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Westminster Hall

Tuesday 8 November 2005

[David Taylor in the Chair]

Political Parties (Funding)

Motion made, and Question proposed, That the sitting be now adjourned.—[Mr. Cawsey.]

9.30 am

Sir George Young (North-West Hampshire) (Con): I   welcome the opportunity to debate the Electoral Commission's report, "The Funding of Political Parties", which was published last December. I commend the authors for a thorough and well researched report, which they submitted along with their recommendations to the Department for Constitutional Affairs. Nearly a year has passed without it being debated in the House and without any response from the Government. I therefore welcome the opportunity to take the matter forward.

I am glad to see my hon. Friend the Member for Chichester (Mr. Tyrie) in the Chamber. He has written extensively and with insight on the subject. I am pleased that my hon. Friend the Member for Wealden (Charles   Hendry) is here and I welcome the Minister. She has her plate full, with the Electoral Administration Bill being discussed in the House later today. I am also pleased to see the spokesman for the Liberal Democrat party here.

At business questions on 16 December shortly after the report was published, I asked for a debate on the report. In response, the then Leader of the House said:

He also showed a bit of ankle by saying,

and said specifically:

Due course, by any reasonable interpretation has come and gone, but there has been no consideration.

During the exchange, another hon. Member referred to "maverick millionaires", and said that such matters were

The person who said that was the then Liberal Democrat spokesman, now Lord Tyler, speaking before Mr. Michael Brown—a maverick, if ever there were one—appeared on the scene with his cheque book. In response to Paul Tyler, the Leader of the House said:

I followed up such matters on 14 July by asking the current Leader of the House for a debate. He played a straight bat and said:

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He was supporting the end, but not providing the means.

Hon. Members may wish to focus on many recommendations in the report, such as spending limits—national and local—political donations, policy development grants and the extension of freepost to local elections. I shall focus on the recommendations that would improve the viability of our political parties and put matters into context. It is common ground that all is not well with our parliamentary democracy. Turnout has fallen in general elections—an important barometer of political engagement. If turnout continues to decline, it could undermine the legitimacy of our   Parliament. Our main parties have declining membership. The Labour party is down from more than 400,000 in 1997 to about half that number now. In 1977, we had a membership of about 400,000 and it is now down to about 300,000, most of whom are opening their envelopes as I speak.

Collectively, politicians are held in low esteem, somewhere near that of journalists and estate agents, although I note that local Members of Parliament, as   individuals, are more highly regarded. There is widespread cynicism and apathy about the political process with young people, in particular, disengaging. Abstention from elections is something that they boast about rather than apologise for, and there are signs that their disengagement is becoming permanent as they grow older.

There is no off-the-shelf remedy that will restore the   health of our political system. We need a variety of   solutions. The Puttnam report, commissioned by the   Hansard Society, has some radical proposals for   improving the interface between the House of Commons and the world outside. We need to continue examining how we conduct our business within the House. We must make it more relevant and accessible to   those whom we represent. We need to reform Prime   Minister's questions. Parliament needs to be more representative of society as a whole. We need to do   more of the work that my hon. Friend the Member for Wealden has been doing at universities and with young people. Ministerial conduct needs to be beyond reproach. We must make intelligent use of technology to interact better with our electorate.

However, part of the solution is healthier, more broadly based, more representative and more active political parties. Political parties are much maligned, but they are essential to the democratic health of the country. They recruit, motivate and train the people who stand for public office; none of us would be in Westminster Hall this morning were it not for our parties. Parties provide policy platforms that give voters a choice of administration at every level, and then seek to deliver that programme in office. They provide a legitimate means of expression for the political, economic and social interests in our society. They are the channels for political and intellectual discourse and debate and for refining new ideas into practical policies. They promote interest and turnout in elections and engage with the electorate both locally and nationally.

Our main parties have long histories and proud achievements. They have nurtured the great leaders of our country—one of whom needed succour from two parties—and then given them a platform from which to   conduct the affairs of state. However, parties need
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infrastructure to ensure that they can discharge the demands of the political system. Our parties are hollowing out and dying on their feet. They are heavily in debt. Paragraph 3.34 of the Electoral Commission report says:

The report goes on to say that

Parties have never been less popular. Fewer people identify with them, vote for them or join them. There are many reasons for that, but the way in which they are   funded is partly responsible for that disengagement and disenchantment. All parties have been hit by bad coverage deriving from the current regime, which obliges parties to seek large donations from individuals and their companies. Enron, Mittal, PowderJect and Ecclestone have hit this Government; ours was hit by Asil Nadir and others. The Liberal Democrats were hit by Michael Brown. The consequent adverse publicity surrounding funding leads to a vicious spiral; there is then less incentive to join and support the parties that have become so tainted, and that leads in turn to more dependence on large donations. Some 58 per cent. of the   donation income received by parties between 2001 and 2003 was obtained from donations in excess of £100,000. Such rows hit not just the party concerned, but the political process. Because of the transparency of the donations on the one hand, and the complexity of   the decision-making process and political networks on the other, it is difficult to allay accusations that no one gives that sort of money for nothing.

Page 15 of the Electoral Commission report includes the proposition that

votes. That proposition was supported by 70 per cent. of those surveyed. More recently, trade unions have been asking what they get for their money. If a new super-union emerges it, together with Unison, would account for almost half the Labour party's income; that is an almost unprecedented concentration of power.

Paragraph 1.6 of the Electoral Commission report summed up the problem as follows:

I believe that we need to encourage broad-based political parties with a wide membership if we are to reduce dependence on those donations. The measure that I support is not a pretext to put up one's feet; on the contrary, it is an incentive to get out there and recruit more members.

There is a way forward; it was outlined by the Neill committee in 1998 and repeated in a modified form by the Electoral Commission in 2004. The Neill committee recommended tax relief, limited to the basic rate, on donations of up to £500 to eligible registered political
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parties. The committee noted that in several countries, including the United States, Canada and Italy, personal donations to political parties qualified for income tax relief, and it suggested that a similar tax relief should be introduced in the UK to encourage an activity that the committee regarded as both

In the committee's view, the principal advantage to such a scheme was that it would encourage a different pattern of political donations, so that parties would not rely for their funding needs on a relatively small number of donors, each making large donations. The committee said:

Mr. Andrew Tyrie (Chichester) (Con): In that case, does my right hon. Friend favour a ban on large donations?

Sir George Young : I shall come to whether the introduction of tax relief should be accompanied by a cap on large donations. I think that there has to be a trade-off, and I shall touch on that in a moment.

The quotation concludes:

In addition, the committee noted that one further advantage to this method of party funding over the direct payment of state funds was that

I believe that tax relief would give the right signal that engagement with a political party is a civic activity to be encouraged. A citizen should be proud to be a paid-up member of a political party, not regarded as someone from a Bateman cartoon.

I remember the married couple's allowance, and I do not think that anyone got married to claim that allowance. However, the existence of the allowance was a statement by Parliament that the institution of marriage deserved support and gave stability to society. Likewise, I believe that tax relief would have a symbolic importance; it would be a statement that joining a political party was a worthwhile civic activity. Such a   regime, as I have said, would be taxpayer-led, not Government-led. It would encourage a democratic response and begin to redress the danger of large institutions or individuals gaining disproportionate influence.

The Government voted this recommendation down when we debated Neill. Indeed, I think that it was the only Neill recommendation that they did not implement. These were their reasons:

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Of course we have to keep an eye on public expenditure, but any hon. Member worth his salt could   find £5 million out of the Government's budget in half a day. The Neill committee rightly rejected the Government's arguments. It said:

To date, it appears that the Government have not responded to that request.

I understand the Conservative party's aversion to increases in public expenditure and I would not force any party to accept the money if its scruples prevented it from so doing. However, I remind my hon. Friend the Member for Wealden, who may be clutching a hostile brief, that we all voted for the Neill recommendations at the time.

However, I accept a related argument that, if we want more public support, we must put our house in order. There is excessive expenditure at election time—what economists call "conspicuous consumption"—and I   have no objection to the national cap on expenditure coming down, not that we see much of that in my constituency of North-West Hampshire. There are campaigning styles that irritate and switch off the voter, and I would like to see a less media-intensive campaign that cost a lot and more locally based campaigns using volunteers.

Since Neill reported, the position has got worse. We had the slump in turnout in 2001. Indeed, the Neill Committee recognised that

The committee was right to be so worried.

The Electoral Commission took over the baton from   the Neill committee and made a similar recommendation in the report that is the subject of this morning's debate. Its scheme is built on the gift aid scheme, under which, again, individual donors, not the Government, decide. The purpose is to reduce the   dependency on large donations and to broaden the membership base. After reviewing how such schemes and match-funding schemes had operated in other spheres, the commission recommended:

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The commission further recommended that donations from non-taxpayers should attract an additional sum to the party, equivalent to the level of tax relief.

That concept of support for political parties is not new; we have policy development grants, Short money—Margaret Thatcher was the first Prime Minister to be elected using state funding—party political broadcasts, freepost and the free hire of public buildings. The Electoral Commission is advocating a logical and necessary extension of a system that is already in existence.

On the intervention by my hon. Friend the Member for Chichester, I also favour a cap on donations, so that the public can see that money cannot buy influence or leave politicians beholden to funders. I recognise that the Electoral Commission is not pressing for that at the moment, and my hon. Friend might develop his point if he catches your eye, Mr. Taylor.

The public seem to want an end to large donations, with all the problems that they involve. However, people need educating about the fact that, if that source of income is cut off, and parties are to continue doing what is expected of them, the shortfall will somehow have to be made good. The proposals that I advocate will not replace such donations, and that is perhaps one reason why we should not ban them at once. If we want to phase them out, however, we need to begin to phase the alternative regime in.

I understand that a Government who are perhaps not popular might not want to risk further unpopularity by going down that route. A survey commissioned by the   Electoral Commission showed initial hostility to the proposition of taxpayer subsidy. However 70 per cent. also said that funding parties by means of voluntary donations is unfair, because there is a risk that wealthy individuals, businesses and trade unions could buy influence over parties. Cragg Ross Dawson, which conducted research for the commission, found that the public, after deliberation, were broadly in favour of increased, or total, public funding of political parties, even if it would necessarily be funded through the tax system. The reasons given included less sleaze, the low cost to taxpayers and a fairer system.

The Labour party was the only party to comment on party funding in its manifesto for the general election. It said:

Just two months ago, in September, Lord Levy—his appetite for raising funds apparently beginning to be exhausted—announced that he would retire from his position as a Labour party fundraiser when the Prime Minister retired. He said:

He prompted a brief exchange of letters in The Times and   received support from Vernon Bogdanor, a constitutional expert, who supported limits to individual donations and match funding. I believe that that would be the right move and I am sure that the Prime Minister
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would welcome it, as indeed would the Minister, if it meant more evenings at home, instead of sitting in a ball gown in Grosvenor house next to some boring but rich potential donor discussing the taxation of offshore oil exploration. The beginning of a new Parliament is the right time to make such a move.

I rest my case. Two independent bodies have given their verdict, one at the specific request of this Government. The other was a new body that was set up by them and is   charged with examining our electoral system. The   Government have so far rejected the common recommendation and they have made the problem worse by some of the other actions that they have taken. The right time to take the matter forward is at the beginning of a Parliament, with some political cover from some members of the Opposition. I look forward to a positive and encouraging reply from the Minister.

9.50 am

Mr. Andrew Tyrie (Chichester) (Con): I have spoken and written about this subject quite a bit, but I will not rehearse what I said, standing where I am now, when I   succeeded in securing a debate on this issue three years ago.

I want to pick up on a number of points. My right hon. Friend the Member for North-West Hampshire (Sir George Young) has done a superb job in setting out the field. I agree with almost everything that he said and I hope that the Labour Government are listening carefully.

There is a huge gap between the public image of us and the reality. The reality is that the vast majority of MPs are uncorrupt and the vast majority of British politics is conducted in an uncorrupt fashion. It is probably more uncorrupt than any other major democracy. We have a huge number of people dedicated to public service in this institution. The tragedy is that this is completely swamped and swept aside by the image created as a consequence of a relatively small number of problems which derive from the way in which we run our constitutional and parliamentary affairs. One of them is donations to political parties, which is why we need to address it.

In that regard, there is a stench of political corruption in the nostrils of the electorate. Frankly, it is not all a stench of their imagining: there has been the Ecclestone £1 million; the PowderJect donation; Mr. Mittal's donation in exchange, it appears, for the letter that went to the Prime Minister of Romania about its steel industry; the Hinduja £1 million donation to the dome, which was alleged to be in exchange for a passport application; and the blind trust, which we still have. How blind can a blind trust be when the key person running it is the doorkeeper to the Prime Minister and   his key assistant for the first half of Labour's term was the hon. Member for Coventry, North-West (Mr.   Robinson)? That does not build and sustain the electorate's confidence in party donations.

There have also been honours sales on a massive scale: Messrs Bragg, Gavron, Haskins and Sainsbury. The front page of The Times today leads on the story, lest the public are beginning to think that the stench in the nostrils is diminishing. The headline states: "Sleaze
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row as election donors get peerages". So, there have been some more honours sales. Of course, both sides are involved.

The unions have been at this for many years. They have demanded changes in employment policy. For example, the National Union of Rail, Maritime and   Transport Workers demanded such changes and said that if it did not get them, it would withdraw constituency support from a number of Labour MPs. The Liberals have had a scandal of their own.

At this point, a number of hon. Members must feel that I have decided to ignore my party. I am completely devoid of an answer to the good piece of research by the Institute for Public Policy Research into the allocation of peerages prior to the 1997 election, which showed that 50 per cent. of knighthoods and peerages went to companies that made donations to the Conservative party, whereas only 6 per cent. of them went to other companies. I have not been able to think how that extraordinary imbalance could have come about other than its perhaps involving just a whiff of the stench of political corruption in our own nostrils as well.

The truth is that there is a conspiracy of near silence—a shuffling of the feet on the part of all parties, including the Liberal party and, in particular, the major parties. We need to bring it to an end, and the only way to do that is to ban large donations. It is such donations, whether from unions, rich individuals or companies, that create a bad impression. I would favour setting a cap as low as £1,000, but I have been persuaded that it should perhaps be £5,000.

If we were to introduce such a low cap, parties would be short of cash—but how short? One of the illusions that we have allowed to develop in the minds of the electorate is that parties are somehow self-funding and that state funding scarcely exists. My right hon. Friend mentioned some of the state funding that exists. If he had turned that into numbers, he would have found that there is a reasonable case for saying—an orthodox view—that, taking into account total state funding in cash or kind, including free access to television and radio for party political broadcasting, and other forms of support such as the free drop during general elections, roughly half of all party political activity in Britain is funded by the state in one way or another. Therefore, we are talking about the other half.

How much of the other half consists of large donations? It is probably 50 or 60 per cent.—between a quarter and a third of the total cost of party politics. Either we will have to plug that gap or parties will have to operate on rather less cash. British democracy would not collapse if parties had less funding with which to   fight elections. Indeed, another of the Electoral Commission's proposals to which my right hon. Friend alluded was the possibility of reducing the limits on party funding during elections.

My right hon. Friend has supported strongly the proposal that there should be tax relief on political donations. I am sympathetic to that view, but I do not think that it is the best way forward. However, I would not allow the best to be the enemy of the good. A matching funding scheme is the most sensible way forward, for several reasons. One is that it is easy to adjust the amount that ends up in the hands of parties because it does not have to be a 50 per cent. match; it
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could be a 60:40 or 30:70 match, which would ensure some continuity of funding to political parties. It is also very direct. I could turn up in my constituency and say, "If each of you will raise x, I can get y back." That is clearer and more direct than saying that people should fill in a form to enable them to get tax relief, so that is the scheme that I favour.

The Government's arguments against those proposals scarcely stand up. They say that it is state funding by another route, but we already have huge state funding in cash and in kind. They also claim that it would be too expensive, and my right hon. Friend correctly swept that argument aside with a wave of the hand, saying that they could find a few million very quickly. It is also worth bearing in mind that we already spend a huge amount—far more than the £5 million or £8 million that might be required—trying to bolster the public's confidence in the electoral system in other ways. For example, increased funding has gone to the Electoral Commission, which probably costs three times as much to run as it cost to administer the task in the Home Office, which ran the system prior to the creation of the Electoral Commission.

The seismic change has to be the complete banning of large donations. If we do that, we have a good chance of restoring some of the electorate's faith in political parties and we will certainly make it much more difficult for people to claim—I am afraid with some justification—that honours can buy power and influence and have been bought by party donations. Such party donations are listed on the front page of The   Times today.

I have raised the matter on numerous occasions, and I   get the standard replies from the Government that have obviously been prepared carefully in the Department. I have also raised it with Sam Younger. I   thought that he produced an excellent report, but unfortunately it funked this key issue. Only last week, in the Constitutional Affairs Committee, I said to him that

He replied:

He then explained why, and I think that this is quite interesting. He said that the trouble is that on the one hand, the electorate said:

and that, on the other hand, people said,

Of course, that is a problem for us. It is a problem for Sam Younger. But is that not what we politicians should be about: convincing the electorate that they already put money into political parties, that it is right that they should and that a modest increase—which is all we are talking about—in return for getting rid of large donations must be a sensible way forward. Is it not important that the Electoral Commission, rather than engaging in "followship", should try a bit of leadership? Is it not the job of Sam Younger and the Electoral Commission to take a view? Would it not be helpful if, as a result of this debate, the Electoral Commission had a clear sense that it needs to come back to the issue and give us a stronger steer on that key recommendation?
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I rest my case. If we succeed in getting a ban on large donations, I am confident that we can restore a good deal of the trust in political parties that the electorate appears to have shed. If we do not, articles such as that on the front page of The Times will continue, as will the haemorrhaging of public confidence in party activity.

10.2 am

Mr. David Heath (Somerton and Frome) (LD): First, I congratulate the right hon. Member for North-West Hampshire (Sir George Young) on initiating a particularly timely, as it turns out from today's headlines, debate on an important subject. I also congratulate him on the content of his speech and the way in which he set out the issue. He was ably followed by the hon. Member for Chichester (Mr. Tyrie), who added value to the debate and made it plain that the issue should be addressed. I am a little surprised that all   parties are not represented in the Chamber this morning, because the matter quintessentially affects us all and we ought to hear a range of opinions on it.

I agree entirely with the right hon. Member for North-West Hampshire. There is no excuse for the delay in responding to the Electoral Commission's proposals. It is an extraordinary lacuna in the Government's response, particularly in the context of the Bill we will be dealing with this afternoon, which, it might be thought, could have been an appropriate vehicle for some of the necessary reforms.

I also agree that it would be wonderful if we could reach consensus. It would make all our lives, including those of Ministers, easier if we had a common view. I   fear that that may be a counsel of perfection. It may be that self-interest will get in the way of the interests of the country in providing a proper and effective system that inspires the confidence of the electorate and, at the   same time, ensures a vibrant democratic system. There is inevitably a bias in favour of maintaining the   huge disparities in funding. If we went before the Competition Commission, the clear view would be that some parties hold monopolistic positions in this country. They do so because they can attract funding, and good luck to them, but that reduces genuine democratic competition in this country significantly.

Both hon. Members who spoke made significant points about large donations. I shall address those points, because the effects or potential effects of extremely large donations to any of the parties colours the public's perception. I say "potential effects" because there is no difference between real and perceived influence in that they both reduce the confidence of the electorate in political parties and the political system.

What are the potential effects of large donations to political parties? There is a perception that they might affect the personnel of parties—people who might be elected in particular constituencies—or, indeed, the party leadership. We need only look at the election of the Conservative party leader—not this one, but the previous one—in which people who donated large amounts made no bones about the fact that they would stop their donations unless the leader of the Conservative party was removed and a new person put in his place. When the new person was put in place—who was equally ineffective in some ways—the large donations resumed. That was a direct influence on the way in which a political party proceeded.
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Another effect of such donations is one that borders on corrupt practice. It is the perception that if someone gives a large donation to a Government party, or a party that aspires to Government, their business will profit because they will have direct access to contracts or a   more benevolent business environment in which to work. The concern was expressed in both the Mittal and Bernie Ecclestone cases that donations were somehow having an effect on Government policy. Whether that is true or not is almost immaterial to my argument.

There is a fear that large donations can affect party policies disproportionately in relation to the mood within the party or the views of ordinary party members. If someone has a strong view on a particular policy area and is prepared to back it up with an awful lot of money, that view may prevail.

There can also be a direct influence on the conduct of elections. We know that a limited number of seats are likely to change hands in an election under our system, so a wholly disproportionate effect can be gained by the   application of significant amounts of funding in marginal seats. The right hon. Member for North-West Hampshire said that he saw little evidence of that in his constituency. Well, I am not surprised, but I saw considerable evidence of it in my constituency because it is a perennial marginal seat. It might be described as a safe marginal seat, as I always extend my majority, but by nothing so vulgar as to put it into four figures. There is undoubtedly directed funding. I do not say that political parties should not target seats; we all do that,   but—we shall explore this when we consider the Electoral Administration Bill—there is a limit to what national parties should be able to put into local campaigns.

Donors can also have an influence by putting money directly into marginal seats to sustain a candidacy during a Parliament, or through third-party advertising or involvement. We saw that with the short-lived Referendum party, which tried to have a direct effect on a number of marginal seats represented not only by Members from my party but by Conservative Members. Those who did not pass the test—those who did not   have a true Europhobic attitude—had material distributed in their constituencies, irrespective of whether that party—the word should be in inverted commas—had candidates standing in those constituencies. That, too, had a direct effect on the conduct of elections.

Another matter touches on the activities of the Referendum party, but it is of far greater concern in connection with the more extreme parties. That is the effect that a large donation could have on a fringe party. A millionaire or multimillionaire could buy a small fringe party lock, stock and barrel, funding it out of all proportion to its membership or following for the direct electoral effect that it could have. Essentially, it would be a party of one—one very rich man who could put   forward an extreme position in constituencies throughout the country. We should be worried about that.

Last is the link—it is more than perception—between patronage and the expectation of honours. One must assume that The Times has the correct information, but as the hon. Member for Chichester pointed out, today's
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edition tell us of the new working peers who are to be   created. We read that Sir David Garrard and Sir   Gulam Noon each made donations of more than £200,000 to the Labour party. Sir David obviously spreads his bets a little; he once donated £70,000 to the Conservative party. He clearly needed to support political parties of one sort of another—no doubt with no expectation of preferment. The new Conservative peer, Mr. Robert Edmiston, gave the party £250,000 last year and happens to find himself on this year's honours list. I note that Mr. Jonathan Marland, whom I defeated in the 2001 election, is to be ennobled; he was generous with his donations in my constituency when he was a candidate, and he has no doubt made significant contributions to the country's good since leaving Somerton and Frome and finding new roles elsewhere.

I do not single out individuals because, as the hon. Member for Chichester said, a series of honours lists have been filled with people who happen to have been generous benefactors to the various political parties. As has been pointed out, we are going back to the days of Lloyd George. Although Lloyd George did many good things, the way in which he dealt with the peerage lists was not one of the most salubrious aspects of his political career. It was wrong.

I am almost tempted to say that I would rather have a peer who was preferred by patronage in the 18th century than one who was preferred last week, because the former would be in a more disinterested position. I do not take that view, however, because I want to see an elected upper House. Indeed, I look forward to the day when we have an elected House, as we will not have any of this patronage nonsense. Some people in high positions want to see the whole of the second Chamber put in place by a rotten system in which one pays a lot of money to a political party and ends up making the law, but that is not defensible in any circumstances.

What is the answer? I agree with those who say that there should be a cap on large donations. That is appropriate, and I make no bones about it. However, doing so could cause a funding gap that prevented the   political parties from doing their work effectively. I   speak for a party that has never been able to raise large donations in any number, despite recent headlines to the contrary. We have always relied on small donations from our members and from fundraising activities. All the political parties could live on less if they tried. We do not do too badly, despite the fact that we have a disproportionately smaller amount to spend.

There is a very good argument, which we have already heard, for the state to recognise the role of the political parties in the political system. As has already been said, the principle of public funding is not new; it emerged years ago. We have Short money, policy development money, freepost, party political broadcasts and public buildings, so it is nonsense for Conservative Front Benchers to continue to believe firmly—I hope that I   shall be proved wrong—that public funding is somehow anathema. They benefit from it enormously. The Conservative Front Bench is paid for out of public funds. I do not argue that it should not be, because the Opposition are part of making our political system work, but it is utter humbug to say that public funding cannot be extended to ensure that the greater political will is done.
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I do not believe that large donations from public funds is the answer, either. That would be the wrong way to do it. The public would be rightly suspicious if someone simply put their hand in the Treasury, pulled out a large sum of money and said, "Here you are. Here's some money to spend on your political campaigning." I do believe, however, that linking funding to money raised from members of local parties or through local fundraising is very appropriate, because it directly links the amount that is being dispensed with the activity levels of the local parties. It has been suggested that there are two ways of doing that, one of which is tax relief. I do not buy for a moment the Treasury line that that is too difficult; as the right hon. Gentleman says, how many charities do we have in this country, and how many political parties? It is nonsense to suggest that that cannot be managed.

I believe that match funding is a better way of raising funds, simply because it is simpler, more transparent and more obvious. We have made the modest suggestion that one way of providing the funding for that, without huge damage to the programme of the Government or future Governments, might be a 10 per cent. cut in the Government's £200 million advertising budget. That would pay for match funding; that would deal with it. Problem solved. Would the public recoil at the prospect of 10 per cent. less Government advertising? I suspect that they would not. Would they benefit from the political parties being free of the confines of large donors and perceptions of sleaze? Yes, they would. I believe that that is a sensible way forward, and I hope that the hon. Member for Wealden (Charles Hendry) can match the eloquence of his colleagues and their desire to make a real difference. I hope that the Minister will respond positively, or at least respond, to what the Electoral Commission has said.

10.18 am

Charles Hendry (Wealden) (Con): I, too, congratulate my right hon. Friend the Member for North-West Hampshire (Sir George Young) on securing this debate on a subject that is long overdue for discussion. It is, in some ways, sad that it is being held in this Chamber rather than in the main Chamber of the House of Commons, but at least we have the chance to discuss the matter today. I am also grateful to the hon. Member for Somerton and Frome (Mr. Heath) for his challenge. I   would be hard put to match the eloquence of my right hon. Friend, but I shall try to deal with some of the issues that he mentioned.

My starting point is that I do not believe there to be a public appetite for a massive extension of the state funding of political parties. People would be extremely angry if we told them we know that they could face tax rises or cuts in public expenditure because of the state of the economy, and that it will be a difficult year for the health service and an extremely difficult year for our local authorities, particularly in the south-east, but that, by the way, we plan to change the rules so that we in the political parties have to do less work and will be funded by the taxpayer.

An important distinction should be drawn between supporting parliamentary work and duties, such as that which Short money enables, and a broader support for parties' political campaigning. The electorate would
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have greater difficulty accepting that, especially when they dislike much of the modern style of political campaigning.

I take on board what my right hon. Friend said about the disengagement of the electorate, but part of that is down to the style of campaigning, which leaves them cold. We need to inspire them, and to appeal to their hopes and aspirations rather than frighten them. There is an advertising belief that elections are won by being negative. I believe that we win elections by showing that we have policies to which people can relate and which they feel represent a better way of doing things. If that advertising theory came through in campaigning, people would feel that they were paying more money in taxes to subsidise such activity.

In this country, voting is voluntary, whereas in some other countries it is compulsory, but we have chosen not to adopt that approach. Why should every taxpayer, including those who have chosen not to vote, be obliged to contribute towards the campaigning activities of political parties.

My right hon. Friend spoke about the decline in election turnouts. Only 13 years ago there was an historically high turnout, so there has not been an   inexorable decline over decades: it comes and goes. A decline in turnout is more likely when people ask themselves whether the election really matters and whether their vote will make a difference. It depends on whether they care or whether they have contempt for the entire political system. They feel disillusioned for many reasons, but no one has ever said to me that they feel disillusioned because of how political parties are funded. As my hon. Friend the Member for Chichester (Mr. Tyrie) said, it is part of a wider element, but not one of the key issues that affect voting. The problem will certainly not be resolved if we say to people who are already disillusioned that they will have to pay a little more in tax to fund a system that they dislike.

In 1992, when we had that historically high turnout, we had the same funding system as we have now. There was a little difference in the amount of Short money available, but the parties were funded through voluntary principles. Some of the extremely rich made significant contributions. That did not prevent people from voting in the election.

Sir George Young : Has not there been a significant change since then with the introduction of the Political Parties, Elections and Referendums Act 2000, which has made it much more difficult for all political parties to raise money from companies?

Charles Hendry : Yes, that has made a difference. It is part of the answer to the question to which my hon. Friend the Member for Chichester could not find an answer. Pre-1997, many public companies gave money to the Conservative party, because there were not the same rules on declarations and openness, and they were profoundly concerned about the implications of the election of a Labour Government. It was not surprising that many of those business leaders ended up in the House of Lords, because in those days more companies provided support to the Conservative party. My right hon. Friend is undoubtedly right that there has been a significant change because of that. However, the biggest change has been the perception that donors now get much more in return for a small amount of money.
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My right hon. Friend also spoke about the declining membership of parties. A significant element of that has nothing to do with the funding of parties, but with the move towards computerisation in our associations. In my association, membership is highest in branches that have a determined troop of people who go round knocking on doors every year. When someone new moves into the area, the first person who turns up is the chairman of the local Conservative branch, who finds out what they are interested in and whether they want to   join the party. We have the most vibrant branches in   those areas. Computerisation has significantly contributed to that. There is also a general lack of willingness of younger people to join organisations, be they political parties or charities.

If we go down the route of state funding, we will end up with people paying taxes to support the views of parties that they dislike or even abhor. It is difficult to draw a distinction to prevent the British National party from receiving some state funding. We cannot have a system that makes available state funding but only to those parties whose views we happen to like and believe are acceptable. Under the proposed system, if people wanted to vote for it the BNP it would have to be eligible for funding and it is reprehensible and unacceptable that taxes would be used to fund such racist activity.

State funding would undermine rather than underpin our representative democracy. It is unhealthy for parties to be dependent on the state as it limits their freedom for manoeuvre and their ability to talk about what they really think. To consider it from a different dimension, there is a suggestion that there should be funding from the European Commission to parties that are genuinely pan-European. What is worrying is the expectation that it would also require parties eligible for funding to have commitments to various European ideals: essentially, parties can have access to state funding only if they fit into the pot of what we think a political party should be doing. That fundamentally undermines the principles of representative democracy.

Sir George Young : What has happened to the party to which my hon. Friend and I belong since 1999, when we   all voted for a slightly more generous scheme in the House of Commons than that proposed by the Electoral Commission? We knew all the arguments but none the less the Conservative party voted for amendments that would have implemented the scheme that my hon. Friend is now speaking against.

Charles Hendry : As I said earlier, there is a distinction to be drawn between voting for support for parliamentary duties to ensure that those in this building can operate effectively and properly and support for campaigning; there are other aspects of the matter that I shall mention in a moment. There is a fundamental difference.

Dr. Alan Whitehead (Southampton, Test) (Lab): Does the hon. Gentleman accept that there are methods of securing the assent of individual electors to a proportion of what would otherwise go in their taxes to support for political parties which would gainsay the idea that one puts money in to support parties that one does not
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necessarily agree with? Those methods might therefore be the answer to the question that the hon. Gentleman poses.

Charles Hendry : We must either have a system of state funding for all political parties or a system that limits state funding. That route leads down the slippery slope; we cannot pick and choose between parties simply because we do not like them. There must be some consistency, which is lacking.

The voluntary principle is fundamental to how our political parties work and we should encourage it; state funding would undermine it. A typical situation is that each party would receive £2 million in state funding—about 10 per cent. of their election spending. That would undermine their ability to say what they truly believed because to some extent they would be dependent on the state and therefore could not speak as freely as they might wish to.

Mr. Heath : I should be interested to know whether the hon. Gentleman and his Front-Bench colleagues in the Conservative party are constrained in what they are entitled to say or believe by the application of state funding for duties in this House.

Charles Hendry : It comes again to the distinction between support for parliamentary duties to ensure that we can hold the Government to account and operate our organisations within Parliament, and support for campaigning. The public would draw a distinction between them. They want the Government held to account and they want this place to operate efficiently, but there is not a great demand out there for paying extra money in taxes so that we can campaign against each other in elections. Once we started down that slippery slope we would move into a vicious circle whereby people in our constituencies would do a little bit less because more came from the taxpayer. Then they would say, "Come on, give us just a little bit more, because that will enable us to do what we need to do," which would undermine the principle of voluntary activity in the party.

The present system under which the parties have to raise their own funds makes them think very carefully how they spend it. They know that if they have only a   limited income and they choose to spend it on advertising on billboards rather than on direct mail, there is less money to spend on other things. It means, therefore, that they must be careful in their choices about how to spend it.

The point made by the hon. Member for Somerton and Frome about the targeting of marginal seats is, to some extent, a red herring in this debate. Clearly, parties target their efforts on marginal seats and will continue to do so whether there is state funding or voluntary funding. That is where the election is won. I share the hon. Gentleman's aversion to four-figure majorities and believe that a five-figure majority is much more encouraging. However, as to the way in which election campaigns will always be run, we must recognise that more effort will go into more marginal constituencies.

As my right hon. Friend said, there is already considerable subsidy for political activity, including, for example, free election postage and the use of air time on
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television. We must be extremely careful before we extend that too broadly into a more general approach to political campaigning subsidies. I have great sympathy for the idea of tax relief on political donations. There are grounds for consistency. If people who give money to a charity can be given tax relief on that, I do not see why a distinction should be drawn so that, uniquely among voluntary organisations, political parties are excluded. I   should be grateful for the Minister's response about tax relief, which should be part of the way forward.

My right hon. Friend touched briefly in his opening remarks on policy development grants. The manner in   which that funding is allocated is flawed. It is not right that the money should be given equally to the parties. For example, the Government have tremendous additional resources for policy development. A key part   of the Government machine is organised towards   policy   development. To give them the same contribution through the policy development grant is wrong. The allocation should also relate to the level of support for the parties.

There has been some discussion already about whether a cap should be imposed on donations. In a free society people should be able to spend their money as they wish, especially with clear rules on declarations. The argument is a sideshow in the debate.

Mr. Tyrie rose—

Charles Hendry : I shall give way in a moment, but I   want to deal first with a point that my hon. Friend made. What is most important is to get rid of the blurred lines from the trails of paperwork, so that the connections between giving funding and receiving Government contracts can be seen, and to deal with issues such as the increasing politicisation of the civil service. Along with that must go a fundamental reform of the House of Lords. As the hon. Member for Somerton and Frome said, until there is a majority elected House of Lords, we will not get the transparency that we need.

My hon. Friend the Member for Chichester raised the suggestion that anything over £1,000 should be capped. Even if we were to take the capping route, that would be ludicrously low. In a typical non-election year the major parties will raise £10 million each, and £1,000 is one ten-thousandth of their spending; it is what they spend in less than an hour each day. During the debate the main parties have spent more than £1,000 on general running costs, never mind what they spend on their campaigning in an election. A cap at such a level suggests that someone would gain favours for contributing a small amount that would pay for a political party's running costs for an hour. That is ludicrous.

Mr. Tyrie : Perhaps we could take a look at a £5,000 cap, if my hon. Friend does not like £1,000.

I just wanted to clarify one point. I heard virtually non-stop argument against all forms of extension of state funding. Indeed, so strongly held were the views expressed that sometimes I thought that my party's Front Bench would voluntarily hand back Short money and the policy funding. Then, a moment later, I heard what I thought was support for the proposal to extend
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state funding sharply, by offering tax relief to individuals who donate to political parties. Is that my party's policy?

Charles Hendry : It is indeed. It was the policy that my   right hon. Friend the Member for Maidenhead (Mrs. May) advocated when she was party chairman and involved with the Electoral Commission. It was said that we should aim at having tax relief up to a donation limit of about £500.

The difference is that a blanket subsidy does not go to a particular political party. That is wrong. It follows the principle that if, people contribute towards a charity they are entitled to tax relief, so why should a political party as a voluntary organisation uniquely be excluded from that process?

Dr. Whitehead : Is not a short step towards the process of ticking off a small level of support for a political party the use of a tax return? If a person is not well off enough to make a large donation to a party, a small sum, which is under the control of the person making the tax return, can go to the political party of his or her choice. Is that principle in any way different from what the hon. Gentleman suggested when he referred to tax relief in respect of perhaps different donations?

Charles Hendry : Tax relief is a more consistent approach because it is available to anyone when giving money to charity. The organisation can claim tax back on the contribution. That is the most consistent way forward. It ties in directly with the contribution of the   individual rather than supporting a blanket contribution from the Exchequer to the individual actions of political parties, which would cause a more fundamental problem for the reasons that I have outlined.

The hon. Member for Somerton and Frome spoke about problems in respect of caps on contributions when one person funds a political party. We must be careful about such matters. He may have had in mind James Goldsmith and the funding of the Referendum party, which was very much a one-man party. My worry about such an approach is that the party ended up getting well over 1 million votes. It was clearly in touch with what people felt, and which they did not consider was represented by other parties. I absolutely oppose what he stood for, but to say that an individual who   passionately believes in something should not be allowed to support or set up a political party to carry forward views that were not advocated by the mainstream parties is a fundamental denial of people's democratic rights.

Even if we disagreed with what James Goldsmith stood for, the fact that more than 1 million people voted for him showed that he was touching an important vein of opinion in society. However, had his party been reliant on state funding or had there been caps on donations, that could not have happened. Such matters represent important issues in our democracy.

All of us in our constituency lives come across a range of voluntary organisations that are struggling for funding. They have to find new projects because they cannot receive funding for older projects. After three years, funding dries up and they become fed up with the
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form filling. People who work in the voluntary organisations will say, "Will you explain why you consider that it is more important to support political funding through a block grant than it is to support us in our work for the homeless and the elderly in other sections of society?" There will be tremendous anger over block grants. Tax relief is a different approach. It recognises the contributions that people have made and it is tied in to individual decisions rather than block grants.

We are all keen to know what the Minister has to say, because we have waited a long time for a response to the report. I am sorry to have detained hon. Members for an extra few minutes, while other parties will be spending an extra £1,000 to hear what the Minister has to say in her overdue response.

10.39 am

The Minister of State, Department for Constitutional Affairs (Ms Harriet Harman) : I join other hon. Members in congratulating the right hon. Member for North-West Hampshire (Sir George Young) on instituting the debate and on the amount of work that he has done on the issue. He has put in a great deal of thought and approached the matter with consistent principles, which he has brought to the debate. Nearly all of what he said is self-evidently true.

I also congratulate the hon. Member for Chichester (Mr. Tyrie) on his speech. He, too, has a long track record of speaking on the issue, and almost all he said was self-evidently true. Just as the right hon. Gentleman wrote the foreword to Matt Cain's important report for the Institute for Public Policy Research report—I pay tribute to Matt and IPPR for their work on that report—so the hon. Member for Chichester contributed "Our politics is healthy. Our party finances stink" to a New Politics Network discussion paper. The analysis from the hon. Member for Somerton and Frome (Mr.   Heath) echoed and endorsed their comments.

I am glad that the Government have yet to produce our response to the Electoral Commission's report, because we now have the opportunity early in a new government term to look at the issue afresh. As a new Minister in the Department for Constitutional Affairs, I   can get involved in this important debate.I cannot provide a detailed policy response this morning; indeed, I cannot make any new announcements at all. I hope, however, to respond to some of the principles that hon. Members have raised.

The right hon. Member for North-West Hampshire is absolutely right to place the debate in a discussion about democracy. It is a problem if people feel cynical about   democracy, and it is a problem if people do not vote. The hon. Member for Wealden (Charles Hendry) said that many things contribute to that happening. He is right but we must look at all the problems and act on those on which we can.

The hon. Gentleman also said that voting is voluntary and, as such, plays against the idea of tax-funded contributions to party activity. Although it is true that voting is voluntary, democracy is not—it is our one and only system. Just as it is right for people, even if they do not go to hospital, to pay for the NHS, because to do
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so   is in the interests of the country, it is helpful to look at what is the best system of governance for the country. How can we sustain confidence in the democratic system? If people do not have confidence in democracy, it does not work.

The right hon. Member for North-West Hampshire talked about the importance of political parties. Once again, I strongly agree. Political parties provide policy platforms and choice. They are the means to deliver those choices and are channels for political discourse. I   regret that one can often cross out the words "political party" in newspaper articles or speeches from non-politicians and insert "criminal activity", only for the sentence to flow as easily.

We must re-argue the case for political activity and political parties. We politicians must restrain ourselves from saying, in order to curry favour with a certain audience, "This is not a political point but," as if we will   spring free from politics. We all have a responsibility to make the case for politics and political parties. However, the right hon. Gentleman rightly said that parties need infrastructure. There we make the choice. Those who believe in democracy believe in political parties as an essential part of that democracy. Political parties need an infrastructure. Do we let political parties wither away or do we let them increasingly depend on donations from big companies and rich men? Or do we do something more? That is the choice we face.

The hon. Member for Wealden said that he did not see much public appetite for giving taxpayers' money to political parties. It is true that people do not rush up to us in the street to argue for tax funding for political parties. However, we do see public aversion to the idea that the principle of democracy, which is fundamentally about equality—that each individual has the same say and the same right—should be interfered with by rich individuals or rich companies buying into the process.

Perhaps I should declare an interest. I represent a constituency that includes Peckham. We do not have any millionaires in Peckham, and we probably do not have any people who would donate £5,000. The hon. Member for Wealden said that he thought £1,000—even £5,000—was a ludicrously small amount. At one level, I   understand what he says. However, one should look at the matter from the point of view of my individual constituents and their estimation of what impact and influence they have on the constituency. I have sat round in Labour party meetings as my hon. Friend the Member for Battersea (Martin Linton) will have done in his neighbouring constituency in south London—incidentally, I pay tribute to the huge amount of work that he has done over many years on this subject. During those meetings, there may be a raffle of a few tins of food   for the party, and people give very small sums of money. That is what it used to be like 20 years ago when I was first elected as a Member of Parliament. Local party members will be deterred from making such contributions and will not feel that they have a role in   contributing to the party if they are completely "overfaced". If they think that donations are entirely the remit of millionaires, they will feel that they themselves do not matter. We should step back and think about those matters and their possible effects.
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Charles Hendry : That section of the debate focused on whether there should be a cap on donations. The right hon. and learned Lady criticised the £1,000 and £5,000 level for rich people or businesses. She did not mention donations from trades unions, which would also be pretty significant. Is the right hon. and learned Lady for or against a cap?

Ms Harman : As I said when I began, I am generally discoursing on the issues; I am not pronouncing on policy, other than on what we have already said in our manifesto, which the hon. Gentleman kindly read out. I   am just agreeing with some of the problems that have been raised. I cannot step forward, snap my fingers and say what I think the answer should be. I am really just empathising and recognising the truth of the problems that have been set out by some hon. Members in the debate.

Sir George Young : I am grateful to the right hon. and learned Lady for giving way; we are enjoying the discourse. Do the Government intend to respond formally to the Electoral Commission's report and, if so, by what date?

Ms Harman : We will formally respond when we have had a full debate on the matter, to which this debate has contributed. We will respond in due course, but I cannot give the hon. Gentleman a specific time.

The hon. Member for Somerton and Frome made an important point about the difference between real and perceived influence and the difficulty of distinguishing between the two. There is also the difficulty of proving a negative. If people give money, the general assumption is that there is no such thing as a free lunch, and it is difficult to prove that there has not been undue influence.

Before the hon. Member for Wealden intervened, I   declared an interest as the Member of Parliament for Camberwell and Peckham—an area not populated by millionaires. I intended to declare a further interest, in that I am married to the treasurer of the Labour party, who is also a trade union deputy general secretary. At   the Labour party conference earlier this year, the treasurer moved the motion that the cost of individual membership of the Labour party should be increased from £18 to £36 because, unless the members pay up, the party will inevitably become reliant on rich men.

The question whether we have a system that has a large number of small donations or a small number of big donations is important. It is true that big donations raise concerns about legitimacy, and those concerns are felt much more by poor people than by rich people. Our concern in this Government is to protect democracy: that is the responsibility of the Department of Constitutional Affairs, although we go about it in a non-party political way. We are concerned, as a Labour Government, about issues of inequality. The question of people's sense of their equal participation in democracy is very important.

Some work to be published later this year by the IPPR shows that democracy used to be the one thing that cut across the class divide. We all know about the class and socioeconomic divide in health and educational outcomes, but the one thing that was equal across all
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classes was democracy and participation in voting. The last three elections have seen a change in that: it is no longer the case that people's propensity to turn out is irrespective of their social class. There is a growing gap between the registration and turnout of better-off people in society and those of poorer people. We have an inequality problem in our democracy, and we must consider how political activity is funded, what people in the country make of how parties go about their business and how they are funded. We must look at it in the context not only of the debate about democracy, depending as it does on political parties, but the debate about inequality.

I add my congratulations to Lord Puttnam and his colleagues on the Puttnam report. How we go about our business in the House, making Parliament much more representative, is something that we ought to consider in order to contribute towards public confidence. It is also important that people from individual political parties do not have to rely just on the media. If we cannot afford to communicate directly with our constituents, we must rely on the media. The question is: is there a worse alternative to the current situation? It is important for parties to have sufficient funds to be able to communicate directly with the electorate from which they are seeking votes, instead of having to go through the media. It is also true that turnout is dependent on contact. Apparently the clear evidence is that the more people are contacted individually by parties in a constituency—this is surprising and counter-intuitive, as one would think that people would want to reward us for staying away from their doors—the more likely they are to turn out. I can see the hon. Member for Chichester shaking his head about that.

However, contact costs money. I agree with research done some years ago by my hon. Friend the Member for Battersea which showed that there are some things about party politics that people do not like the idea of paying for and other things that they do not mind so much. We can all agree that people would not like money that they pay in taxes going on negative campaign billboards. Evidence drawn up by my hon. Friend shows that people do not mind supporting research, policy making, and youth activities, and hon. Members have drawn attention to the big problem of non-participation of young people in our democracy. Legitimacy walks away from democracy if people walk away from it. People support youth activities, quite rightly, and councillor training, equipment for offices, and the work of parties in Parliament, including Short money. There is possibly less of a difference between the hon. Member for Wealden and his colleagues than might have first appeared during his comments. The Electoral Commission is doing further work on the matter. We should all agree that there is a problem. In the past, the matter has been placed in the "too difficult" box. It is not an easy matter to resolve, but there has been a broad measure of agreement during the debate. We can work together, drawing on the work of the Neill committee, the Electoral Commission, and the work in which hon. Members have already engaged.

Sir George Young : I sense a peroration coming. Before the right hon. and learned Lady concludes, will she agree to look at the matter with an open mind and
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accept that what the Government have said about the Neill recommendation is not their last word on the subject?

Ms Harman : The Government's most recent words on the matter are in our manifesto, which states that

That demonstrates that we have work to do. Campaigning activities, of course, such as the printing of posters, must always be funded by parties from their own resources. However, parties do a great deal of other work that we must examine to see how contributions could be made.

Mr. Tyrie : I follow the question from the my right hon. Friend the Member for North-West Hampshire. Will the Government examine the merits of, and set out the arguments for and against, a cap on large donations from individuals, companies and trade unions?

Ms Harman : If we are concerned about the confidence that people have in the health of our democracy and about ensuring that there is no inequality, we must examine that. Some hon. Members mentioned that, despite increasing transparency, there has been growing cynicism. Of course, if one tells people about what is happening and they do not like it, they become more cynical. I understand that that is the experience of other countries; the more transparency and the more people know about what is happening, the more they think, "Well, we might not like that." If that is the case, it is right to tell people what is happening. If we get those signals, we must not bury our heads in the sand; we must approach the issue intelligently.

We shall draw on all the points expressed so intelligently and forcefully in the debate, and by examining research such as that mentioned by my hon. Friend the Member for Battersea. When we respond to the Electoral Commission's report, we shall see whether we can make progress. I apologise to hon. Members for not being able to give the date of our response and for   not being able to give specific commitments, but I thank the right hon. Member for North-West Hampshire for securing the debate.

10.58 am

Sitting suspended.

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