better answer, but Sir Hayden has been looking at this and suggests further discussions.

My Lords, apart from any past interests, I ought to declare a current interest as a member of the Labour Party Superannuation Society. Can my noble and learned friend confirm that, when the Statement says that any system of caps should not gratuitously advantage one party against another, it also implies that it should not gratuitously or otherwise disadvantage one party against another, as would undoubtedly be the case if the proposal of the noble Lord, Lord Strathclyde, were accepted?

Secondly, and more importantly, on state funding, the noble Lord, Lord Shutt, referred to the report by the late Lord Houghton of Sowerby in 1976. It recommended three forms of state funding: one which supported parliamentary activities, particularly those of the opposition parties, that has been acted on and funding has greatly increased under this Government; one for policy development, for which a small amount of money has been provided; and, more substantially, one for support for the activities of political parties in the country—party organisation and party education. That suggestion has never been enacted. Lord Houghton’s report benefited parliamentarians hugely, but it has not benefited the operation of political parties one iota where it matters, which is at the grassroots. Yet the grassroots have been faced with increased costs. Are we now in a situation where the Government and the leaders of the other parties can sensibly discuss state funding?

My Lords, the answer to the first question is yes; it should not unfairly disadvantage one party against others. My noble friend asked to what extent Lord Houghton’s third category is dealt with by public funding. Sir Hayden’s report envisages that, if agreement can be reached on everything, there could be public funding that could be spent not just on items one and two but on the general activities of parties.

My Lords, is it not in the interest of parliamentary democracy that the policy development work of the opposition parties and the activities of their Front Benches in Parliament should be well resourced by the citizen as taxpayer? Has my noble and learned friend found any convincing argument—I have not—in the case put forward by Sir Hayden Phillips for co-opting the taxpayer to fund the parties campaigning in the country? Why should the parties be enabled to spend more than they can raise through voluntary subscription? I know this is becoming an unfashionable view, but it is a question that we are going to need to answer.

I declare a sort of interest arising from a different incarnation. I had responsibility for co-ordinating the general election preparations of the Conservative Party in 1978 and 1979. It will be within the memory of your Lordships that the Conservative Party employed an advertising agency at that time. We had great fun working with the noble Lords, Lord Saatchi and Lord Bell. We annoyed the Labour Party something wicked; it cost us a fortune. But would the result of that general election have been any different if we had spared ourselves the expense?

What will the stratospheric spending that Sir Hayden Phillips still allows the parties to engage in on advertising, market research, telephoning voters and helicopters achieve beyond perpetuating the cynicism of electors about our politics? Should we not therefore limit the combined spending of the parties—nationally and locally—at a low level that is realistically achievable by the three main parties, without taxpayer subvention?

I add one postscript to my noble and learned friend: while of course almost everything of what we have debated in this place earlier in the week will take a long time to resolve, is there not a very strong case for proceeding rapidly to place the Appointments Commission for appointments to the House of Lords on a statutory basis as soon as possible to make clear the determination of Parliament that there will be in future no link between donations and honours? Should we not honour those who contribute money to political parties with a small “h” but not a big one?

My Lords, my noble friend posed three questions. The first was, why public funding? All I can do is refer him to page 17 of Sir Hayden’s report, where three reasons are given. First, measures in this report will restrict the money available because it will cap donations. Secondly, things are going up in price. Thirdly, there is a decline in democratic engagement in this country, manifested in falling election turnouts and falling party membership rolls. Those are the reasons he advances; I can do no better than refer to what he has said.

My noble friend’s second question was about what difference much of the party expenditure makes—helicopters, posters and so on. He is just as good a judge of that as I, but I agree that some election expenditure has the effect of turning the electorate off political parties rather than turning them on. His third question related to a statutory Appointments Commission. That is something we luxuriated in for two days at the beginning of this week. The Appointments Commission currently does a pretty good job but I can see a strong case for at the very least putting the Appointments Commission on a statutory basis and making other changes to this House as well.