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Mr. John Smith (Vale of Glamorgan): I am sure that the right hon. Gentleman would not wish to give the House the wrong impression about the fairness of the referendum campaign in Wales. Is he aware that one of the key supporters of the no campaign was one of the richest men in Wales, Sir Julian Hodge, who now lives in an offshore tax haven? He is a multi-millionaire, and we know that he provided funds and resources for that campaign.

Mr. MacGregor: I have to tell the hon. Gentleman that we went into detail on that matter in Cardiff, and it was not Sir Julian Hodge but his son who provided funds. We took evidence from him at some length, and his contribution was a good deal less than the amount that the yes campaign had. More importantly, he said that it was only when he saw press publicity about the courage of the Labour supporter who intended to fund the no campaign through an overdraft that he realised that he ought to make a contribution, so I point out that, if the Labour supporter had not taken that action, there would have been no contribution from Sir Julian Hodge's son either.

Having said how grateful I am that the Government have responded to so many of the Neill committee's points, I shall turn to the one outstanding difference that the committee and I still have with the Government. Before I do so, I want to make detailed points to which the Minister could respond when he replies to the debate.

The first point is one that the right hon. Member for Birkenhead made in an intervention and in his speech, and relates to the Government's decision that the campaign period for a national election should relate to the 365 days up to the election. I recognise that there is no perfect system for deciding the campaign period, and we wrestled with the matter at length, but I have considerable worries about that recommendation, for all the reasons given by the right hon. Gentleman. My right hon. Friend the Member for North-West Hampshire also referred to that issue.

The provision is retrospective, and it is not fair to put people who may incur substantial liabilities in the position of not knowing when they embark on a particular course

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of action whether it will be within the framework of the law. Political parties and, as my hon. Friend the Member for New Forest, East pointed out, third party campaigners cannot tell when the election will be.

That is not a fair basis on which to set up a system because, as we all know, the last two years of a Parliament can often be regarded as an election period. At such times, one is always aware that there might be an election. Even in this Parliament, people are talking about there being an election within the next year. It is difficult for an organisation to plan its expenditure when it is so uncertain about what the 365-day rule refers to.

Another problem is that the rule gives the party in power an advantage because it does at least have an idea of when the election campaign will start. I am therefore unhappy about the proposal. The Neill committee made a recommendation and, on page 125 of its report, in paragraph 10.48, it said:

which relates to constituency expenditure--

    "should be followed and that the national spending limits, like those relating to individual candidates, should apply 'before, during or after the election' and to any expenditure 'on account of or in respect of the conduct or management of the election'. We are aware that, over the years, the courts have had to construe these words in a variety of instances. We suggest that the opportunity be taken to reconsider the formulation of the definition of 'election expenses', in the light of those cases, so as to ensure that it is drafted in a way that makes clear the intention that the concept is not to be interpreted restrictively."

I know that there are difficulties concerning that recommendation, but there are also difficulties with the proposal in the Bill.

The one point that the Government have rejected is tax relief for small donations. My right hon. Friend the Member for North-West Hampshire read out the passage of the Neill report in which we emphasised that we thought that this should be an integrated package. That is the single main element of the Neill recommendations that has been dropped. It is important that the House should understand our case.

I recognise that the Government will respond that the matter is, in any case, an issue for a Finance Bill. That may well be so but, as the right hon. Member for Caithness, Sutherland and Easter Ross pointed out, The Times this morning said that the forthcoming Finance Bill will contain a proposal that is not a million miles away from what I am talking about. I hope that the result of this debate will be that the Home Secretary will be prepared to lobby the Chancellor about the Finance Bill.

Mr. Peter Brooke (Cities of London and Westminster): Will my right hon. Friend acknowledge that, if clause 128 can write into the Companies Act 1985 provisions relating to companies and how their donations are decided, there is no logical reason why provisions in this Bill should not be written into a Finance Bill?

Mr. MacGregor: That is a fair point, and I certainly hope that, as a result of the contributions to the debate, the Government will pursue the matter in that way.

I feel very strongly about the issue, which is an important part of the package. To make my case, I shall quote two passages from our report, one of which my

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right hon. Friend the Member for North-West Hampshire has already quoted. The first passage, from the beginning of our report, sets the scene by stating:

    "The pursuit of politics is an honourable profession to which many men and women devote their lives. Behind each career politician stands a regiment of dedicated voluntary party workers."

I shall shortly set out the relevance of that to the Home Secretary's opening speech today. The second passage is from paragraph 2.23, which says:

    "The argument here is that strong, healthy political parties are essential to the functioning of a strong, healthy democracy. In particular, strong and healthy parties are necessary as a means of recruiting ordinary citizens into decision-making positions at all levels of government, local as well as national, and also as a means of engaging very large numbers of people . . . in the whole democratic process. Our view is that parties are indeed essential in this way, and our recommendations"--

especially those relating to public funding of political parties and tax relief--

    "are intended to foster vigorous party activity, especially at local level, but in ways that are consistent with the principle of openness and help to preserve both the independence and the accountability of the political parties."

Mr. MacShane: I have listened to the right hon. Gentleman's argument about tax relief, but the fact is that my constituency contains some of the poorest people in Europe--people who are on benefits or extremely low salaries--so there is no money available for political donations, even with tax relief. I expect that Westminster, Chelsea or South Norfolk contain far more people who would be able to make such contributions, if they were enticed to do so by a tax relief. The right hon. Gentleman is merely proposing another means by which to encourage money to flow to local Conservative associations, at the expense of Labour constituency parties in much poorer parts of the country.

Mr. MacGregor: That is the biggest load of nonsense I have heard for a long time. It certainly is not what new Labour is all about. Labour probably attracts more large donations than the Conservatives, so it cannot plead poverty. In addition, thanks to 18 years of successful Conservative Government, many Labour party supporters have incomes that are well above the basic rate of tax.

As my right hon. Friend the Member for North-West Hampshire said, in response to the White Paper's rejection of the concept of tax relief, Lord Neill stated:

The reason is that one of the main points made in response to our recommendation was that administrative cost would be high. I challenge that claim. We framed the recommendation so that the process would not be like tracking all donations and tax reliefs relating to this country's many charities. Instead, responsibility for assessing the number of donations and the total costs and appealing to the Electoral Commission for the relief would rest on national treasurers, with the result that such requests would flow through only three or four avenues. I do not believe that the administrative issues facing the Government or the Electoral Commission would be anything other than extremely small.

As the Under-Secretary of State for the Home Department, Lord Bassam of Brighton, admitted in a written answer in the other place on 13 October last year,

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the administrative costs of a tax relief scheme have not been estimated. The members of the committee asked the Government to make such an estimate, but we have not yet received an answer. I hope that the Minister who winds up the debate is prepared to reveal the Government's estimate to the House tonight.

I have noticed that, more recently, the Home Secretary has retreated from the argument based on administrative cost, presumably because it was not much of an argument in the first place. His argument now rests on two points: first, that such relief would amount to a form of general state aid by another route; and, secondly, the need to balance the loss of revenue against other spending priorities. Our argument is that encouraging many more smaller donors to the political parties is healthy for the political process itself and helps parties to reduce their dependence on large donors, which is also healthy. Therefore, the arguments in favour of a tax relief are civic, whereas those against it relate to cost.

The cost would be limited, because it would be related to basic tax relief on donations of up to £500. I note that the Government have estimated that the total benefit to political parties would be about £4 million to £5 million. That is a minuscule sum compared with the £750 million spent on the dome, or the £500 million that the right hon. Member for Caithness, Sutherland and Easter Ross and The Times tell us that the Chancellor is considering making available to charities through tax relief measures in his next Budget.

In respect of his new proposals on tax relief on charitable donations, the Chancellor argues that it is a way of encouraging "a new civic patriotism". I believe that there is no better way of demonstrating such civic patriotism than playing a full and healthy part in our democracy through our political parties. The Home Secretary echoed that thought several times during his speech today, referring to the importance of political donations as a crucial link between the Government and local communities, and to those who recognise their civic responsibilities and duties and who play a part in political parties. He laid great emphasis on the contribution of political parties to civil life.

It would add little to the £500 million for charities to allow tax relief on modest political donations. I plead with the Government to reconsider their attitude. The Neill committee regarded its recommendations as an integrated package, and saw a tax relief scheme as a means of compensating political parties for the undoubted results of the Bill's being passed, in that it will be less easy to raise money from sources that have until now been major contributors. If we are to have a healthy political scene, it will be essential to encourage more small donations.

My one regret is that the Government have not taken up the recommendation on tax relief, but I generally welcome the way in which they have responded to the Neill report. Subject to one or two minor reservations and the larger one relating to tax relief, I am delighted with the Bill.

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