House of Commons - Explanatory Note
Political Parties, Elections And Referendums Bill - continued          House of Commons

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Clause 104 and Schedule 12 : Referendum expenses

191.     Clause 104 defines for the purposes of this Part the terms "referendum expenses", "for referendum purposes" and "referendum campaign". "Referendum expenses" are defined by reference to lists of qualifying expenses set out in Parts I and II of Schedule 12. This Schedule mirrors Schedule 7, which similarly defines qualifying campaign expenditure for the purposes of Part V. As with Schedule 7, Schedule 12 allows for the Electoral Commission to provide guidance through means of a code of practice and for the amendment of Parts I and II of the Schedule by Order made by the Secretary of State. The definition of the term "for referendum purposes" borrows some of the language of section 76 of the Representation of the People Act 1983 in respect of election expenses.

Clause 105 : Notional referendum expenses

192.     Clause 105 makes provision, equivalent to that in clauses 66 and 79, for treating as referendum expenses the value of any property, services and facilities provided for the use or benefit of an individual or body campaigning in a referendum, either free of charge or at a discount.

Clauses 106 to 109 : General restrictions relating to referendum expenses incurred by permitted participants

193.     In order to ensure proper observance of the limits on referendum expenses by permitted participants, clauses 106 and 107 require that all such expenditure, and any payment in respect of such expenditure, must be authorised or made by the responsible person or a person authorised in writing by him. Similarly, clause 108 requires that any claim for payment in respect of campaign expenditure must be sent to the responsible person or other authorised person. These provisions (and clause 109, which provides for disputed claims) are similar to the provisions in Part II of the Representation of the People Act 1983 concerning election expenditure by candidates and their agents.

Clause 110 : General restriction on referendum expenditure

194.     Clause 110 makes it an offence for a person to incur, during a referendum period, referendum expenses in excess of £10,000 unless they are a "permitted participant" (a term defined in clause 98).

Clause 111 and Schedule 13 : Special restrictions on referendum expenditure

195.     Subsection (1) introduces Schedule 13 which imposes limits on referendum expenses incurred by permitted participants. The limits for participants in a UK-wide referendum are set out in paragraph 2 of Schedule 13.

196.      The limits are as follows:

a) for a designated umbrella organisation - £5 million

b) for a registered political party a sum based on the percentage of the vote secured by the party at the previous parliamentary general election, namely:

Percentage of UK vote                    Permitted limit


More than 30%                          5

20 - 30%                                   4

10 - 20%                                   3

5 - 10%                                      2

Less than 5%                               0.5

c) other permitted participants - £0.5 million.

197.     If a referendum were held under the provisions of Part VII during the course of the Parliament elected in 1997, the permitted limit for the main political parties would be as follows: Labour (43.2% of the vote) £5 million; Conservative (30.7%) £5 million; Liberal Democrat (16.8%) £3 million. All other political parties secured less than 5% of the UK-wide vote and would consequently have a limit of £500,000.

198.     Paragraph 3 of Schedule 13 provides for the expenses limits in a referendum, which is not a UK-wide referendum, to be determined by order. Subsection (2) of clause 111 makes it an offence for a permitted participant to incur referendum expenses in excess of the permitted limit.

Clause 112 and Schedule 14 : Control of donations to permitted participants

199.     Clause 112 gives effect to Schedule 14 which provides for controls on donations to permitted participants in referendum campaigns. Part I of Schedule 14 defines donations to permitted participants in a referendum in terms equivalent to those in clauses 45 to 47 in respect of donations to registered parties. Part II of Schedule 14 applies restrictions on the acceptance of donations equivalent to those in clauses 48 to 54. Part III of Schedule 14 requires that the return as to referendum expenses, required under clause 113, must include a statement giving details of the source and amount of donations of £5,000 or more (including aggregate sums). The statement must also detail donations received, but rejected, from impermissible or unidentifiable donors. The requirements of this clause and Schedule do not apply to registered parties given that they will be subject to the ongoing controls on donations set out in Part IV.

Clauses 113 to 117 : Returns

200.     Clauses 113 to 117 require a permitted participant which has incurred referendum expenses during any referendum period to make a return to the Electoral Commission as to those expenses. The requirements as to the content, auditing and submission of such a return are similar to those in clauses 89 to 93 governing returns as to controlled election expenditure by third parties. In addition to detailing payments made in respect of referendum expenses, returns by permitted participants (other than registered parties) must also record relevant donations accepted for the purpose of meeting referendum expenses.

Clause 118 : Restriction on publication etc. of promotional material by central and local government, etc

201.     Clause 118 prohibits the government of the day, a local authority or any other publicly funded body from publishing, displaying or distributing promotional material in relation to a referendum in the 28 days prior to the date of the poll. The prohibition applies to material addressed or made available to the public at large but not to material specifically requested by a member of the public. The provisions of this clause do not apply to the Electoral Commission, which could therefore, for example, publish material designed to encourage voting in a referendum.

Clause 119 : Other publications to contain details of printer and publisher

202.     To assist the Electoral Commission to identify who is behind referendum publications, and therefore who has incurred referendum expenses, clause 119 requires advertisements or other documents relating to a referendum to include the name and address of the printer and publisher, together with the name of any person or body on whose behalf the advertisements are published. This mirrors an existing provision in section 110 of the Representation of the People Act 1983 in respect of election publications.

Clause 120 : Referendum campaign broadcasts

203.     Clause 120 requires that broadcasters may only include a referendum campaign broadcast in their broadcast services if it is made on behalf of an organisation designated by the Electoral Commission under the provisions of clause 101. This requirement on broadcasters ensures that, in any referendum, each side of the campaign will have equal access to free airtime for referendum broadcasts. The two umbrella bodies in the 1975 referendum were each awarded free airtime for four ten-minute television broadcasts and three ten-minute and two five-minute radio broadcasts. Attempts to provide referendum broadcasts in the 1979 devolution referendums foundered following the decision of the Scottish courts in the case of Wilson v Independent Broadcasting Authority which held that the IBA, in deciding to allocate a broadcast to each of the four Scottish parliamentary political parties (which divided three to one in favour of devolution) had acted in breach of its statutory duty to ensure that programmes broadcast on the subject of the referendum maintained a proper balance.

Part VIII : Election campaigns and proceedings

Clause 121 and Schedule 15 : Control of donations to candidates

204.     Clause 121 and Schedule 15 inserts new section 71A and new Schedule 2A in the Representation of the People Act 1983. The new section gives effect to the new Schedule which provides for controls on donations to candidates used for the purpose of meeting election expenses. Part I of new Schedule 2A defines donations to candidates in terms equivalent to those in clauses 45 to 47 in respect of donations to registered parties. Part II of new schedule 2A applies restrictions on the acceptance of donations equivalent to those in clauses 48 to 54. Part III of new Schedule 2A requires that the return as to election expenses, required under section 81 of the 1983 Act, must include a statement giving details of the source and amount of donations of £50 or more. The statement must also detail donations received, but not accepted, from impermissible or unidentifiable donors.

Clause 122 : Limitation of candidates' election expenses

205.     Clause 22 amends section 76 of the Representation of the People Act 1983. Subsection (2) inserts a new section 76(1) in place of the existing provision. The effect of the new subsection is to align this provision with the new definition of election expenses in new section 90A (inserted by clause 123). The new subsection also makes clear that expenses authorised in writing by the election agent count towards the maximum expenditure limit. Subsection (4) inserts new subsection (1B) into section 76 of the 1983 Act. This new subsection re-casts the criminal offence of exceeding the election expenses limit so that it is in similar terms to parallel offences created by this Bill in respect of, for example, campaign expenditure by political parties. Subsection (3) makes consequential amendments to section 76(1A) which is concerned with elections to the Greater London Authority.

206.     Under section 76(2) of the 1983 Act, the expenditure limit for parliamentary by-elections is presently limited by a formula based upon whether the constituency is a borough or a county constituency and the number of registered voters in the constituency (the average is some £34,000). The Neill Committee observed that the limits on by-election expenditure imposed by the existing formula were unrealistic, given the intensity of by-election campaigns, and recommended that a higher maximum be set. Subsection (5) increases to £100,000 the maximum amount a candidate may spend at a parliamentary by-election. This new flat rate limit applies to all constituencies.

Clause 123 : Meaning of "election expenses"

207.     Restrictions on candidates' expenses are currently applied by Part II of the Representation of the People Act 1983. For the purposes of that Part, section 118 of the 1983 Act defines "election expenses" in relation to an election as "expenses incurred, whether before, during or after the election on account of or in respect of the conduct of management of the election".

208.     The purposes of clause 123 which inserts new sections 90A to 90C, is to clarify the meaning of "election expenses". In particular, these new sections provide for benefits in kind given to candidates to be regarded as election expenses. In doing so, they bring the 1983 Act's treatment of notional expenses into line with the provisions of the Bill in respect of campaign expenditure by political parties, controlled expenditure by third parties (as defined in Part VI) and referendum expenses by permitted participants (as defined in Part VII).

209.     New section 90A of the 1983 Act defines "election expenses" as any expenses incurred for the acquisition or use of property or for the provision of services or facilities which is or are used for the purposes of the candidate's election. Subsection (2) provides for a number of exemptions from the definition of "election expenses", including the payment of the candidate's deposit, material relating to the election published in a newspaper or periodical or included in a broadcast service (other than advertisements), facilities made available to candidates under the 1983 Act (for example, free mailing facilities), reasonable costs incurred by the candidate or any other person to meet travel, accommodation and other personal needs, and the provision of services by a person free of charge and in his own time.

210.     New section 90B is concerned with the calculation of election expenses incurred for the purposes of new section 90A. Subsection (1) deals with the valuation of property, goods, services or facilities acquired direct by the candidate or his agent. Subsection (2) is concerned with the apportionment of the cost of property, goods, services or facilities which is or not used exclusively for the purposes of the candidate's election. Such apportionment may be appropriate, for example, where parliamentary and local government elections are held on the same day and a party's candidates for such elections jointly acquire premises to act as their campaign headquarters in respect of both elections.

211.     New section 90C makes provision for treating as election expenses the value of any property, goods, services or facilities provided for the use of a candidate either free of charge or at a discount.

Clause 124 : Meaning of "candidate"

212.     Clause 124 amends the definition of a "candidate" in section 118 of the Representation of the People Act 1983. The definition of a candidate is relevant to determining the date from which the restrictions on incurring election expenses apply. The revised definition makes two substantial changes. First, in relation to the definition for both a parliamentary and local government candidate the reference to a candidate who is elected is omitted; this will ensure that sitting MPs and councillors are treated on an equal footing with other candidates. The second change is that in the definition of a local government candidate now includes a starting time for a person's candidature, namely the last day for the publication of the notice of election (that is, 25 working days before the date of the election). To avoid election expenses being incurred before that time in an attempt to evade the limit on election expenditure, new section 90A(2) of the 1983 Act (as inserted by clause 123) provides that any expenditure on property, goods, services or facilities purchased in advance of the relevant time, but for use during the period election expenses are subject to restrictions, will nonetheless need to be accounted for as election expenses

Clause 125 : Corrupt and illegal practices : consequences for persons convicted of such practices

213.     Clause 125 substitutes a new section 173 of the Representation of the People Act 1983 for the existing provision. At present section 173 of the 1983 Act precludes a person convicted of a corrupt practice from sitting in the House of Commons or holding any public or judicial office, but there is no such provision in respect of conviction for an illegal practice. Section 173 as substituted by this clause brings the consequences of conviction for an illegal practice into line with those for conviction for a corrupt practice. Subsections (3) and (4) of the new section 173 are intended to clarify the law in respect of the vacation of a seat or office following conviction for a corrupt or illegal practice. The vacation of a seat or office under subsection (3) will be final. However, subsection (4) makes provision for a stay of vacation pending the submission of an appeal against conviction or, where notification is given, the determination of that appeal or a period of three months whichever period is the shorter. The revised section 173 gives statutory force to the Divisional Court's decision of 30 April 1999 in the case of Fiona Jones. In its revised form section 173 will now deal only with the electoral consequences of a conviction for a corrupt or illegal practice. The loss of any public or judicial office (other than an elected office) will henceforth be dealt with under the normal conditions of employment for such offices.

Clause 126 and Schedule 16 : Corrupt and illegal practices: election petitions etc

214.     Clause 126 introduces Schedule 16 which amends the provisions of the Representation of the People Act 1983 in respect of the procedure on election petitions and the consequences of reports by election courts. The changes to the 1983 Act made by Schedule 16 in respect of election petitions are largely by way of repeal of provisions which are no longer considered necessary to the effective operation of the petitioning procedures.

Clause 127 and Schedule 17 : Election campaigns and proceedings: miscellaneous amendments

215.     Clause 127 introduces Schedule 17 which makes various changes to Parts II and III of the Representation of the People Act 1983. Paragraphs 2, 4, 7 and 8 of Schedule 17 delete provisions of the 1983 Act which are considered out of date and no longer serve a useful purpose.

216.     Paragraph 3 of Schedule 17 amends section 81 of the 1983 Act principally to omit the requirement that the form of return for candidates' election expenses should be that in Schedule 3 to that Act. The form of return in Schedule 3 is now considered out of date referring, for example, to telegrams but not to modern forms of communication. New section 81(6) of the 1983 Act, inserted by paragraph 3(5) instead provides that the Electoral Commission may set out a form of return in regulations.

217.     Paragraph 5 of Schedule 17 inserts new section 87A into the 1983 Act. This new section places a duty on returning officers in respect of parliamentary elections and elections of the Mayor of London to forward returns as to election expenses to the Electoral Commission. As regards local government elections, the returning officer is required to forward a copy of a particular return if requested to do so by the Commission. This provision links into the Commission's functions of monitoring compliance with the restrictions on candidates' election expenses contained in clause 131 of the Bill.

218.     Paragraph 10 of Schedule 17 deletes various provisions of the 1983 Act relating to legal proceedings; such matters are now dealt with by rules of court.

Part IX : Political donations and expenditure by companies

Clauses 128 and Schedule 18 : Control of political donations by companies

219.     The general purpose of clause 128 and Schedule 18 is to require directors of companies to seek the approval of the company in general meeting to the making of political donations to political parties or organisations or to the incurring of expenditure for political purposes. At present the making of political donations and expenditure by a company on other political purposes is left to the general discretion of the directors and the management of the company. As a result of the Bill the detailed arrangements will continue to lie with the directors, but it will not be lawful for such action to be taken unless approved in advance by the company in general meeting.

220.     Part IX of the Bill goes further than the regulation of political funding in the United Kingdom and covers the approval of company donations to political parties and organisations in other member states of the European Union. This reflects the potential for the views of political parties based in other member states to have a direct impact on the commercial climate in the UK through bodies such as the European Parliament.

221.     The regime for control of political donations and expenditure is set out in Schedule 18 of the Bill, which inserts new Part XA (comprising new sections 347A to 347J) into the Companies Act 1985.

222.     Part IX of the Bill does not extend to Northern Ireland, which has separate company law.

New Section 347A : Introductory provisions

223.     New section 347A establishes the general purpose of the new sections on control of political donations and expenditure by companies, as set out above. In addition, it provides the following definitions in respect of new sections 347A to 347J.

a) "director" includes shadow director;

b) "donation" means anything that would constitute a donation under sections 45 and 46 of the Bill;

c) "EU political expenditure" means any expenditure incurred by a company in respect of the preparation, publication or dissemination of any advertising or other promotional material which could reasonably be regarded as intended to affect public support for any EU political organisation;

d) "EU political organisation" means either a registered party or any other organisation which carries on, or proposes to carry on, any activities of a political nature.

New section 347B : Prohibition on donations and political expenditure by companies

224.     New section 347B prohibits a company from making a donation or incurring political expenditure unless the transaction or the expenditure is authorised under, or by virtue of, a resolution of the company in general meeting.

225.     An approval resolution must be one passed by the company in general meeting which authorises the making of donations and incurring of expenditure for a period of not mote than four years commencing with the date of the passing of the resolution up to a value specified in the resolution. The resolution must not identify a specific transaction or the names of recipients or classes of recipients etc, but must simply seek approval for the global amount to be spent on donations and political expenditure.

226.     Subsection (6) provides that nothing in new clause 347B is to be taken as authorising a company to make political donations etc where its constitution does not permit it. Similarly any such approval will not override the provisions of Part IV of the Bill in respect of the acceptance of donations by political parties. The approval will only permit the company to do what it could do lawfully in any event.

New section 347C : Special rules for subsidiaries

227.     New clause 347C specifies special rules in relation to a company incorporated in Great Britain which is a subsidiary of a holding company. (The terms "subsidiary", "holding company" and "wholly-owned subsidiary" each have the meaning given by section 736 of the Companies Act 1985.)

228.     Subsection (2) provides that, when the subsidiary company is not a wholly-owned subsidiary, it may not lawfully make any donation or incur any expenditure which has not been approved in general meeting by both the holding company and the subsidiary company itself.

229.     Subsection (3) provides that, when the subsidiary is a wholly owned subsidiary of its holding company, then the subsidiary need not pass its own resolution but the resolution of the holding company will still be required.

230.     Subsections(4), (5) and (9) provide that the resolution of the holding company must be in the same terms as those required for the subsidiary itself.

231.     Subsection (7) provides that, where donations or expenditure by a number of subsidiaries are required to be approved by the holding company, there must be separate resolutions dealing with each subsidiary.

New section 347D : Special rule for parent company of non-GB subsidiary undertaking

232.     New section 347D places an obligation on the directors of the holding company to take all such steps as are reasonably open to them to secure that any "subsidiary undertaking" (as defined in section 258 of the Companies Act 1985) which is incorporated or otherwise established outside Great Britain only makes a political donation or incurs political expenditure authorised by a prior resolution of the holding company in general meeting. The holding company resolutions are to be in the same form as required for GB subsidiaries.

New section 347E : Remedies for breach of prohibitions on company donations etc.

233.     New section 347E sets out civil remedies in relation to the making of donations or the incurring of political expenditure without the required approval of shareholders ("unauthorised transactions"). The remedies are to be available to a company and are to be pursued in the normal manner by the company; i.e. they will be pursued by the directors in the exercise of the management powers conferred by the articles of association, who will be subject to the various fiduciary and other duties applicable to directors in the conduct of the company's business.

234.     Subsections (2) and (4) provide that, where a company has engaged in an unauthorised transaction, the company is to have a statutory right to recover the amount of the donation or expenditure jointly and severally from the directors of the company (including for this purpose shadow directors) in office at the time the transaction was entered into. The company is also to have a statutory right to recover damages for any harm caused to the company by the unauthorised transaction e.g. if it is established that the unfavourable publicity surrounding an unauthorised transaction caused a loss of business to the company. Under subsection (3), the company is also entitled to interest on that amount from the time of the unauthorised transaction until the amount is repaid, at a rate to be prescribed by the Secretary of State by regulations subject to the negative resolution procedure.

235.     Subsection (6) provides that, where the company entering into an unauthorised transaction is a subsidiary of a holding company incorporated in Great Britain, that holding company is to have equivalent rights of action to those of the subsidiary itself against the directors of the holding company at the time the subsidiary entered into the unauthorised transaction. Again the liability is to be joint and several and is to include shadow directors and to be on the same terms as in relation to the subsidiary company itself.

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Prepared: 21 December 1999