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Our new clause will prevent companies from circumventing the controls of the Bill. If they wish to donate to the political fund of a trade union, they must seek shareholder authorisation. If they donate to trade union funding in other ways—such as providing free meeting room facilities—they will not need to seek authorisation. In the latter case, there is no danger of such funds being redirected to political parties, because the Trade Union and Labour Relations (Consolidation) Act 1992 prevents trade unions from making payments to political parties, except through their political fund. That Act also prohibits trade unions from redirecting money received from third parties into the political fund unless the money is given as a contribution to the political fund. I want to underline the fact that we are not aware of any companies making such donations to trade unions as a means of circumventing the requirements applicable to political donations in this way. However, I
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have taken on board the request of both Opposition parties that we should make that clear in the Bill to ensure that it is not a possibility in the future.

New clauses 81 and 82 and amendments Nos. 708 to 710 address an issue that was raised by the hon. Member for Huntingdon (Mr. Djanogly) in Committee. Under clause 376, the directors of a subsidiary company and the directors of its “relevant holding company” may be liable if an unauthorised donation is made by a subsidiary. Clause 377 recognises the possibility that neither the holding company nor the subsidiary may bring an action against the directors who are liable in respect of the unauthorised donation. It therefore allows shareholders to bring legal proceedings to enforce that liability. In such cases, we agree that shareholders of both the subsidiary and the holding company should be able to bring those proceedings. That is particularly important if the directors of the holding company are effectively the shareholders of the subsidiary—for example, if it were a wholly owned subsidiary.

As drafted, the clause would allow only shareholders of the subsidiary to bring proceedings, even against directors of the holding company. As I have explained, we do not think that that would work in practice, and these amendments address the problem by giving the right to bring proceedings to shareholders of the subsidiary and shareholders of the holding company. That will ensure that the directors of the holding company can be held to account by their shareholders if they use subsidiaries that they control to make unauthorised donations.

I wonder whether you, Mr. Deputy Speaker, might advise me on the rest of my contribution, which is about resisting other proposals in the group. Should I deal with those now or wait for them to be spoken to and come back?

Mr. Deputy Speaker: That is entirely a matter for the right hon. Lady. She has moved the first new clause in the group, so she will have an opportunity to reply to the debate. In the meantime, she might wish to hear the particular arguments to be advanced.

Margaret Hodge: Right, I shall proceed in that way and leave my comments on the other proposals for when other hon. Members have spoken to them.

David Howarth: I shall speak mainly to new clause 76 on corporate expenditure on lobbying. We do not know the exact extent of corporate lobbying in the UK, but we can get some idea of it from the fact that expenditures on public affairs have risen rapidly over the past 20 or 30 years. In the 1980s and 1990s, leading agencies were growing at between 20 and 40 per cent. a year, and according to a study done in 2000 by Miller and Dinan, in the last two decades of the 20th century, expenditure on public relations rose thirty-onefold.

We do not know exactly how much of that expenditure was directed at lobbying Government on Government relations, as it is called, but as Miller and Dinan point out in its study, it is hardly a coincidence that that massive growth in expenditure coincided with the era of massive privatisations and deregulation of the financial services industry. Lobbying is now a very big business.

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The services offered by Government relations companies are extensive. A particular company—I have checked its website—gives these examples of its work: changing Government policy on payouts to Railtrack shareholders, changing telecommunications policy, defending the interests of companies involved in the private finance initiative, winning political approval for a takeover bid and getting changes in the Financial Services and Markets Bill.

Whatever one thinks about those issues, one way or the other, one thing about them that cannot be doubted is that they are political. Corporate lobbying is an intervention in the political process, just as much as, and in some ways more than, giving money to a political party or a political campaign, yet the law controlling corporate political activity, which is in the Bill, covers only activity connected with elections or referendums.

Lobbying is not just about issues that concern individual companies; it reaches the most important issues. During the past few weeks, there has been some controversy about the activities of certain oil companies—ExxonMobil in particular, and its alleged funding of climate change denial. That is an attempt to shift public policy in a way that favours the short-term interest of a company at the expense of everyone in the world.

The growth of lobbying over the last generation brings into question the type of democracy we are. Sometimes, even when discussing the Bill, the Government, and even the Opposition, have given the impression that the purpose of government is not to put forward and defend a certain view of the public interest, but is instead merely to navigate a path between clashing special interests. Earlier today, the Minister said something to the Conservative Opposition that I think implied that she feels that this is a problem in relation to how parts of the Bill have been handled—we have spent too much time working through what various lobby groups are saying and not enough on what we ourselves think.

Lobbying is creating a form of corporatism in which rich and powerful bodies reinforce their power and wealth by seizing control of the access to Government and excluding others. As the membership of political parties falls, and as in many parties the influence of members on the policies of those parties has declined, the space left behind in the political system has been occupied by corporate lobbyists. The result is that politics is becoming a closed circle.

In addition, lobbying is economically harmful. Most of the massive expenditures made on Government relations are aimed simply at redistributing wealth, usually from the poor to the rich. The aim is not to increase the productive capacity of the company or the country, but simply to shift wealth from one group to another. It is, in the jargon of economists, an example of non-productive rent-seeking. The resources devoted to lobbying would, in economic terms, be much better spent on developing new products, and on selling and marketing. Resources devoted to lobbying are, in economic terms, mainly waste.

5.45 pm

We must do something to bring lobbying under control. New clause 76 is only the start of our thinking about that process. Frankly, I do not expect it to be added to the Bill tonight, but I hope that it will be the
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start of an important debate. The new clause would oblige companies to report on their expenditure on lobbying, once it exceeded a certain limit set by the Secretary of State, and to obtain shareholder approval for lobbying expenditure above that limit, in a way that is equivalent to the regime that applies to political donations.

In Standing Committee, there were various objections to our proposal. One was that companies would have to report trivial expenses, such as the cost of a cup of coffee with a Minister or a taxi to Parliament. We dealt with that in the new clause by allowing the Secretary of State to set a minimum limit. The objection was made that the measure would inhibit the flow of information from companies to the Government, or Parliament. To deal with that, we have given the Secretary of State power to exempt expenditure on meeting governmental or parliamentary requests for information. Outside the Committee, it was suggested that there was a gap in our proposal, because it did not deal with overseas companies operating in this country, and we plugged that gap by making it clear that it does apply to them. Such companies already have to register and report their activities.

The object of new clause 76 is to bring more transparency to the world of lobbying, but it is of help to shareholders, too. As the Minister said, one of the reasons that political donations need shareholder approval is that directors’ political enthusiasms can adversely affect a company’s reputation. The same is potentially true of lobbying. One might expect shareholders to be more in favour of lobbying in their company’s interests than in favour of political donations, but they, too, might wonder whether managerial effort would be better spent on promoting and developing the company’s products than on lobbying Government. They, too, might wonder about the effects on a company’s reputation if it was found to have lobbied in a way that was enormously unpopular—for example, on the subject of climate change. The topic is important and, if the opportunity arises, I should like to press my new clause to a Division. I realise that its chances of success are slim, if Standing Committee was anything to go by, but I hope that it will be the start of a serious debate.

I shall not press our other amendment in the group, amendment No. 687, to a Division. It is a drafting amendment, but an important one, and I hope that the Government understand the point behind it. It would amend clause 372, which is about the circumstances in which a company may make a political donation. Under the clause, a company must obtain a resolution of members. Subsection (3) is about what happens in a wholly owned subsidiary company but, obviously, in such companies, it is pointless to require a resolution of the shareholders separately from a resolution of the parent company, because they are one and the same thing. Clause 372(3) aims to prevent the requirement for two resolutions if one of them is pointless. Unfortunately, the wording of the provision it is not entirely clear:

before it can make a donation. There therefore appears to be an enormous loophole, and all one need do to avoid making a resolution in the form required by the law is set up a wholly owned subsidiary. I hope that that is not the intention and amendment No. 687 aims to put into legislation what we all believe should be the case.

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I conclude by thanking the Minister for closing the loophole on trade union political funds that we brought to her attention in Committee. I accept that it is unlikely that that loophole has been used, but it could be used in future, so I welcome the fact that the Government have taken the opportunity to close it.

James Brokenshire: I wish to look at the treatment of trade unions in the Bill. At the end of our debate in Committee, the relevant provision said that unions were not political organisations, which, as we all know, is a legal fiction. The recent document published by the Trade Union and Labour Party Liaison Organisation on party funding made it clear that

Union votes account for a third of the votes for the next Labour leader. The unions make Labour party policy through the national policy forum, and they exercise a 50 per cent. block vote on policy motions debated at the Labour party conference. How best should we address the political position of trade unions in the Bill? As the Minister said, the Government clearly listened to the debate in Committee, particularly the points made by Conservative Members, and have moved the debate forward by tabling Government new clause 83. Under subsection (1), a company does not have to submit to the approvals process prescribed in the Bill if a donation, other than a contribution to a union’s political fund, is made to a trade union. Financial support from companies for trade unions to facilitate training, educational development, employee counselling and other important aspects of unions’ work to promote good employment relations in the workplace would fall outside the approval requirements. That is of particular concern to many companies—indeed, that concern largely drove the inclusion of clause 372 at the outset.

Subsection (2) makes it clear that the qualification—I have termed it a legal fiction—that a union is not a political organisation applies only in connection with political expenditure in clause 371. In other words, a company can promote or publicise a trade union’s activities without the need to seek shareholder consent. That is entirely appropriate in the context of fostering positive employee relations and ensuring that employees have access to advice and guidance in the event of a dispute or a safety issue. It is worth putting on the record the fact that trade unions’ political activities are framed by the Trade Union and Labour Relations (Consolidation) Act 1992, which incorporates provisions on the establishment and maintenance of the political fund and the uses to which the fund can be applied. Section 72 makes provision for the contribution of funds to political parties, as well as the distribution of materials relating to the promotion of political parties or candidates. The political fund can be used by the union only for political purposes, but I expressed anxiety about it in Committee, and I remain slightly concerned about the proposal on displacement. If a company made a donation to a trade union for non-political purposes, could it be used to free up, displace or transfer resources to the political fund for a political application? We debated the issue in Committee, and the hon. Member for Burnley (Kitty Ussher) highlighted advice from the TUC on actions taken by a union that could endanger its independence for the purposes of the 1992 Act.

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The Minister kindly wrote to me on 24 July 2006, enclosing a copy of the briefing note, for which I am grateful. It would be helpful, however, if the Minister were to respond to the following points when she sums up. First, has she obtained legal advice confirming that a transfer of funds from an employer to a union, which either displaces or frees up other resources in the general fund, which are then transferred to the political fund, would be a breach of the independence requirements of the 1992 Act, as per the advice given by the TUC in its briefing note? Secondly, does she construe the wording in new clause 83,

to encompass direct and indirect contributions, where the purpose of the contribution was clear or where it might not be clear from the contribution that it was so intended but it had that effect indirectly?

Amendment Nos. 376 and 377 develop a slightly different point—the equivalence between the treatment of companies and trade unions in terms of the approval process for sanctioning political donations or expenditure. Under clause 371, companies are required to pass a shareholder resolution at least every four years. Under the 1992 Act, however, political fund ballots are only required every 10 years. The Government have argued clearly that there is a need to ensure, in the context of companies, that protections are afforded to shareholders in relation to the use of company funds for political purposes. Similar arguments also apply to trade unions. In the consultation document, “Review of the Employment Relations Act 1999”, the Government responded to calls for a review of the requirement for political fund ballots:

In that context, the purpose behind each of the constructs seems to have a broad equivalence. If a company is required to seek shareholder approval every four years, surely it is appropriate for a trade union to be treated in the same way. The Bill cannot, by its nature, amend the underlying trade union legislation, so the amendments seek to highlight that important point in the context of company donations only. Back in 1994—this was reflected in the Labour party’s manifesto—the Prime Minister said in an interview with The Independent:

Fairness is what we are seeking in the amendments, and I hope that the Minister will consider that.

With regard to new clause 76 tabled by the Liberal Democrats, I recognise the concern about lobbying expressed by the hon. Member for Cambridge (David Howarth), and we debated in Committee whether undue influence is a factor. To resolve the matter by putting restrictions on the company seems particularly harsh, however, given that some lobbying informs political debates, as Members on both sides of the House would recognise. Obviously, if the issue relates to political expenditure and attempts to change or to influence the way that people vote, it would be caught by the existing provisions relating to political expenditure in the Bill.

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David Howarth: The difficulty is that the current definition of political expenditure is aimed solely at elections. The definition of politics that the law currently follows is exclusively electoral, so anything that does not relate to an election is not covered by regulation.

6 pm

James Brokenshire: I think the point made in Committee was that the term “political expenditure” could be construed more widely, beyond the narrow confines of an election campaign. Something that was supportive to either an Opposition or a Government could be captured by the definition.

I do not think that the Bill is as restrictive as the hon. Gentleman suggests. I fear that the approach adopted in new clause 76 would be more regulatory and bureaucratic, and would not achieve the greater transparency that he wants.

Mr. Gummer: Is not the problem with the Liberal Democrat proposal that it arises from a very narrow view of what constitutes lobbying? If, for example, a European Union Government decided to try to pass internally a law that would damage British companies, the first to know about it would be the British companies. It would be important, for the sake of both their employees and their products, for them to lobby the foreign Government, the European Commission and Ministers at home in order to protect their business. Much lobbying is of that kind. We must not fall into the belief that it is always—as it sometimes is—an unsuitable activity.

James Brokenshire: My right hon. Friend makes a powerful point. Lobbying does instruct, and can inform, the way in which we govern. To assume that all of it is bad is a very simplistic approach. To be fair to the hon. Member for Cambridge, I do not think he was suggesting that, but his new clause highlights the difficulties of trying to legislate in this way.

I welcome the opportunity that we have had to debate the issues, but I consider this to be the start of a process that will require much more detailed consideration. We need to think about the impact of lobbying. We need to think about whether it is a good thing, which elements are bad and which may require reflection.

There are a number of technical amendments to this part of the Bill. I have some sympathy with amendment No. 687, which attempts to make it clear that clause 372(3) does not obviate the need for the holding company of a wholly owned United Kingdom subsidiary to produce an appropriate political resolution. Although this is a technical and a drafting matter, I think it worth putting on record, and I hope that the Minister will consider it.

New clause 81 provides further clarification of enforcement rights in connection with holding companies and their subsidiaries. That was discussed in Committee, and I am pleased that the Minister has had time to reflect and table an amendment.

There have been some significant improvements in this part of the Bill since the Committee stage, and I welcome what the Government have done. We have a limited opportunity to provide for some broad equivalents in the context of trade unions, but a fuller and more formal debate may be required for that purpose.

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