House of Commons Hansard Debates for 25 Oct 1989

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donations. We should establish the principle of accountability and openness. We heard a lot at the beginning of the debate from the hon. Member for Dagenham about concealment, murkiness and all the rest. However, we know that the saga that was revealed in all its shock horror-status by The Independent related to what happened before the Companies Act 1967. It has specific and clear requirements about the disclosure of political and charitable donations, and we have heard about those. The key to this is that people should know what companies are doing. We now know from its accounts that Lonrho made a donation to the SDP and that many companies make donations to the Conservative party.

Mr. Gould : What about private companies?

Mr. Smith : I think that the same provision applies to private companies as to public companies, but I stand to be corrected. The main contributions come from the large public listed companies and disclosure is required. Even if they make the contribution to British United Industrialists, one would have thought that, because of the number of times that that organisation has been mentioned in our debate, most people would know what it stood for. The argument is about accountability and openness, and shareholders know what is happening and are in a position to challenge it if they wish to do so, and we have heard of the different ways in which they can do that. The hon. Member for Dagenham said that it is wrong that directors do things with other people's money, but that is what directors are paid for. They are the stewards of the shareholder's money, and it is their job to decide how to dispense that money to the best benefit of all the shareholders.

Mr. Gould : Is there not a distinction between what directors do with the company's money in its commercial interests and what they do by way of donation to political and charitable causes? If the hon. Gentleman would not accept that, is he denying the basis of the special provisions of the Companies Act, which require disclosure in those cases?

6.45 pm

Mr. Smith : Before a board of directors makes a decision to make a donation to a political party, it has a serious debate on the matter. The overriding consideration in that debate is the commercial interest. The directors ask themselves whether it is in the commercial interest of the company for it to make that donation. Many companies, not unnaturally, take the view that it is in the interests of the company to make a donation to the Conservative party because it is the party which stands for free enterprise and supports the private sector. Therefore, that is an entirely reasonable thing to do.

Mr. Nicholas Baker : Companies see donations sent in certain political directions as more in the interests of freedom and enterprise. Is not the solution something that was mentioned in Committee when the hon. Member for Dagenham (Mr. Gould) was not there to hear it? The hon. Member for Workington (Mr. Campbell-Savours) was fair, but the hon. Member for Dagenham was motivated by revenge, and his tone was invidious. Is not the solution for the Labour party to make itself so in favour of freedom of enterprise that it will attract donations? We come back

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to what the debate is all about when I say that the answer to making the Labour party more acceptable is, I suspect, in the book sitting by the hon. Member for Dagenham.

Mr. Smith : My hon. Friend may be right about the book. I have bought a copy and am looking forward to reading it. The key to the matter is the commercial interest of the company, and it is on that basis that companies decide whether to make donations to political parties.

Mr. Winnick : What evidence does the hon. Gentleman have of the serious discussions that he claims go on in companies about such donations? Are we to understand that, for example, in Taylor Woodrow--bearing in mind who is president of that company--there is a lengthy and serious discussion of the pros and cons? The discussion is likely to be similar to those that used to go on in the politburo of the Soviet Communist party. Why do not companies make it clear that they are donating to the Conservative party? What is all this business about British United Industrialists? Why, unless it is to deceive, do they use a front organisation?

Mr. Smith : I have already dealt with that last point. It is self- evident that a decision to make a donation to a political party is a major decision by a board of directors, and not one made in two or three minutes. It is discussed carefully and many companies refuse, as a matter of company policy, to make a donation to any political party simply because they do not believe, wrongly in my view, that it would be in their commercial interests to do so. The commercial interests of the company are the foremost consideration, and the directors have the responsibility--that is why they are elected by shareholders--to make such decisions. Were we to agree to the new clause, we would be undermining the principles on which company law is based. Shareholders delegate their responsibility to directors. If they do not like what the directors are doing, they can get rid of the directors by voting them out of office. Alternatively, as my hon. Friend the Member for Eastbourne (Mr. Gow) says, they can sell their shares. Those are the options open to them.

That brings me to the distinction between shareholders and trade unionists. We have heard much about parallels, and my hon. Friend the Member for Aldridge-Brownhills (Mr. Shepherd) has said that in equity we should treat shareholders and trade unionists equally. There are, however, fundamental distinctions. An individual can be a shareholder in several companies, and many people are in that position. If such an individual does not like the stock, he can sell it, but that option is not open to a trade unionist. There are many people who, because of their employment, have to be members of a trade union. They have little choice in the matter. Furthermore, they cannot switch from one union to another. Even more important, if a trade union determines to set up a political fund, it can then have a major influence in determining the policy of the Labour party. Its block vote at the Labour party conference may play a major part in determining that party's policy. No companies have an equivalent role in the Conservative party.

Mr. Richard Shepherd : It is my understanding that it is the Government's intention to legislate to make unlawful the closed shop, and that is legislation which I shall

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support. That being so, the burden of my hon. Friend's argument is not sustainable. Is he saying that trade unionists may or may not belong to a trade union? If that is so, they are not obliged to make donations or vote for a contribution to be made to the political fund. This is an argument that is based on sauce for the goose being sauce for the gander. Surely it is not an unreasonable principle that shareholders should have the opportunity to vote on the issue.

Mr. Smith : I understand the strength of my hon. Friend's feeling on this issue but I do not accept that there is a parallel between companies and trade unions. I dealt with these matters when I developed the argument in Committee. I know that it is an embarrassment to the Labour party that trade unions have major block votes and can determine the Labour party's policy. There is no comparable arrangement within the Conservative party for companies. That is why the system is such an embarrassment to the Labour party, and I understand that it is considering changing it. That is one fundamental difference, and I have mentioned others.

I am saying that we should have a satisfactory system of accountability and openness. We should not undermine the principles of company law on which legislation is currently based.

Mr. Fatchett : I think that the hon. Member for Aldridge-Brownhills (Mr. Shepherd) has summed up the key issues, especially when he dealt with parity of treatment. That issue goes to the heart of the political system and the heart of democracy. There have been one or two attempts by Conservative Members to obscure the issues. For example, the hon. Member for Eastbourne (Mr. Gow) has talked about retrospective legislation and retrospective decision making. With respect, the hon. Gentleman's examples of contracts with South Africa do not relate to the issues that arise as a result of political funding. There has been some embarrassment among Conservative Members because there has been no willingness to meet the arguments advanced by the hon. Member for Aldridge-Brownhills, which are based on parity of treatment.

There has been a substantial difference historically between the ways in which trade unions have been able to make political donations and the ways in which companies have been able to do so. Inititally, trade unions have to ballot their members under the 1913 legislation if they are to have a political fund. No such condition applies to companies. Trade unions have to give their members the right to opt out, but no such condition applies to companies. The hon. Member for Beaconsfield (Mr. Smith) said that an individual could move his shares from one company to another, but he has overlooked two factors. As my hon. Friend the Member for Workington (Mr. Campbell-Savours) said, someone might want to continue to invest in a certain company but not invest in the Conservative party. The hon. Member for Beaconsfield also overlooked the fact that many shareholdings are held by institutions, and institutions may not give their members the opportunity to opt out of a particular shareholding. The defence argued by the hon. Member for Beaconsfield does not hold water.

Within the trade union structure there is provision for ballots and the right to opt out, but in addition there is the right to study the political fund accounts at each annual

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conference, which is the governing body. Conservative Members argue that the same right exists for shareholders, but shareholders do not have the rights of a ballot or of opting out.

We are told that there is no need for shareholders to have further rights because the disclosure provisions are sufficient. On the other hand, we are told that boards of directors take decisions that are in the commercial interests of their companies. It appears that one of those decisions is to make a donation to the party which believes in private enterprise, that being the Conservative party. Conservative Members should understand that what the Government are doing to the economy will undermine a great deal of private enterprise within the industrial sector.

The third largest donation made to the Conservative party in 1988 came from British and Commonwealth Holdings plc. The report of the annual general meeting of that company appeared in the Financial Times on 28 September. Presumably the decision to make the donation was taken in the interests of the company's shareholders because it is thought that the Conservative party is good for the company. The House will probably be aware that the profits of British and Commonwealth Holdings plc have declined in the last financial year by 45 per cent. The company' chairman, Mr. John Gunn, attributes that decline to one factor--the Government's reliance upon high interest rates. It seems that directors do not always take decisions that are in the best interests of their shareholders.

I had the pleasure of considering in Committee the measure which became the Trade Union Act 1984. We were told by Conservative Members that there was a need for constant accountability, a constant flow of information and a constant process of legitimacy before trade unions could be allowed to make political donations. I think that my hon. Friend the Member for Walsall, North (Mr. Winnick) was correct when he said that at that stage there was some enthusiasm among Conservative Members in the expectation that such provisions would lead to a substantial decline in the Labour party's funding. They voted for a provision that meant that trade unions had to ballot their members once every 10 years to reaffirm the right to have a political fund. There is no similar provision or right for shareholders, and Conservative Members have not argued that there should be one. When Conservative Members said that they wanted a provision in the 1984 Act that would confirm trade unionists' support for political donations, why did they decide not to extend the same right to shareholders? The conditions that apply to trade unions do not apply to companies and their political donations.

The hon. Member for Aldridge-Brownhills is right when it comes to the essence of the argument, and that does not necessarily mean reducing the £3.5 million that is provided to the Conservative party each year in corporate donations. The argument turns on making all donations accountable, open and legitimate, and that goes to the heart of the democratic process.

Mr. Allen : This has been a fairly lighthearted excursion into political funding. It needs to be put on record, however, whether the intention of the Trade Union Act 1984 was as frivolous as seems to be suggested. In my view, the intention was to undermine completely the funding of the Labour party so that the party would be destroyed, thereby creating a one-party state.

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Madam Deputy Speaker (Miss Betty Boothroyd) : Order. The hon. Gentleman's intervention is interesting but not relevant.

Mr. Fatchett : I confirm what I perceived to be the intentions of Conservative Members through the 1984 legislation--to undermine the funding given to the Labour party and, in effect, to create almost a one-party state. The intention was to take the financial life blood away from the Labour party.

7 pm

Reference has been made to books and to the pushing of various publications. My hon. Friend the Member for Dagenham (Mr. Gould) has promoted his book. I want to tell the House about an excellent book on the trade union political fund ballot. Any hon. Member who wishes to buy a copy has only to ask me, and I shall tell him at which bookshop he can buy it. I will not be diverted--

Mr. Allen : What about television advertising?

Mr. Fatchett : That is without television--

Mr. Allen : It can be on television next week.

Mr. Fatchett : I want to return to the point made by the hon. Member for Aldridge-Brownhills, which is that this debate goes to the heart of the political system and to the heart of democracy. When there is openness about political contributions, as there is in the relationship between trade unions and the Labour party, there can be no suggestion that those contributions are used for particular purposes. However, when the system is not open, when company chairmen and directors who donate to the Tory party gain more than their fair share of honours--as a result, one suspects, of those donations--when influence is exercised by various individuals, the argument for openness and accountability becomes that much stronger.

We are not trying to reduce donations to the Conservative party ; we are asking for parity of treatment. We want an open democracy with accountability by trade unions to trade unionists and by companies to shareholders. That is the essence of the argument and hon. Members should not obscure it by disclosure or by an embarrassing defence of the Conservative party's vested interests. We must relate to the issue, to parity and to democracy. If the Minister devoted his intellectual powers to that argument, I am sure that he would support new clause 1.

The Parliamentary Under-Secretary of State for Corporate Affairs (Mr. John Redwood) : I thank the hon. Member for Dagenham (Mr. Gouldand my hon. Friend the Member for Beaconsfield (Mr. Smith) for their kind remarks.

I wish first to respond to my hon. Friend the Member for Chichester (Mr. Nelson), who questioned the number of amendments tabled and the basis of our debates today and tomorrow. As all hon. Members can see, there are a number of Government amendments, but most of them comprise one or two types --they are either amendments to take on board the very good points made in Committee, or they result from consultation with a range of professional interests and other groups and are technically consequential upon that. I hope that there will be a spirit of co-operation in the House as most of the amendments are

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non-political. I hope that, as we make progress, I can offer assistance to those who make good points and, wherever possible, I hope to accommodate some of their wishes.

We began this debate with the one highly contentious issue that was bound to arise. There is a sense of deja vu because most of the ground has been well trodden already. The Opposition have not put forward any new arguments tonight that might have added to our previous debates. As others have sketched, a good piece of legislation--the 1967 Act, introduced by a Labour Government--is already in place and we are happy with the disclosure requirements that it places on companies. We intend to ensure that those requirements are not only in force, but are fully enforced. We shall carefully consider any point raised by any hon. Member who believes that there has been some dereliction of duty in the enforcement of those clear disclosure provisions.

Members of companies need to know whether donations are being made, which is the purpose of the 1967 Act. That is bolstered by good proposals about company democracy. A range of powers would give shareholders the right at annual general meetings to raise questions, to table ordinary resolutions and to put pressure on boards of directors. Above all, there is a great deal of choice for shareholders. I know that some like to construct what they call "ethical portfolios", which do not include any company that invests in South Africa. As only one in four of the top 100 companies are wise enough to make donations to the Conservative party, there is plenty of scope and choice to construct an apolitical portfolio. However, I share my hon. Friends' view that not many, if any, of the companies in the top 100 make donations to the Labour party, so it would be quite difficult to construct a Socialist portfolio of companies. That is the problem that has led to this jealousy clause that we are debating.

The issue should be put in perspective. To those hon. Members who would raise the question of symmetry of treatment between trade unions and companies, I must repeat that there is extensive machinery within companies, within the company law framework, which we support and intend to ensure continues. It should also be recognised that the trade unions make a much larger contribution proportionately, and in total, to the Labour party than do the top companies to the Conservative cause. In 1987 alone, one union gave £5 million--a stunning sum. The reason why the Conservative party enjoys more funds in total and does not have the same financial difficulties that so often face the Opposition is its strong basis of mass membership. It is the only party with well over 1 million members. It is an active party, well organised and capable of raising money from a range of donations from people of all sorts and styles

Mr. John Garrett (Norwich, South) : Tea dances.

Mr. Redmond : Yes, tea dances do raise money for the Conservative party--and why not? People can have fun and they can raise money for the one good cause in this place.

The origins of the Labour party's problems lie in the fact that they do not have money coming from the companies' sector. It is on this point that I must take issue with the hon. Member for Dagenham. He need not worry because I do not intend to savage him tonight. Indeed, he

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has done a signal good service. He has produced a book that reveals in great detail exactly how he has moved well to the Left of the right hon. Member for Chesterfield (Mr. Benn), who once held many strong views on industrial policy and even had the benefit of being able to implement those views so that the public could recognise just how dreadful they were.

I can well understand why companies will vote massively to support a Conservative Government if a party insists on threatening shareholders with renationalisation on the cheap, with damaging the interests of minority shareholders after a Government raid on a company and with separating ownership from control, which must mean taking away votes from shareholders as there can be no other explanation for that, with the suggestion that employees, trade unions, customers--an enormous group--should in many cases be ranked above shareholders and in some way be given votes just as the shareholders lose theirs and by sustaining the attack in saying that stakes must be bought in private sector companies. I can understand why, if companies are threatened with municipalised competition to provide subsidised undercutting of worthwhile businesses in the private sector ; with the wish for public interest commissioners who would set investment programmes, control dividends and reduce the cash flow by lowering prices-- all suggestions which are not only in the hon. Gentleman's book, but are part of the Labour policy review document. Companies will no doubt appeal to their shareholders to endorse their actions by not opposing them at annual general meetings.

It is a sign of the success of its policy that the Conservative party is still the main party that benefits from donations by companies. There is little trouble at AGMs because shareholders clearly and intuitively understand the need to support a party of private enterprise--

Mr. Allen : If company donations to the Conservative party are a sign of great faith in that party and a barometer of the approval of businesses for that party, can the hon. Gentleman explain why those donations are currently falling?

Mr. Redwood : Companies are particularly keen to offer donations at election times and I am sure that if a general election were in the offing, the hon. Gentleman would find that donations increased again. It concentrates the mind wonderfully. That is when people will understand that a party of free enterprise is needed to defend the interests of shareholders from the wild policies adduced in "The Future of Socialism".

Mr. Campbell-Savours : I spoke about the wider shareholder democracy in my brief speech. What about a shareholder in my constituency who has £500 worth of shares? If the annual general meeting is held in London and that person is at work, how can he influence the decisions taken there? The Government want people to invest, yet there may well be tens or even hundreds of thousands of shareholders in that position.

Mr. Redwood : Shareholders can go to the meeting, organise themselves, write to the chairman and express their views in a variety of ways short of going to the meeting. The hon. Gentleman knows how democracy works in the political sphere. The same is true within a company framework. The powers are contained in

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company law. The responsibilities are on the shareholders, who exercise them if they see the need to do so. It is not that that is difficult, but that shareholders do not want to do it. That is what the hon. Gentleman cannot bear.

Mr. Campbell-Savours : The Minister has not grasped my point. The question is whether the shareholders are physically able to attend a meeting. What happens if a group of shareholders feels collectively that it wants to change a company's policy? How can it influence events? It may be that when there were few shareholders of companies--

Madam Deputy Speaker : Order.

Mr. Redwood : If a group of shareholders is worried about a matter, surely one of them who is retired or has a day off can attend the meeting, table a resolution and, if the right numbers are present, vote in the usual way. At company general meetings there are proxy systems and other ways of voting for a properly tabled resolution which is circulated with the general agenda.

The Labour Government put in place a fair law which we wish to operate sensibly and well. Shareholders are happy with the present system because they are worried by the policies of the Labour party and, in particular, those of the hon. Member for Dagenham. The powers are there and I, like many other hon. Members who have spoken, wish to see wider share ownership mean a true share-owning democracy. Present company law is more than adequate to do that. The only thing that would wreck it would be if I accepted any of the wild ideas adduced by the hon. Member for Dagenham. I hope that the House will vote against the new clause.

Mr. Gould : I confess to finding the Minister's first speech on the Bill disappointing in two respects. First, I assume that what I heard was the much-trailed, ferocious and blood-curdling attack that was to be made on me. [ Hon. Members :-- "Just wait."] It may well be that that attack is to be repeated, but I have a feeling that it will not bear repetition. From its present ineffectiveness it will become hardly effective in any respect. I had hoped for something more full-blooded and perhaps the Minister will try again for something better. In the meantime, to hon. Members who are encouraged by that ferocious onslaught to buy my book and to those who, like the hon. Member for Beaconsfield (Mr. Smith), have already done so, I immediately offer to autograph their copies and those of future proud possessors.

Mr. Redwood : I am delighted that jointly we can advertise the hon. Gentleman's book because it will do the Conservative cause so much good. The only thing that worries me is that if he offers too many autographed copies, their value will drop, so should my hon. Friends insist on buying their own copies and on not having them autographed?

7.15 pm

Mr. Gould : Hon. Gentlemen have no option but to buy their own copies. The book will not be given away.

The second disappointment in the Minister's speech can be briefly expressed. Like all his hon. Friends, except the hon. Member for Aldridge- Brownhills (Mr. Shepherd), the Minister failed to understand the real purport of our proposal. Some of them understood it but chose not to reveal it. It may be that the Minister is as deficient in his

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judgment of this point as he was in his estimation of the effect of a wide readership of my book. In this debate a division has emerged. Opposition Members believe that democracy, good practice and the public interest require that directors are obliged to obtain shareholders' approval in advance of giving money to political parties. By contrast, the Government offer the present position in which it is open to shareholders, if they are properly organised and informed and sufficiently motivated to turn up to an ordinary general meeting, to initiate a response to what has already been done. They are required to remonstrate with directors in retrospect. That is not an adequate expression of what democracy requires in that context. On that basic point, we differ strongly from the Government who seem unable to comprehend what is at stake. It is because I find the Minister's response so disappointing and his comprehension so inadequate that we shall press the new clause to a Division. Question put, That the clause be read a Second time :

The House divided : Ayes 168, Noes 223.

Division No. 338] [7.16 pm

AYES

Abbott, Ms Diane

Allen, Graham

Anderson, Donald

Archer, Rt Hon Peter

Armstrong, Hilary

Ashley, Rt Hon Jack

Ashton, Joe

Banks, Tony (Newham NW)

Barnes, Harry (Derbyshire NE)

Barron, Kevin

Battle, John

Beckett, Margaret

Beith, A. J.

Bell, Stuart

Benn, Rt Hon Tony

Bennett, A. F. (D'nt'n & R'dish)

Bermingham, Gerald

Bidwell, Sydney

Blair, Tony

Blunkett, David

Boyes, Roland

Bradley, Keith

Brown, Gordon (D'mline E)

Brown, Ron (Edinburgh Leith)

Bruce, Malcolm (Gordon)

Buchan, Norman

Buckley, George J.

Campbell, Menzies (Fife NE)

Campbell, Ron (Blyth Valley)

Campbell-Savours, D. N.

Canavan, Dennis

Carlile, Alex (Mont'g)

Clark, Dr David (S Shields)

Clay, Bob

Clelland, David

Clwyd, Mrs Ann

Cohen, Harry

Cook, Robin (Livingston)

Corbett, Robin

Cousins, Jim

Cox, Tom

Cummings, John

Cunliffe, Lawrence

Cunningham, Dr John

Darling, Alistair

Davies, Rt Hon Denzil (Llanelli)

Davies, Ron (Caerphilly)

Davis, Terry (B'ham Hodge H'l)

Dewar, Donald

Dixon, Don

Dobson, Frank

Doran, Frank

Dunwoody, Hon Mrs Gwyneth

Eadie, Alexander

Eastham, Ken

Ewing, Harry (Falkirk E)

Ewing, Mrs Margaret (Moray)

Fatchett, Derek

Fearn, Ronald

Field, Frank (Birkenhead)

Flannery, Martin

Flynn, Paul

Foot, Rt Hon Michael

Foster, Derek

Foulkes, George

Fyfe, Maria

Galloway, George

Garrett, John (Norwich South)

Garrett, Ted (Wallsend)

Gilbert, Rt Hon Dr John

Gordon, Mildred

Gould, Bryan

Griffiths, Nigel (Edinburgh S)

Griffiths, Win (Bridgend)

Hardy, Peter

Hattersley, Rt Hon Roy

Heffer, Eric S.

Hinchliffe, David

Hoey, Ms Kate (Vauxhall)

Home Robertson, John

Howarth, George (Knowsley N)

Howells, Geraint

Howells, Dr. Kim (Pontypridd)

Hughes, John (Coventry NE)

Hughes, Robert (Aberdeen N)

Illsley, Eric

Ingram, Adam

Janner, Greville

Johnston, Sir Russell

Jones, Barry (Alyn & Deeside)

Jones, Ieuan (Ynys Mo n)

Jones, Martyn (Clwyd S W)

Kennedy, Charles

Leadbitter, Ted

Leighton, Ron

Lewis, Terry

Litherland, Robert

Livingstone, Ken

Livsey, Richard

Lofthouse, Geoffrey

Loyden, Eddie

McAllion, John

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