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Political Parties: Funding

Volume 702: debated on Monday 16 June 2008

My Lords, with the leave of the House, I will now repeat a Statement made in another place by my right honourable friend the Lord Chancellor and Secretary of State for Justice on the funding of political parties. The Statement is as follows:

“Mr Speaker, the Government are today publishing a White Paper on party finance and expenditure in the United Kingdom. Copies are available in the Vote Office and on my department’s website.

“How our politics is funded is vital for the health of any democratic system, ours included. Over the last decade important steps have been taken towards achieving this. In 1998, the Committee on Standards in Public Life, under its then chairman, the noble Lord, Lord Neill of Bladen, published a landmark report, which went on to form the basis of the Political Parties, Elections and Referendums Act 2000.

“It must also be fundamental to the health of our democracy that the regime for regulating political parties should never be used as a partisan tool by one party against others and, instead, that change should be by way of broad cross-party agreement and achieved in a manner which carries wider public support. It was that spirit which led to the passage of the 2000 Act by consensus, and which continues to be a guiding principle for this and, I hope, any Government’s approach.

“The 2000 Act represented the first major overhaul of the regulation of party funding and expenditure for over 100 years. It has greatly helped to improve transparency and standards. But it has not proved sufficient. In the intervening period there has been continuing public disquiet about many aspects of how parties and politicians are funded.

“In March 2006, Sir Hayden Phillips was therefore invited by the then Prime Minister Tony Blair to conduct a further review, including as to whether state funding should be enhanced in return for a cap on donations. Sir Hayden’s final report was published in this House on 15 March 2007. It made major recommendations for reform of the Electoral Commission, for tightening of controls on expenditure, for greater transparency and for a gradual move to enhanced state funding linked to a cap on donations.

“All parties explicitly welcomed Sir Hayden’s report and accepted its main recommendations, including those for cross-party talks chaired by him to take forward the report’s recommendations.

“These talks proceeded satisfactorily until the Summer Recess. Sir Hayden then issued detailed proposals based on what he judged might form the basis for a consensus between the parties. It is a matter of great regret that in late October one of the parties decided to walk out of the talks, making agreement impossible.

“Against this background Her Majesty’s Government undertook in the Queen’s Speech to bring forward proposals on party finance and expenditure. This White Paper is the result. It proposes measures to improve the regulatory system. It sets out the Government’s aspiration for long-term comprehensive reform, building on the model proposed by Sir Hayden Phillips. In those areas where the Government believe broad consensus exists, it outlines plans to bring forward immediate legislation, including reform of the Electoral Commission and more effective controls on candidate spending.

“It is the excessive spending by parties and candidates which gives rise to the wider problems with party finance which we see today. Repeated independent reviews—including those from Sir Hayden Phillips, the Committee on Standards in Public Life and the Constitutional Affairs Committee—have called the problem one of a ‘spending arms race’, although some individuals still question its existence. A spending arms race is evident within each electoral cycle. As Sir Hayden’s report said, spending by the two largest parties was £90 million between them in the 12 months preceding the 2005 election, up from £65 million in the 12 months before the 2001 election. That was despite the fact that the campaign limit was set at £20 million for each party. Although parties did not act unlawfully, their ability to spend well above the campaign spending limit in the Act reveals a problem with the rules. In the interests of democracy, we need finally to achieve what all parties had sought to do through the 2000 Act, and stop this damaging arms race.

“The White Paper proposes some important steps for immediate action. Strengthening the Electoral Commission will send a clear signal that politics and politicians are effectively scrutinised—never above the law. The Electoral Commission will have robust civil sanctions to deploy, with criminal proceedings as an alternative. The commission will have more effective investigatory powers, enabling it to access information from anybody where it suspects a breach of the rules. Its governance arrangements will be overhauled better to ensure that there is greater practical experience available to it. The Committee on Standards in Public Life, the Constitutional Affairs Select Committee and Sir Hayden Phillips all recommended that the commission would benefit from the knowledge and judgment of individuals with political backgrounds. So we propose, as the Committee on Standards in Public Life recommended, the appointment of four commissioners with recent political experience and fewer restrictions on staff appointments. Far from politicising the commission, this will, in fact, enable the commission better to understand the people it is regulating and so help it to do a more effective job.

“There has been widespread concern that a loophole in the 2000 Act has allowed certain unincorporated associations to obscure the original source of donations to parties. As the Phillips review proposed, these will be better regulated, as will third-party campaigning organisations.

“Let me turn to spending by parties. In 2000, when I took through the Political Parties, Elections and Referendums Act, all believed that we were, in the words of the report of the noble Lord, Lord Neill, ‘buttressing’ the existing restrictions on spending including those contained in the Representation of the People Act 1983 and its predecessors. What we did not foresee at that time was the likelihood of significant increased and unregulated candidate spending as a result of the detailed drafting of the Bill; though from the Conservative Front Bench, the late Lord Mackay of Ardbrecknish sought to alert us to this problem by moving a clarifying amendment on behalf of his party. The White Paper therefore proposes a return to the system of ‘triggering’, which will regulate all candidates’ spending directed towards electoral success and which was a key feature of the previous Administration’s 1983 Act.

“A stronger, more focused Electoral Commission will help to ensure that the previous uncertainty about these rules will be avoided. In parallel with this, we propose to re-examine the list of activities which are defined as campaign spending.

“Let me turn to the question of introducing donation caps in return for enhanced state funding. To do this, we would have to have not only all the main parties with us, but the public—the taxpayer—as well. This is not the case at present. We are very ready to have that debate and, indeed, to discuss donation caps at a lower level than Sir Hayden recommended, but that will require us to come together to have the debate between the parties and the public.

“My intention is to introduce a Bill before this Summer Recess, but with its Second Reading in the early autumn and the other stages of the Bill carried over into the next Session. This will allow ample opportunity for scrutiny.

“By any international comparison the standards of our political system have long been high, and nothing infuriates most Members of Parliament, local councillors and especially the thousands of unpaid voluntary activists in all parties more than the fact that their work and good faith can be tainted by the failures of a very few. But perceptions matter hugely. So I hope the whole House recognises the imperative in this situation of strengthening the probity of British politics and of people’s faith in our democratic process as a whole. That is the principal aim of this White Paper and we hope that all parties will support us in this endeavour. I commend this Statement and the White Paper to the House”.

My Lords, that concludes the Statement.

My Lords, I am, as always, grateful to the noble Lord for repeating the Statement. It has been a pretty extraordinary day, with some three Statements brought before the House by the Government. First, we had the further tragic news coming from Afghanistan and we are shortly to hear from the Foreign Secretary or his delegate in this House, no doubt bringing a piece of white paper to wave before the House, having discussed the Irish referendum with his colleagues in Europe. In between those two Statements, the Government have squeezed in this small Statement on party funding. The noble Lord might think back to that special adviser of one of his former colleagues who talked about a good day for burying bad news. I repeat that.

That is what this Statement is about. We all know where the Labour Party’s support is in the polls. We all remember what happened in the recent local elections. We all remember the Crewe and Nantwich by-election. What happened before then to its fundraising? I do not recall any enthusiasm by the Labour Party, when it was doing so well, for bringing forward such proposals as this. We should not complain. This is a case of “the sinner repenteth”.

We all agree that the reform of party funding is part of a programme needed to restore trust in our politics—although I think that keeping promises on things such as the EU referendum are equally important. The noble Lord might consider that as well. There is a perception that large donations—whether by individuals, shadowy purpose-built partnerships incorporated on Fifth Avenue or organisations such as trade unions—can buy undue influence over policy or patronage. That is why we tabled radical proposals in early 2006, why we supported the subsequent appointment of Sir Hayden Phillips and took part constructively in those discussions. As evidence of our commitment, we accepted that as part of an overall settlement, there could be an increase in state funding for parties, even though we neither seek it nor think it desirable. Many people think it would be a sad day if parties became predominantly dependent on the state. Nor do we accept that there is an arms race in spending between the parties. I would like to see what evidence there is beside the assertions in the report from the Neill committee. However, we accepted that there could be overall caps on spending by parties even though all the evidence is that it is how money is raised that the public worry about, not how it is spent.

It was explicitly accepted by the then Prime Minister, Mr Tony Blair, that there would be no no-go areas in the discussions. In particular, union funding would not be exempt from any donation caps. Does the noble Lord accept that three things were always understood between the parties: first, that reform had to be comprehensive; secondly, that there should be no cherry-picking of proposals for legislation by the Government to serve their own party's partisan interests; and thirdly, that nothing would be agreed until everything was agreed?

There is much in the Statement that is neutral in its effects as between the parties, especially in terms of reform of the Electoral Commission, whose record has been disappointing and which has presided over a calamitous so-called modernisation of our voting systems, which has, as your Lordships' House repeatedly warned, enabled increased fraud and undermined trust in our electoral system. However, there is no cross-party consensus on the key areas of caps on donations and spending, and on additional state funding. The discussions came close to agreement, but will the Minister not accept that they foundered on the key issue of whether trade union donations should be subject to donation caps on the same basis as other donations? Why should they not be? Why did the Minister’s right honourable friend, Mr Straw, refuse to discuss giving union members the right to a real choice over whether to pay the political levy? Could it be anything to do with the state of finances of the Labour Party? Does the noble Lord acknowledge that when less than half of union members vote Labour, let alone want to support it financially—and yet unions declare that 100 per cent of their members are paying the political levy to Labour—the idea that these are voluntary donations carries little conviction?

Will the noble Lord also accept that it would be unthinkable for Government to force through caps on what parliamentary candidates can spend from money that they have raised privately, while sitting MPs can spend ever more of taxpayers' money, as they do, on promoting themselves? We came close to an overall comprehensive agreement that could genuinely have started to repair the public's trust in politics. As my right honourable friend Francis Maude said again today, we could still do so. But it would require the Government to accept that dependence on a small number of union bosses has to end. One party's dependence on union bosses must not prevent us getting the reform our politics so desperately needs. We are still ready to work for agreement on fair rules that affect everyone, but we cannot accept a one-sided partisan Bill that the Government intend to bring forward designed to protect the interests of the governing party at the expense of all other parties in the country.

My Lords, the proposals outlined are a very modest step towards the further necessary reform of the system for controlling the funding and expenditure of political parties. Of course, they will be welcomed on these Benches, although I suspect that we and many others will wish that they had gone much further than is proposed. The appointment of some members of the Electoral Commission with hands-on party political experience will be very welcome and was argued for by these Benches and by others with relevant experience during the passage of the legislation in 2000.

We want the commission to be effective and realistic. We believe that these proposals will help. We want it to have greater investigatory powers and for it to flush out into the open the activities of unincorporated associations that try to hide behind a cloak of anonymity to fund certain political parties. The proposals for expenditure controls are very modest. We argued in 2000 for lower limits to what parties can spend during election campaigns. Reintroducing the trigger for the start of the period in which election expenses are limited and increasing the categories for expenditure that must be included within limits will help. But it would have been easier and better to have simply reduced the amounts that parties can legally spend. Reducing the disproportionate influence of a few rich men—a number of whom sit in this House or have aspired to do so—is a worthy aim. But these proposals do not substantially address the problem that our system allows millions of pounds to be worth more in real influence than millions of votes.

I hope that the Minister will confirm that this is not the Government's last word on party funding. He will understand that we seek to go further more rapidly. Furthermore, will he accept that while no one party should be able to secure partisan advantage by changing the system in its favour, no one party should be able to benefit disproportionately from the largesse of a few millionaires by vetoing further steps towards reform?

My Lords, I thank both noble Lords for their comments on the Statement. The noble Lord, Lord Henley referred, to this as the squeezed Statement in the middle. I rather thought that we were the generous filling in the middle. We will see where that gets us.

I agree that the whole question of party funding is important, as is public confidence. It is a matter of genuine regret that the noble Lord’s party has moved so far from where it appeared to be when the Hayden Phillips proposals were first announced. I remind the noble Lord that his noble friend Lord Strathclyde said on 15 March 2007:

“We … welcome the report. We accept its main recommendations”. [Official Report, 15/3/07; col. 907.]

What a great pity it is that his party chose to walk away at a moment when agreement seemed possible. I do not usually quote from members of the Liberal Democrat Party, but as Mr David Heath said on 30 October 2007:

“For the Conservatives to now … walk away is a tragedy and is very short-sighted on their part”.

Hear, hear, my Lords.

As I said in the Statement, the proposal about state funding, which came from the work of Hayden Phillips, helps to acknowledge that if there were a cap on donations, there would be a shortfall in funding. As the Statement makes clear, we believe that there would have to be political consensus on that matter and clear, public support. We do not think that we are in that position at the moment but we stand ready to discuss this further with the political parties.

On trade union funding, it is worth recalling that Hayden Phillips said in his work that affiliation fees may be regarded as individual donations, provided that there was transparency and the funds were traceable back to individual donations. I say to the noble Lord that donations to trade unions are already more regulated than donations from other organisations. The new committee’s report of 1998 said that no case for reform in relation to trade unions had been made. I remind the noble Lord that the evidence from his party in 1998 was that it was not illegitimate for the trade union movement to provide support for political parties. I also point out that in 2005, only 45 per cent of political funds from affiliated trade unions went to the Labour Party; that the 10-year ballots that trade unions have to have show continuous support for them to have political funds; and that between 2000 and 2006, only three complaints were received about this matter by the certification officer regarding political funds, two of which were withdrawn and one of which was not upheld. Around 10 per cent of trade union members opt out of making political funds. The trade union and Labour Party organisations have confirmed that they have agreed to respond positively to the Hayden Phillips proposals about transparency and traceability by including clear information about political funds on membership forms and moving over time to full affiliation of all levy-paying members.

The noble Lord, Lord Henley, referred to incumbent funds or the communications allowance. That is available to all MPs to enable them to do their constituency role. The communications allowance was unanimously approved by an all-party committee of senior MPs—the Members Estimate Committee—which included Members from his own party. He said that he does not believe that there is an arms race but the reports state that the estimated expenditure of his party and my party in 2005 was £90 million; that is up from £65 million in 2001. I would have thought that that was very clear evidence indeed of an arms race. Given that the talks had gone so well, it was a very great pity indeed that the noble Lord’s party chose to walk away at the last moment.

The noble Lord, Lord Rennard, said that the proposals were modest; none the less, they are important. As he said, changes to the Electoral Commission—greater focus on ensuring integrity of the system, greater sanctions, greater investigatory powers and the appointment of commissioners who have some experience of the political process—should enhance its role as an effective regulatory body. On the more fundamental issues, this is not, of course, the last word. I agree with the noble Lord that no one party should have a veto. However, it is in the public interest that we should try to achieve as much consensus as possible.

My Lords, why do we need consensus on the question of a cap? What is so desperately important about that consensus?

My Lords, in terms of the integrity of the political process and how the public regard the political parties and their finances, the arrangement is likely to command much more confidence if there is general agreement, as we had with the Hayden Phillips review and the cross-party discussions. It is sad that we are not there but that does not mean that we should not strive for that again.

My Lords, is the Minister entirely comfortable with incumbent funds and the communications allowance, which normally amounts to a glossy that comes out shortly before local elections telling us about all the wonderful things that the Member of Parliament has done? Under any of the old rules, the sitting Member always had an advantage over the candidates who stood against him because he communicated with his constituents. Is it really right that taxpayers’ money should be used to enhance the position of a sitting Member to the disadvantage of the candidates who oppose him in an election?

My Lords, I do not think that there is much that I can add to the comments that I have already made. The noble Lord referred to the communications allowance, which is set at £10,000 per Member with a cap of £7,000 on the provision of pre-paid envelopes. As I said, this was unanimously agreed by the relevant House of Commons committee. It clearly is applicable to all MPs from whichever party they come. In an era in which all of us are concerned about the engagement between politicians and the public, I should have thought that anything that helped Members of Parliament to communicate effectively with the people living in their constituency would be welcomed.

My Lords, does the Minister agree that parties should have funding in elections that is broadly on a level playing field and that allowing very wealthy individuals to donate vast sums—in six or even seven figures—distorts the whole political process? Does he also agree that parties should be encouraged to obtain small donations from many people? I should add that I was a member of the Committee on Standards in Public Life—we researched and published our principal report in 1998. One method that we suggested then, which might have a number of virtues, would be something in the nature of a gift aid scheme for donations to political parties. Making modest donations to parties benefits the democratic system and it should be recognised that it does so. On the involvement of the tax system, that is already recognised in relation to inheritance tax, where donations to established political parties are tax exempt. Since inheritance tax is mainly paid by those who are supporters of the Conservative Party, would it not be fairer to extend similar tax relief to small payments such as membership subscription?

My Lords, I am sure that my right honourable friends in the Treasury are always interested to hear of suggestions about taxation and tax incentives. On the substantive point, I am sure that all of us who are concerned about the health of our democracy would wish to see as many people as possible make contributions to the political party of their choice. Anything that we can do to encourage that should be considered very seriously, particularly at a time when all of us are concerned about overall reductions in the numbers of people actively involved in party-political activities. In the—

My Lords, I am responding to the noble Lord, Lord Goodhart. He will know that Hayden Phillips, in the work being discussed, suggested incentive payments of £10 provided by the state for every £10 raised by the political parties. We do not think that we are in a position to go forward with state funding for the reasons that I have given. However, we very much welcome anything that we can do to encourage as many people as possible to participate and donate.

My Lords, is it not the case that, while my noble friend’s Statement quite rightly focuses both on income and expenditure, for those of us—I hope that it is all of us—who feel that money should not determine the outcome of elections, expenditure is more important than income? That has been the thrust of most electoral law since control on candidates’ expenditure was first introduced at the end of the 19th century.

We have had many views on what is going on across the Atlantic where much is said about how wonderful the system is and how it reinvigorates politics. However, what is disturbing to all of us are the colossal sums of money that have to be raised in order for a democratic election to take place these days. Can my noble friend undertake, particularly in the light of those views, that the focus of his attention will be on limiting the amount of money that individual candidates can spend on their campaigns in their constituencies and on putting a tough cap—which I would make more severe than it is at present—on the total amount of money that can be spent in the national campaign? Whatever language we use, it is the expenditure of parties which clearly makes it grossly unfair if one is spending far more than the other.

My Lords, I certainly agree with my noble friend on his general premise that money should not determine the outcome of the elections. I am sure that he is right to point to some of the lessons that can be learnt from the US. There are lessons to be learnt both ways here: we can also learn from the US in the way that many individuals—this goes back to what the noble Lord, Lord Goodhart, said—make contributions to political parties as well. In a sense, it is an endeavour to embrace good examples of a wider involvement in the political process and not the kind of arms race that I have described, and to which he has referred.

The extra spending in the 2005 election as compared to 2001 is a warning of what might happen. That is why we must keep these matters under very close review and why we very much welcome the continuance of a cross-party debate on those matters.

My Lords, some things in this Statement are obviously welcomed. However, the Minister said, and has made it continually clear, that there are going to be no limits on donations, including trade union contributions. Does that not mean that this measure will not tackle one of the fundamental defects in the present party funding system; namely, the way that trade unions can assert their right to have policies accepted in return for the contributions they make? “No say, no pay” is how one trade union leader once put it. Does the Minister not understand that, until that is tackled, this Statement and White Paper will be seen as not only incomplete, but as a party-political measure?

My Lords, I cannot possibly see why this would be seen as a party-political measure. All the proposals in today’s Statement have been the subject of considerable discussion and many of the reports that have come forward in the past few years have covered that ground. I do not recognise what the noble Lord, Lord Fowler, says with regard to the relationship between trade unions and the Labour Party. What I do recognise is that this is a highly regulated area and that his own party, in evidence to the committee of the noble Lord, Lord Neill of Bladen, only a few years ago, made no recommendations of any substance in that area. In relation to the opportunity that people have to make complaints about how the system works, very few complaints have been made.

My Lords, I assure my noble friend that I had intended to ask a non-partisan, non-contentious question about the Electoral Commission until the anti-trade union tirade from the noble Lords, Lord Henley and Lord Fowler, which was not unexpected in either case. Instead, I ask my noble friend whether he shares my disappointment that the two greatest experts in this House on party funding are unable to be present today. One of them, who promised the appointments committee that he would relocate his domicile to the United Kingdom, failed to do so and so is effectively barred from attendance in this House. The other one, who bankrolls the Tory party at national and local levels, is effectively resident in Belize. Does that not say a great deal about the modern-day Tory party?

My Lords, I always find that my noble friend brings to your Lordships’ House an entirely impartial and balanced view on these matters.

My Lords, much as I would like to speak on the real substance of this debate, there is a very important Chief Whip’s point that I should like to raise. Over the past three or four years I have been concerned about the provision of funds for the political parties within Parliament, in particular the position of the Cranborne money, with regard to which the figures available have been created by some system of great mystery. I have been told that this would be something which would be attended to within the slipstream of whatever came from Sir Hayden Phillips’s activities. Therefore, I should like to ask whether it is intended that these things can be attended to in the slipstream.

Only a few weeks ago, because of the Cross-Benchers’ inadequate resources here, an emergency dispensation was made. It is important that this should be looked at. I hope that the Minister can answer in the affirmative that this can be coped with in whatever Bill is proposed in the near future.

My Lords, I am not at all sure that the issue of Cranborne money is in my gift, although I note what the noble Lord says. I also note that his party received £228,445 in 2007-08, while the Conservative Party received £457,000 and the Cross-Benchers £41,000. My noble friend the Lord President is aware of these matters and would be happy, I am sure, to engage with other Members of the House on them.

My Lords, I declare an interest as the Minister in the then government who reached complete agreement with the noble Baroness, Lady Gould, on the subject of the level of expenses in parliamentary by-elections in 1989, to the great relief of agents of all three major parties throughout the country.

Will the strengthening of the Electoral Commission—both as to quality and powers—be reflected in a greater willingness of the Government to accept its advice, especially in the area of postal votes, where in recent years the posture of the Government would have secured the admiration of Dr Pangloss?

My Lords, that is not an entirely fair representation of the Government’s actions in this matter. We listen with very great care to recommendations made by the Electoral Commission. In fact, the noble Lord will know that we have made changes. We are looking at these matters very seriously and continue to discuss them in relation to the question of individual voter registration, which I suspect he had in mind. We hope that the actions we have announced today will strengthen the future effectiveness of the Electoral Commission. I am sure that a strengthened commission will be listened to by government even more eagerly than is the case now.

My Lords, it is true that the Statement and the White Paper are about party financing but what we really need to be concerned about is the public’s participation in the political process. The White Paper does not deal with that at all; it simply deals with the financing of political parties. At present, political parties are held in great disdain by the public and we need to return to the days of active participation in political parties by the people of this country. When I joined the Labour Party—I was expelled a few years ago but I remember when I joined it in 1947—it had 1 million individual members and 14 million trade union members. The Tory party had 3 million individual members, and I think that even the Liberal Party had about 40,000 members. Therefore, at that time people were involved in the political process. Now, they feel divorced from it and nothing in the White Paper will alter that. Only decent policies and activity on the ground will bring back the public.

My Lords, first, I agree with the noble Lord that this is a very important matter, but it really is outside the scope of the Statement and the White Paper. However, I say to the noble Lord that the more public confidence we can bring about by ensuring that party funding is dealt with as transparently and effectively as possible, the more likely it is that members of the public will be willing to engage in the political process. I absolutely agree that political parties have a critical role to play in the future health of our democracy, and the more we can engage with and encourage members of the public to take part in political activities, the better our democracy will be.

My Lords, will the Minister remind his noble friend Lord Foulkes—in a non-partisan way, of course—that the largest donor to any political party in this House was a Minister who used to sit on the Government’s Front Bench and whose name is somewhat similar to a well known high-street chain of supermarkets?