UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 1060-i

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

CONSTITUTIONAL AFFAIRS COMMITTEE

 

 

PARTY FUNDING

 

 

Wednesday 19 April 2006

RT HON LORD FALCONER OF THOROTON and ALEX ALLAN

Evidence heard in Public Questions 1 - 126

 

 

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Oral Evidence

Taken before the Constitutional Affairs Committee

on Wednesday 19 April 2006

Members present

Mr Alan Beith, in the Chair

James Brokenshire

David Howarth

Barbara Keeley

Mr Piara S Khabra

Jessica Morden

Julie Morgan

Mr Andrew Tyrie

Keith Vaz

Dr Alan Whitehead

Jeremy Wright

________________

 

Examination of Witnesses

 

Witnesses: Rt Hon Lord Falconer of Thoroton, a Member of the House of Lords, Secretary of State for Constitutional Affairs and Lord Chancellor and Alex Allan, Permanent Secretary, Department for Constitutional Affairs, gave evidence.

Q1 Chairman: Lord Chancellor, Mr Allan, welcome back to our Committee. There are two statements I want to make at the beginning. The first is that all Members, having fought elections recently and won them, have been funded in some way or other and, therefore, all have a general interest, in some cases specific donations qualified to be included in the Register of Members' Interests and some Members have such donations registered, and I refer anyone who wants to check that to the Register of Members' Interests. Secondly, this inquiry is about party funding, it does not replace the job which the Metropolitan Police are doing or, indeed, the work which the sister committee, the Public Administration Committee, is doing on the honours system and the problems which may have arisen with it, although recent events have clearly had a significant effect in bringing some of the issues which we are going to talk about today into the forefront, and may even influence people's thinking about it, which is something we will discover. Can I start by asking you this: the main parties between them spent 40 million fighting the last election, do you think they needed to?

Lord Falconer of Thoroton: I do not know. There is a lot of talk about an arms race in relation to expenditure in general elections, the sense that the parties are competing with each other rather than making sensible expenditure. The Electoral Commission have published an interesting study of the expenditure in the last general election and, in fact, the two main parties are spending money on different things in terms of the way they are spending money. The Conservatives spent 46% of their money on advertising whereas Labour only spent 29% on that. On transport and rallies, the Conservatives spent 11%, Labour spent 22%. There is a slightly different focus between the two parties on how they spent money. The fact that a cap was imposed by the 2000 Act has plainly had an effect on expenditure, it has reduced the amount of expenditure from that which was expended in 1997. I wonder if the reduction in expenditure had any effect on the amount of information that people got; I suspect it did not.

Q2 Chairman: The Prime Minister was reported in the press as saying at the beginning of this week that even in his own party they were going to have to raise a lot more money because of the competition and the need to present his party's case as against that of others. Are you conscious that there is an atmosphere around you of needing to raise even more money or are you comfortable with the idea that parties are going to have to spend less in the future?

Lord Falconer of Thoroton: I think the effect of the cap in 2000 is that the amount of money that parties have got to raise for the purposes of a general election has gone down rather than up. It is interesting, people assume that we are spending a lot more money on elections. In fact, historically, because elections are now being fought at a national rather than a local level, the amount of money looks as if it has gone down. Just going back to 1880, if you apply the amount of money ---

Q3 Chairman: They were still buying votes then. You are not condoning that, are you?

Lord Falconer of Thoroton: --- this was the elected government going face to face with the voters, 94 million was spent in today's prices on elections. Yes, the amount of money is going up if you compare it between the 1960s, 1970s and 1990s. The cap has brought it down. Hayden Phillips needs to look at the issue about do we need to bring it down further, which is what a number of people, including the Electoral Commission, have suggested.

Q4 Chairman: We will go back to the role of Hayden Phillips later on.

Lord Falconer of Thoroton: Sure.

Q5 Barbara Keeley: In fact that would have been the next question: do you believe that the cap on spending in general elections should be brought down? I think the Electoral Commission suggested it being brought down gradually to 15 million.

Lord Falconer of Thoroton: I think one wants to avoid an arms race. One wants to ensure that the money is spent in a way that does inform the electorate and help the resolution of issues but we did not appoint Hayden Phillips for the Government to say in advance of Hayden Phillips' report what the Government thought its conclusions were. I think the right course in relation to issues like that, which is an important Hayden Phillips' issue, is we should wait to see what Hayden Phillips says on that.

Q6 Chairman: Hang on a minute, you sent away a senior civil servant, Mr Allan's predecessor, with many qualities, is it not a bit odd for a government, which is a political party, to expect a senior civil servant to come back with the definitive advice on how party funding should be organised?

Lord Falconer of Thoroton: What we have asked Hayden Phillips to do is to talk to all the political parties, talk to the Electoral Commission, study the issues and come back with a report. This is an issue where public confidence is a matter of great significance. To invite somebody independent of Government to come back with recommendations is a way of ensuring that the process is done separate from Government and separate from the political parties. It is a sensible way, I believe, to try to get to a solution that will command public confidence.

Q7 Barbara Keeley: I think there is a view, certainly the Electoral Commission have put it, that individual candidates' spending limits at the local level should be allowed to rise. I have to say personally I have a concern about that because in May 2005 there were some examples of very high levels of spending which I think were seen to result in some cases, and I do not approve of that. Can you comment on that, on allowing individual candidates' spending limits to rise?

Lord Falconer of Thoroton: On the local limits, the vast majority of constituencies do not get near, according to the returns, the local limit on expenditure; there are a few that do. There may be a connection between those that do and those that are marginal seats where the battleground in the general election takes place. The argument in favour of increasing the local limit is that it will increase local activity and, therefore, increase political engagement. The argument against is that it will simply lead to much more expenditure taking place in the constituencies which are perceived to be the battleground for the election. I am sorry to say this but, again, that is a Hayden Phillips' issue, he has got to look at that and come to a conclusion.

Q8 Chairman: By definition he has not been very near a local election. He has pursued the career of a civil servant, a very independent role. The messy business of party politics is just what he has spent his life not doing.

Lord Falconer of Thoroton: If you had somebody who had been doing party politics he would be associated with one party or another. What we are looking for is something that carries public confidence. He has got to talk to the political parties and to the people who are engaged in fighting elections and have knowledge of how it is done but it is somebody seeking to come to an independent view.

Chairman: I am sorry to say we have a division, so I will suspend the Committee for 15 minutes.

The Committee suspended from 4.25pm to 4.35pm for a division in the House.

Chairman: We are back slightly earlier than I said but I think there is a general desire to get on. There is a thirst to hear what you have to say on a number of things. On a point you mentioned a moment ago, can I call Mr Howarth.

Q9 David Howarth: It comes back to the point about Hayden Phillips, for whom I have every respect, but what brought you to the conclusion that this task should be carried out by a former senior civil servant as opposed to any other sort of independent person who would not necessarily be associated with the current politics?

Lord Falconer of Thoroton: It had to be somebody who was experienced in looking at policy issues, somebody who was experienced with working right across the political spectrum. Sir Hayden Phillips had been in the Civil Service for a considerable time. He had served both the Conservative and Labour administrations. It had to be somebody who commanded respect right across both the political spectrum and the outside world as well. One could make the choice, perhaps, between an academic and a civil servant but one has ultimately got to alight on somebody who is able to do the job, able to work with the stakeholders and able to produce a report that would command confidence because of his independence and his quality. That is why we alighted upon Sir Hayden Phillips.

Q10 David Howarth: Is there something about the nature of the task that points you to a former civil servant as opposed to an academic? You are right to say that independence and public trust is absolutely crucial but it looks like, from the outside, an insider's fix?

Lord Falconer of Thoroton: That is most certainly not what is intended. It is somebody with the qualities that I have described and in a sense you have echoed independence being a very important aspect of it. It is somebody able to do the job. We hope that Sir Hayden Phillips carries the respect required to do it. I think that the work that this Committee is doing will help because it will be something in parallel to provide an additional view to the views that Sir Hayden produces but, ultimately, the choice was made to go for somebody who is independent and, as I say, able to do the policy-making job.

Q11 Julie Morgan: Lord Falconer, can you tell us how long you expect Sir Hayden Phillips to take on his task? Could you say is there an absolute deadline so that this will not be something that goes on indefinitely?

Lord Falconer of Thoroton: The terms of reference require him to report by December 2006. It is a task to be done within about nine months.

Q12 Julie Morgan: There will be not a danger that this might drift on?

Lord Falconer of Thoroton: No and, indeed, I think although there needs to be a proper pause for consideration of both the policy issues and the policy ramifications, this is not something, I believe, that should be allowed to go for any long length of time. That is why we have put December 2006 specifically in Sir Hayden Phillips' terms of reference.

Q13 Chairman: Can we agree on two things. First of all, Hayden Phillips is a good man, the Committee knows him well. We have no doubts about his general abilities. I am sure you agree with us on that?

Lord Falconer of Thoroton: Of course I agree.

Q14 Chairman: Secondly, precisely because he has to collect views rather than come out with views of his own, he will be very interested in a lot of people's views, including yours, and therefore it does not make sense for you to answer questions from us on the basis that this is a matter for Hayden Phillips to look at later because he will be interested in what you have to say, will he not?

Lord Falconer of Thoroton: He will, but the Government has asked an independent person to do a review and produce a report. The right thing in those circumstances is for the Government to wait to see those views before it comes to a conclusion, otherwise why appoint him. This is different from the political parties. The Government should wait. The political parties will no doubt put their respective points of view to Sir Hayden Phillips. They will unquestionably make public what their particular positions are in relation to it but if the Government commissions a report on a particular policy issue then the right course, in my view, is to wait for that report and then to respond.

Q15 Mr Tyrie: Lord Chancellor, the Conservative Party has already put its views forward, the Liberal Party has already put its views forward, we do not need to wait. All we need is the Government's views and we have not got them. Why does the Government not come forward with its proposals? Then by all means sit down with Sir Hayden Phillips or anyone else. As a matter of fact the Conservatives thought it would bring more public confidence to bear rather than to have an insider fixer, much as I respect people such as Hayden, and you know him well yourself, much better to have a body like the Electoral Commission to do this task. There is only any point in doing that once we have heard the Government's view.

Lord Falconer of Thoroton: The Labour Party will put forward its views. The Government has commissioned Sir Hayden to report, as it does in most areas. Take, for example, the Committee on Standards in Public Life which was commissioned to look at the public funding issue in 1998. The right course at that stage was to wait for the Committee's views and then respond to them, which is what the Government did. It, like all the other political parties, put views forward to that Committee but the Government only responded once the Committee had reported. That is a sensible way of making policy.

Q16 Mr Tyrie: When is the Labour Party going to put forward its views?

Lord Falconer of Thoroton: I cannot give you a specific date but no doubt it will have to be done at such a time that allows Sir Hayden Phillips to consider them and then to proceed in an appropriate way as far as he is concerned but I would imagine it would be within the next month.

Q17 Mr Tyrie: Within the next month, is that going to be published?

Lord Falconer of Thoroton: I am sure it will be, yes.

Q18 Mr Tyrie: Within the next month we will have the considered views of the Labour Party on how to reform party funding, published and put in the public domain?

Lord Falconer of Thoroton: I cannot guarantee it will be within a precise month but it will be within a short period of time, yes.

Q19 Chairman: In the meantime, while Sir Hayden is doing his work, you are going to be putting forward amendments to the legislation in this area?

Lord Falconer of Thoroton: I am, that is correct.

Q20 Chairman: We will come on to the substance of that in a moment. We are still looking at the process.

Lord Falconer of Thoroton: Yes.

Q21 Chairman: You are going to have to give views. You cannot take a vow of Trappist silence on the grounds that Sir Hayden Phillips is looking at all this, can you?

Lord Falconer of Thoroton: No. In relation to the loans business, which is the material which we are proposing amendments to in the Electoral Administration Bill, obviously not. Indeed, in relation to that I have spoken to the other political parties, I know the views of the Electoral Commission and there is a bill going through Parliament where amendments on this issue were already in contemplation by other political parties. The right thing to do - there does appear to be a consensus across the political parties and with the Electoral Commission that steps should be taken in relation to that - is we will propose amendments in the next 10 days on that.

Q22 David Howarth: You are drawing a very strong distinction between the Government's position and the Labour Party's position.

Lord Falconer of Thoroton: Yes.

Q23 David Howarth: Is that really credible given the history of the relationship between the Government and, say, the Party Conference? What process within the Labour Party will be followed to produce the party's views as opposed to those of ministers?

Lord Falconer of Thoroton: We are a Labour Government, so there is a link between the two obviously.

Q24 David Howarth: Exactly. You have answered the question.

Lord Falconer of Thoroton: That is a process that has been used on all previous occasions when you are looking at issues like this where the Government has got a role which is, to some extent, separate from the party to respond to both what the political parties say to the independent body that has been set up and then most significantly when the independent body - whether it is Sir Hayden Phillips or whether it is the Committee on Standards in Public Life - reports.

Q25 David Howarth: Ministers will not take part or will take part in the internal discussions of the Labour Party over its position?

Lord Falconer of Thoroton: Can I start from the other end. When the Committee on Standards in Public Life reported it did not agree with all the conclusions that the Labour Party had put to it. The Government, nevertheless, with some exceptions, accepted all of the recommendations. The Government will not, therefore, in relation to the approach that it takes be bound by the submissions that the Labour Party puts. It will be waiting to see what Sir Hayden Phillips says and that seems to me to be the approach that has always been taken in the past, and it is the right approach. There is no point in the Government or the Labour Party putting a view and then sticking to it, the Government should wait to see what views Sir Hayden Phillips reaches having seen all the submissions.

Q26 David Howarth: Sounds like you have a team on the pitch but you are also the referee.

Lord Falconer of Thoroton: No, the referee I think, ultimately, is Sir Hayden Phillips. That is why we have got somebody independent. He has to reach a conclusion and make recommendations to the Government.

Q27 Chairman: Does that mean he is the final arbiter?

Lord Falconer of Thoroton: We would have to give a pretty good reason, I think, for not accepting what Sir Hayden Phillips has said.

Chairman: Personally I am aware I should have declared an interest. My wife is a member of the Committee on Standards in Public Life.

Q28 Barbara Keeley: We have travelled quite a long way from the original question about spending caps. Just to say, there has been considerable discussion in this Committee. I do differ with the view that the Commission has about the increased local spending limits and in that sense I do not think the Electoral Commission, even though they have expressed a very strong view, are necessarily the arbiters in this. It is worth noting there is a very strong level of concern about this and we did not manage to resolve it at the Committee stage of the Electoral Administration Bill either. I think it is an issue for us to sort out.

Lord Falconer of Thoroton: This is the concern about the issue that before the election is called there is very considerable expenditure focused on a very small number of constituencies. The heavy expenditure evading, not evading but not being caught, quite legitimately under the law, the spending limits that apply in that particular situation, I agree there is an issue in relation to that. One possible solution which had been suggested was that you have a four month period before the election but the difficulty about that is you do not know what is the four month period before the election.

Q29 Chairman: That is true of the 12 month limit now.

Lord Falconer of Thoroton: Exactly, that is the great problem in relation to it.

Q30 Barbara Keeley: You talked earlier in terms of the national spend and the fact that some parties spend quite a bit on advertising, almost 50% in one case. There is a question in this expenditure issue about the need for the value of communications during elections. There is a question about broadcasting. Do you think there is an argument for increasing the use of party election broadcasts on the main television channels to inform voters? Do you think that is the way to go if we are looking at capping as a mechanism?

Lord Falconer of Thoroton: What do you mean, providing more party political broadcasts during the course of an election?

Barbara Keeley: I have to say I am not personally advocating this.

Chairman: We would have more channels because of digital.

Q31 Barbara Keeley: It is a suggestion of some people that there is value in that.

Lord Falconer of Thoroton: On the question of whether or not there should be more party political broadcasts, I do not believe that would be particularly popular with the public. I have seen no evidence at all that would increase interest in the issues or would increase turnout, I would be very dubious as to whether it did. On the question of whether you expand the number of channels that carry election broadcasts, currently I think the position is the terrestrial broadcasters do - BBC, ITV, BBC2, Channel 4 and I think Channel 5 as well - but the vast mass of other channels do not. This has been raised in the past as an issue and you may be surprised to hear that those who currently carry party political broadcasts are keen that those who do not do so. Those who do not carry party political broadcasts at the moment are very keen that they continue not to carry party political broadcasts, which I think is an indication of the fact that nobody likes - except the people who make them - the party political broadcast. I do not think it is a solution to the problem of party funding, I do not think it really grapples with the real issues here.

Q32 Barbara Keeley: And no role to play? I do not think anybody is suggesting it is a solution.

Lord Falconer of Thoroton: I do not see it as being a significant part of the solution.

Q33 Keith Vaz: Mr Allan, are you confident that none of the ministers in the Department for Constitutional Affairs has any conflicts of interest in regards to this area of their work in the Department?

Alex Allan: They have all, as is set out under the various procedures, sent me letters declaring whatever interests they feel it is right to declare, and I have looked at those and have discussed it with them. I am satisfied on that basis, yes, there is no conflict of interest.

Q34 Keith Vaz: When this recent controversy arose Harriet Harman switched her responsibilities because her husband was the treasurer of the Labour Party. Presumably that is a fact that you were aware of when she was first appointed as a minister?

Alex Allan: I think it is well known that her husband was the treasurer of the Labour Party. He was not, in fact, the registered treasurer of the Labour Party for the purposes of the Political Parties' Elections and Referendums Act 2000. As you say, when the issue of loans to political parties came up, and when the issue of whether the Government might wish to legislate to change the laws came up, Harriet Harman came to see me, came to discuss this with the Lord Chancellor and the Lord Chancellor agreed that the right option in the circumstances was to switch the portfolios in the way you have outlined.

Q35 Keith Vaz: There has been no conflict of interest and no breaches of any rules, you are very confident about that?

Alex Allan: I am satisfied that up until when the issue of loans came up, the legislation that was going before Parliament was basically about electoral administration issues. It was not about funding issues. I did not feel in those circumstances there was any conflict.

Q36 Keith Vaz: Lord Chancellor, why do you think that donations have become such an important part of party fundraising?

Lord Falconer of Thoroton: I think membership has dropped very considerably in relation to political parties. In the 1960s there were something in the region of 3.5 million members of political parties right across the board, now the number is very, very considerably below a million. Membership fees and the base from which you get additional payments have gone down very dramatically. In the Labour Party's case the amount of money provided by the trade unions has gone down dramatically. Approximately 30 years ago 92% of the funding of the Labour Party came from trade unions, it is now approximately 25-26%. Corporate donations have gone down, both because of the 2000 Act and because of the fact that the shareholders of companies do not want their companies to be involved in politics as they used to. Donations have become a more significant part of the funding of political parties for that collection of reasons.

Q37 Keith Vaz: Do you think that is an acceptable way to proceed as far as party funding is concerned, that individual donors should be in a position to make such very large donations to the political parties?

Lord Falconer of Thoroton: It is something that has increasingly caused very considerable concern in a number of areas because the obvious worry is that if a few people contribute a significant amount of money to a political party people are worried that could give rise to them having an undue influence on the policy making of that individual party. That is a very, very real issue which needs to be addressed but, as I say, addressed in a measured way and that is why Sir Hayden Phillips has been appointed.

Q38 James Brokenshire: You talked about influence on political parties as a consequence of the large scale funding by key individuals. Do you accept that if a party is in government and receives a donation or other funding from a company or an individual closely associated with a company that there could at least appear to be a conflict of interest if that company then bids for contracts from the government?

Lord Falconer of Thoroton: There needs to be, in relation to this, complete transparency. That is why I think it is very important that the loan issue be dealt with as quickly as possible. I think everybody in good faith believed that the 2000 Act meant that any significant source of funding of the major political parties would become apparent, because any donation over 5,000 had to be declared. I do not think that people thought that loans on commercial terms would give rise to a difficulty, and indeed the Committee on Standards in Public Life advised the people to whom it reported to exclude loans on commercial terms. It is perfectly plain, in the light of what has happened - and this is not a party political point but right across the political spectrum - that there needs to be disclosure of those as well. Once there is transparency then everybody can see the extent to which there is a significant source of funds being given to a political party. If that political party forms the Government then everybody can see it.

Q39 James Brokenshire: You talked about loans but it is also donations as well. Do you think that if, say, a company is bidding for a government contract there should be some form of clear disclosure, to put it on record that there is that connection in order that if it subsequently comes out that everybody is quite clear that the issue was disclosed upfront?

Lord Falconer of Thoroton: It needs to be absolutely clear that that individual or that company has made the donation if there is a contract. That is what PPERA - the 2000 Act - is designed to deal with and that is what the loans amendment is designed to deal with. I think what is implicit in your question is that there needs to be transparency about it.

Q40 James Brokenshire: Yes.

Lord Falconer of Thoroton: And there does. That is what the 2000 Act is designed to do, that is what the loans amendment is designed to do as well. Transparency is the solution.

Q41 James Brokenshire: The transparency is on the individual, it may not be clear on the face of that declaration that there is that connection with either the corporate entity or the other body which is bidding for the contract and, therefore, to follow your argument on transparency, is there not a need for a further step?

Lord Falconer of Thoroton: I can see an argument which says if there is any question about somebody who has made a loan or a donation being given a contract that you need in some way or another for it to be drawn to the relevant department's attention that that person is a donor. Presumably the way that should be done is that you circulate widely the information given on what donations have been made to the governing party.

Q42 James Brokenshire: I still go back to my point that it may not be obvious that somebody is a director or a shareholder of a particular company and, therefore, when a bidding process is made surely it should be appropriate to achieve transparency, that we have talked about, that there should be some step to draw it to the attention of the Government body that is considering the contract?

Lord Falconer of Thoroton: Yes, I can see we need to think about that, yes.

Alex Allan: The great bulk of such contracts would be awarded on the basis of analysis by civil servants, their professional advisers, who would not be influenced by that. I think it would only be very rare cases where ministers would get involved in decisions about the award of an individual contract.

Q43 Chairman: You will come back to us on that point?

Lord Falconer of Thoroton: Yes. I have never, as a minister, made a decision between which of a number of contracting parties you choose. It is done by an objective process. I am responding to Mr Brokenshire's legitimate question about appearances which seems to me to be an important issue.

Q44 Chairman: Any further thoughts on that would be useful.

Lord Falconer of Thoroton: Yes.

Q45 James Brokenshire: Can I just finish up on that: do you find it surprising that there is, as I understand it, no central list of contracts maintained by at least some government departments as far as answers to written questions that I have had? Therefore, at times it is not necessarily clear who has been awarded the contract if no central list is being maintained.

Lord Falconer of Thoroton: I do not find it that surprising that there is not a central list of contracts, having regard to the diffuse nature of many government departments. For example, in relation to Her Majesty's Court Service, it has a whole number of contracts it will make right across the country to individual courts. It may well be desirable that there should be such a central list of contracts. I recognise that might be quite a difficult administrative change to effect. Alex may know more than me about that.

Alex Allan: I was going to say, the Office of Government Commerce which has a general overall responsibility for Government procurement certainly takes an interest in some key sectors. For example, major IT suppliers/contractors, it has no view but I think as the Lord Chancellor said going right across government, keeping a register of every contract, would probably be a very significant administrative burden.

Q46 James Brokenshire: It would appear some departments do that and others do not at the moment.

Alex Allan: It may depend on the size or the complexity of the department. That is a matter for the Office of Government Commerce I think.

Q47 James Brokenshire: In terms of transparency, would you feel that would be an idea if we are to achieve the transparency issues we sought to address in this line of questioning?

Lord Falconer of Thoroton: It would plainly be a very desirable thing to do. The practicality of it, I do not know because I have not looked into it. If you want we can try and come back on that.

Q48 Keith Vaz: On donations, Lord Chancellor, do you understand the concern that some have that a member of the Government has given the Labour Party a loan of 2 million?

Lord Falconer of Thoroton: I understand the concern. The relevant minister, Lord Sainsbury, is somebody who has been a minister for I think seven or eight years. He is an absolutely excellent minister and I do not think anybody could doubt but that he has the credibility and the quality and propriety to be an excellent minister.

Q49 Keith Vaz: You do not think it raises any ethical questions that members of the Government should be giving loans of this size?

Lord Falconer of Thoroton: I think it is so clear that he is obviously there on his merits.

Q50 Chairman: If you take personalities out of it then clearly there is a possible situation where a minister lends money to the government and at the time when his position is under pressure there is an obligation there. This is entirely abstract, and with no reference to individuals concerned, that is probably an issue.

Lord Falconer of Thoroton: Every minister should be made a minister on his or her merits. I believe that has happened.

Q51 Keith Vaz: What the Chairman is saying ---

Lord Falconer of Thoroton: I understand what the Chairman is saying.

Q52 Keith Vaz: If you are giving a loan, if you are sacked you can call in the loan. You could bankrupt the party.

Lord Falconer of Thoroton: The implication of the Chairman's question, as I understand it, is if you are a substantial donor ---

Q53 Chairman: Even more a lender.

Lord Falconer of Thoroton: --- or a lender that might put pressure on the prime minister of the day not to sack you even though you deserve to be sacked. It has to be clear that is not the position; it is certainly not the position in this Government.

Q54 Chairman: That is why I posed the question entirely abstractly. Mr Vaz has raised an issue which has to be considered, that an obligation is created there.

Lord Falconer of Thoroton: How do you deal with that? There are two ways that you could deal with that, you could bar people who have made donations to the political party from being government ministers or you could rely upon transparency. I think the more sensible course is to rely upon transparency rather than a bar.

Q55 Keith Vaz: Will Sir Hayden be looking at this issue as well since he is looking at other issues?

Lord Falconer of Thoroton: Sir Hayden will be looking at all of the issues relating to loans and donations.

Q56 Keith Vaz: Why do you think that loans have become such an important part of fundraising of political parties? It is a recent phenomenon, is it not?

Lord Falconer of Thoroton: I cannot answer that question. I have not been involved at all in the financing of political parties. Why people give loans, I do not know, presumably because they want to be paid back.

Q57 Keith Vaz: Lord Chancellor you said earlier on that you wanted to wait and see, quite rightly, until the outcome of the Hayden Phillips' report, yet as soon as the recent controversy arose I think that you announced to the Today programme that you were introducing amendments to the legislation going through the Lords to cover the issue of loans. You were making illegal something that clearly was not illegal because there is not any illegality about people loaning money to any political party.

Lord Falconer of Thoroton: There is not an illegality about people lending money and the effect of the amendments to the Electoral Administration Bill, once they become law, is that in relation to a UK person making a loan they have to disclose it and for a foreign person making a new loan after the amendment has become law, that will no longer be permissible.

Q58 Keith Vaz: Why have you moved so quickly on that single issue, yet on all the other issues, as you said to the Committee, you have not made up your mind?

Lord Falconer of Thoroton: There was very considerable public concern about the loans issue. I consulted the other parties, all of whom agreed with the proposition that we should deal with loans straight away. The Electoral Commission produced a document saying, in my view rightly, the detail of loans should be disclosed. There is a Bill currently going through Parliament in respect of which amendments could be put down, indeed have already been put down, dealing with the loans issue. In the light of that broad agreement across the parties, in the light of the support of the Electoral Commission, in the light of the broad public concern, it seemed sensible to the Government to propose amendments to deal with that issue as quickly as we could.

Q59 Keith Vaz: You do not think that by doing that you added to the controversy and the aura of crisis because people had given money in good faith and negotiated on commercial terms, as they have for the Conservative Party, Liberal Party and Labour Party?

Lord Falconer of Thoroton: Whether I have added to the controversy or not, I do not know. I consider it the right thing to have done to say that we should propose these amendments because I think the issue is one that needs to be dealt with.

Q60 Mr Khabra: Do you consider that honours should be considered for people who give money for one reason or the other either by way of a loan or by way of donations, and is there any mechanism to check their motives before they are considered for any honours?

Lord Falconer of Thoroton: In relation to honours below becoming a peer, there is a detailed process where there is independent consideration of whether or not people should be given an honour. Until recently the prime minister of the day - and this covered all prime ministers - could add people to that list, for example somebody could get on to the list without having gone through the formal process. Anybody added to that list was then considered by something called the political honours scrutiny committee to see whether or not it was an appropriate honour to give. Lord Wakeham in his report said about 1% of political honours was challenged under that process. The House of Lords Appointments Commission was set up by the Prime Minister in 1998 or 1999, it has taken over the job of looking at those political honours, though the Prime Minister said on 16 March that from now on no additional names will go on to the list of honours that come forward. That leaves the House of Lords Appointments Commission as a body which not just recommends crossbenchers for appointment it also vets all political appointments as well. Any person nominated as a working peer by any political party has to be looked at by the House of Lords Appointments Commission for propriety. Where they have made a donation the House of Lords Appointments Commission in their annual report say they look to ensure that those nominations are credible irrespective of the donations. There is a body that looks at it: the House of Lords Appointments Commission.

Q61 Mr Khabra: That means that in your opinion any existing members of the House of Lords, those who have been donating money, they were not considered for making donations to one party or the other?

Lord Falconer of Thoroton: They may well have made donations to the political party, whichever political party nominated them. Those donations have to be disclosed to the House of Lords Appointments Commission. The House of Lords Appointments Commission has considered whether or not they should go forward to Her Majesty, the Queen for appointment. If they do not think they should then the House of Lords Appointments Commission recommends to the Prime Minister that they should not.

Q62 David Howarth: There was a point a little while ago - to go back to the underlying question about loans - which was is not another solution to the problem of ministers' loans, in addition to the two being put forward, simply the rule that no-one with an outstanding loan to the governing party should be a minister? That is a third possibility which would resolve all the doubts. The Chairman is trying to make the point that the situation of a loan is in a sense even more dangerous than a donation because it is an existing obligation. Surely that existing obligation ought to be cleared before a person is appointed to a ministerial post?

Lord Falconer of Thoroton: That is a half-way house because it is saying you bar people for loans but not for donations; again, that needs to be considered. Again, I do not think that is necessarily a proportionate solution to the problem. I think although I recognise the potential that could arise in some circumstances if the position is transparent that is sufficient.

Q63 Dr Whitehead: Could I return, Lord Chancellor, to the Hayden Phillips' inquiry, particularly in the context of state funding of political parties. The terms of reference of the inquiry I see include the idea of examining the case for state funding political parties. Would it be possible, therefore, that the inquiry might come out with the idea there should be no state funding of political parties?

Lord Falconer of Thoroton: It would be very difficult to come to the conclusion that there should be no state funding for political parties because there is already quite considerable state funding for political parties, both in terms of things like the party political broadcasts, the free post, the use of public buildings for meetings as well as the Short money, the Cranborne money and the policy development grant. He could, I suppose, come to the conclusion that all that money should be taken away and all those benefits should be taken away, that seems to me to be inconceivable as a conclusion.

Q64 Dr Whitehead: According to the note that the Department very kindly forwarded to this Committee, Sir Hayden has been asked, it states, "...to aim to produce recommendations..." which I assume are recommendations on state funding "... which are as much as possible agreed between the political parties". How might he achieve that?

Lord Falconer of Thoroton: By talking to the political parties.

Q65 Dr Whitehead: During the course of his inquiry?

Lord Falconer of Thoroton: During the course of his inquiry, yes.

Q66 Dr Whitehead: And then coming out with an independent report that nevertheless has been agreed between the political parties.

Lord Falconer of Thoroton: Try as much as possible to get them to agree. If the political parties will not agree, or they put forward proposals which Sir Hayden does not agree with as being sensible or deliverable, then of course he would not put them forward.

Q67 Dr Whitehead: If Sir Hayden comes up with a conclusion agreed between the political parties that there should be an increase in state funding, how would you feel about that, and what would your views on that be?

Lord Falconer of Thoroton: I would obviously have to see what the conclusion that he reaches in relation to that was but if he believed, after talking to the political parties, and remember talking to the Electoral Commission as well as any other stakeholders he thought were proper, we would take that extremely seriously. We have asked Sir Hayden to look at it because he brings an independent mind to the issue.

Q68 Dr Whitehead: Is it your view that in addition to, as you have stated, the present level of state funding for political parties, which by various estimates is very considerable, particularly in election years, it would be reasonable to enhance that or would it be your view that is about right?

Lord Falconer of Thoroton: I do not know what the right level is. I think that the big public concern about political parties is the risk or the suspicion of a few donors having undue influence on the political party. The question of state funding is in part an issue about how you deal with the issue of the big donor because I do not think the issue in relation to political funding is necessarily there is a shortage of money going to political parties. I do not know what the answer to what is the right amount for political parties is. I think one of the critical issues is what is the best source of funding for political parties in a way which most enhances public confidence.

Q69 Dr Whitehead: If Sir Hayden's report does indeed come out with perhaps a suggested increase in state funding for political parties, and all parties have agreed, perhaps the members of the public at the conclusion of that process might consider they were somewhat being stitched up.

Lord Falconer of Thoroton: That is why, it seems to me, there are two other important elements, firstly this is not something being done by the Government, it is the recommendations of somebody independent; secondly the views of the Electoral Commission are absolutely critical in relation to this and, thirdly, the recommendations that Sir Hayden Phillips produces have got to be ones which carry public confidence.

Alex Allan: If I could comment. The evidence on public attitudes is somewhat confused. The Electoral Commission published its report on the funding of political parties in December 2004 and commissioned some research from MORI which revealed 76% of those asked agreed that it was better that parties should be financed by their own fundraising rather than being subsidised by taxpayers but 70% also agreed that funding parties by voluntary donations is unfair because there is a risk that wealthy individuals, businesses and trade unions can buy influence over parties. I think that assessing what the public attitude towards this is is quite tricky.

Q70 Dr Whitehead: I presume the public might be rather surprised to find that by fairly perhaps not entirely uncontentious calculations one particular party had been funded last year by the state for the majority of its total funding.

Lord Falconer of Thoroton: You are saying the public would be surprised to hear that?

Q71 Dr Whitehead: I think the public would be, would they not?

Lord Falconer of Thoroton: It would vary from different members of the public. I think most people proceed on the basis that political parties have to raise their own funding in one way or another whereas, as you are rightly saying, quite a significant amount of funding comes from the state already.

Q72 Dr Whitehead: Would it be your view that there should be perhaps a public consultation over and above the agreement of the political parties and the report of Sir Hayden's inquiry after that inquiry has come out?

Lord Falconer of Thoroton: It seems to me almost inconceivable that you could get broad public support without there being a public consultation at some stage. It seems to me almost certain that public consultation is going to have to take place after Sir Hayden has produced his recommendations. The implication of your questions is that you do not want a situation where there is a sense that this is a stitch up within the political bubble and I could not agree more with that.

Q73 Dr Whitehead: Have you given any consideration, in the context of the possible way the report might come out, as to how state funding might operate in practice? The Short money, for example, is allocated on a formula which combines votes and seats. Would you see that formula as being the right formula or are there other ways in which you think state funding might be allocated?

Lord Falconer of Thoroton: I have given some thought to it. There are problems about practically every formula you introduce. Most formulas that depend upon the votes cast in the last or the one before the last general election will tend to favour established parties, but it is very difficult to come up with any formula that does not favour to some extent those who are already established as a party. Again, ultimately that has got to be an issue for Sir Hayden Phillips to address and come up with a sensible solution to.

Q74 Dr Whitehead: If there were to be a continuation of the present level of state funding perhaps with some additions, would you see that as an advantage or disadvantage in terms of what one might say is the health of the body politik or the legitimacy of the process or the legitimacy of political parties?

Lord Falconer of Thoroton: I do not think it will remotely be a complete answer to the public's views about political parties. I do not think one should think that funding is the only reason that there appears to be a reduction in support for and confidence in political parties. I think funding is one of the issues, but I think the public's fear of capture of political parties by a few donors is a significant issue that affects public confidence because - and you will know this much, much better than I - individual Members of Parliament tend to be held in high regard by those who deal with them on an individual basis. The vast majority of our politics is utterly uncorrupt. This worry about funding is something that, unfairly in many respects, reduces the standing of our politics and that is why I think we need to address it.

Q75 David Howarth: You mentioned right at the start the problem of the fall in party membership and the fact that the party seems to be substituting money for members. What do you think of the view that would link state funding to numbers of members as a way of trying to start up more of a mass party membership across the board? What do you think of Professor Keith Ewing's view that state funding ought to be linked to a bill of rights for party members, that the party they join will be democratic and will listen to their views, so the parties are not seen just as supporters' clubs but as active participants in the democracy?

Lord Falconer of Thoroton: One of the things that have got to be addressed in relation to state funding is how you engage people more in politics. One aspect of that is engaging people much, much more in party politics, making people keen to be a member of a party. How you encourage people to join is one aspect in relation to that. It might well be that it is extremely attractive for people to become members if they feel they have got many more rights than current political parties give them. I would be worried about arrangements that the state imposed on individual political parties because ultimately it is for the individual political party to decide what its own constitution is. I would strongly support any steps that would legitimately increase the numbers of people who are prepared to join political parties.

Q76 David Howarth: Can I put to you the point which I think Professor Ewing implied in his interview on the Today programme, which is that the state interferes in the internal organisation of trade unions and in the 1980s one of the Government's big policies was to give unions back to their members. Surely the political parties are far more important participants in the political process than the unions and therefore there is even more of a public interest to have some public interference in the way the parties work.

Lord Falconer of Thoroton: We give trade unions immunities from various other bits of the law. We do not give political parties immunities from other bits of the law. The essence of a political party is what its members want to achieve and broadly how they organise themselves should be utterly transparent, but it should be for them to decide.

Q77 Jeremy Wright: You could argue, could you not, that if you increase the level of state funding for political parties you can have nothing other than a downward pressure on the likelihood of people joining political parties and paying a subscription to them because they will say "I'm already paying"? Given your earlier comments to Mr Vaz, can we take it that you would be concerned at any measure which would put downward pressure on the likely membership of political parties?

Lord Falconer of Thoroton: Yes, I would. I do not agree with your proposition. I think one of the reasons that people might be concerned about whether they should join a political party is if they believe that because of high amounts of donations that gives undue influence to a few people in relation to the political party. The more there is a sense of influence and power being diffuse right among the political party the more people will be encouraged to join. I think one of the problems in relation to why membership goes down is because of the sense of undue influence.

Q78 Mr Khabra: If state funding is introduced, do you think that the capping of donations will be necessary? Would you also agree with me that the capping of donations is one of the most effective ways of addressing the issue of sleaze and corruption?

Lord Falconer of Thoroton: The point about state funding would be to ensure that political parties had sufficient funds to operate effectively and in a way that meant the political parties were not dependent on a few large donors. A significant increase in state funding would carry with it a cap on donations. The cap on donations is the most obvious way of dealing with the issue of a few people getting an undue influence on a party, but again that is one of the important issues that have got to be looked at.

Q79 Chairman: Are you saying that with state funding should go a formal cap?

Lord Falconer of Thoroton: It obviously depends precisely on what state funding is being recommended. For example, if the recommendation was we think you should increase the policy development grant, the Short money and the Cranborne money by a bit but with no state funding, that sort of additional state funding would not justify caps in my view. If what you are trying to do with state funding is provide a significant amount of money for the running of the political party and the purpose of providing that state funding is to avoid dependence on a small number of donors, then obviously going with that sort of recommendation must be caps on donors.

Q80 Chairman: Surely a key issue is whether state funding goes into campaigning from which it is specifically precluded at the moment whereas it is available for policy development. It is not so much the quantum, it is whether it moves into that area.

Lord Falconer of Thoroton: Dr Whitehead has written a pamphlet in which he raises the issue of if you start to try and categorise what the money is for, ie you use it for that purpose and then you use the money you might have used for that for other things, that might be regarded as unacceptable. He also raises the issue about the extent to which that gives rise to evasion, you trying to cram everything into the category that the state is prepared to fund. There are difficult issues about precisely what you fund from the state, but if the political or policy purpose of the state funding is to avoid the risk of a few donors then inevitably it must carry with it a cap.

Q81 Mr Khabra: That means that the state funding, whatever the level is, may be more in one term of election than another. Who is going to bear the costs? Is it the taxpayer?

Lord Falconer of Thoroton: If it was state funding it would have to be borne by the taxpayer, yes.

Q82 Mr Khabra: That means that, with the increase in the amount of funding available to a number of political parties, it is going to be a huge amount and it is going to be the taxpayer who will bear the cost.

Lord Falconer of Thoroton: Alex Allan referred to the Electoral Commission's report in 2004 where it asked if it was better that parties should be financed by their own fundraising rather than being subsidised by the taxpayer and 76% think they should raise their own money and not be funded by the taxpayer. It also says that funding parties by voluntary donations is unfair because there is a risk that wealthy individuals, businesses and trade unions can buy influence over parties, and 70% agree with that as well. The public are, quite understandably, very worried about the taxpayer funding political parties and they are very worried about rich people capturing from political parties and there seems to be an equal level of worry about that.

Alex Allan: For example, when people were asked how parties should be funded and so were given a choice of options, 37% said totally by voluntary donations with no funding from taxpayers and 43% said by some proportion of taxes and voluntary contributions. There are obviously a range of views amongst the public.

Q83 Mr Tyrie: The thing that you have just read out said 76% of people do not want state funding, but if you look at the questions that were then asked of that 76%, you will find that they do not distinguish between the funding of politics generally and party funding. In other words, their knowledge of the area is pretty hazy, which is why the consultation point that Dr Whitehead made earlier is very important.

Lord Falconer of Thoroton: It does not surprise one that people would say I do not want to spend taxpayers' money on political parties. It does not surprise one that they would say I do not want political parties to fall into the hands of a few high value donors.

Q84 Mr Tyrie: Talking about a few high value donors, presumably that is going to include trade unions if we put a cap on that.

Lord Falconer of Thoroton: The trade unions are part of the foundation of the Labour Party. They are an organisation that is affiliated to the Labour Party. There needs to be a consideration by Sir Hayden Phillips of what their relationship in donation terms is to the Labour Party.

Q85 Mr Tyrie: Do you really mean that we are going to have to rely on Sir Hayden Phillips to work out how we are going to disentangle, if we are, the relationship between the trade unions and the Labour Party and then the Labour Party is going to say, "That was a good idea. We'll go ahead with that"? Is that really a serious way of going about this issue?

Lord Falconer of Thoroton: I think it is a very serious way of going about it.

Q86 Mr Tyrie: I think it will be met with laughter by those who are watching this issue, Lord Chancellor. What we need is the Labour Party's considered proposals. You say they are going to come forward in a month, but it is not going to include serious consideration of this issue, that is what you have just been saying.

Lord Falconer of Thoroton: There needs to be a serious debate about how you deal with the small numbers of people who make significant donations. You will see from the figures that I gave that the amount that the trade unions now finance the Labour Party is about 26% having come down from a very much higher figure. Sir Hayden Phillips needs to look at all of those issues and reach a conclusion. I am not going to put forward a solution now in relation to that, but I have indicated where the public's concerns are in relation to that.

Q87 Mr Tyrie: The Labour Party's figure of 26% is hotly disputed by independent commentators who put it at around half. Only the Labour Party puts it at 26%. Do you not think that this issue of the relationship with the trade unions goes to the heart of whether we are going to fundamentally reform the donation and the party financing structure in the UK and that if that issue is not fundamental then, frankly, we are not going to move forward? You are one of the few unelected senior ministers who do not rely on trade union funding to be here and to answer questions and so one might hope that you would be just a tad more independent than the rest in answering this question.

Lord Falconer of Thoroton: I have indicated in relation to all of these areas that there needs to be a solution that carries public confidence. The way that you get public confidence is by all the parties putting forward their views, Sir Hayden Phillips coming to a view and hopefully an agreed solution coming forward, one that will embrace the trade unions as well.

Q88 Jessica Morden: I want to move on and ask about how you think things operate at a constituency level. Do you think the existing reporting requirements for donations and accounts are becoming too onerous on your average volunteer party treasurers, and do you not think this might lead to fundraising locally being more difficult and more reliance on your national machine situation?

Lord Falconer of Thoroton: I think the detail of what has got to be disclosed in terms of the constituency obligation is pretty complicated. It is perfectly plain from speaking to people over a long period of time that there are very legitimate legal uncertainties which are often not resolved by guidance that is intended to be helpful but does not cover a whole range of difficult issues, and there are lots of people who spend a lot of time during and after elections trying to work out precisely what they have got to disclose. I fear that it is one of those things where it is quite difficult to put the genie back in the bottle. The idea that you can go to a situation now where there is less disclosure in relation to what went on at constituency level does not look to me to be realistic in the context of the times. It may well be that one could try and think of a way that one could simplify it, but to simplify it in a way that would involve less disclosure does not seem to me to be practical.

Q89 Jessica Morden: Do you not think it makes fundraising by local parties more difficult to do and puts more reliance on your national party?

Lord Falconer of Thoroton: It does not make fundraising in the sense of local dinners and local events more difficult. It makes people tremendously windy about the extent to which, for example, they allow people to lend their car in relation to local activity in a constituency. The underlying point about how do you try and encourage more activity locally is very, very important and I do not know what the answer to that is.

Q90 Mr Tyrie: We all know that the real reason we are here, of course, is that there has been very, very widespread public concern about loans to political parties and the impression that undue influence can be bought has been bought and that there may have been an exchange of favours or honours for cash. That is the subject of a police investigation and I am not going to stray into the territory that they may want to cover. How bad do you think it is? You have talked about the issue of public confidence and the need to restore it and maintain it. How bad is this crisis?

Lord Falconer of Thoroton: I would not describe it as a crisis. I think people are concerned about it. It is something that is very, very widely discussed in the media. On the extent to which it is an issue more widely amongst the public, I do not know, but it is plainly something that needs to be addressed.

Q91 Mr Tyrie: Do you not think that in the back of their minds the public have the sorts of things that Labour were saying nine years ago about how "We will clean up politics. Have trust in us and we will repay that trust. Do not judge us on our commitment to form the bond of trust. Our mission in politics is to rebuild the bond of trust between Government and the people"?

Lord Falconer of Thoroton: I think all of us engaged in politics are very keen to ensure that there is a proper bond of trust between the politicians and those that they serve. A lack of connection between the politicians and those that they serve does none of the politicians any good at all. My own experience is that the vast majority of politicians are genuinely extremely keen to ensure there is that proper bond of trust. That is why my experience in response to the current issues is that most politicians are extremely keen to try to do what can be done to improve the situation.

Q92 Mr Tyrie: One of the proposals that the Government inherited from Lord Nolan was that there should be fundamental reform of the legislation against corruption. The existing legislation dates back to 1916 which was when Lloyd George was Prime Minister, much around the time of the Honours Act.

Lord Falconer of Thoroton: Asquith was Prime Minister in 1916.

Q93 Mr Tyrie: Lloyd George took over during 1916 after the failure of one of the terrible offences on the Front. Why has the Government decided to shelve the Corruption Bill?

Lord Falconer of Thoroton: The 1916 Corruption Bill, although it is quite archaic in its language, covers most problems in relation to corruption. If they are not covered by the 1916 Act then the common law fills in. I do not think for one moment the problem of corruption is uncovered by the criminal law. As far as honours is concerned, and you will have read it, the Honours Prevention of Abuses Act 1925 is in very wide terms.

Q94 Mr Tyrie: There was common agreement at the time in 1997 that something needed to be done about it, legislation needed reform and modernisation. Are you saying that the Government has now decided that it does not need reform and it is perfectly all right as it is?

Lord Falconer of Thoroton: It would be a good thing if there was reform. I do not think there is a point to be made about the absence of criminal law in relation to corruption.

Q95 Mr Tyrie: I find that quite extraordinary. The Joint Committee that looked at this deeply regretted that the Government had decided not to go ahead with putting a clause on the statute book that made it a statutory offence to misuse public office.

Lord Falconer of Thoroton: Again, I am not quite sure what particular sorts of sets of facts you think are not covered by the criminal law at the moment.

Q96 Mr Tyrie: I do not need to answer the question, I am afraid that is your job here. I find it astonishing that the Government should have decided to sweep aside that recommendation, a recommendation which originates with Nolan. Are you suggesting that you are not going to look again at this issue at all?

Lord Falconer of Thoroton: I have made it clear what my answer to that is, Mr Tyrie, which is that I do not believe there are any sets of facts which the current criminal law does not cover. It would be most desirable that the Corruption Bill or Acts should be made more modern in their language but there is not a problem about criminal situations not being covered by Acts of Parliament.

Q97 Mr Tyrie: Could I ask a number of detailed questions about your understanding of the Honours Act, another piece of legislation that was put on the statute book at around the same time. For example, can you give the public an assurance that the Attorney General will not interfere in any way with the conclusions of the DPP and that the DPP would be permitted, were there to be something brought to him, to take any decisions for prosecution wholly independent of the Attorney General?

Lord Falconer of Thoroton: Of course. It is a matter for the DPP and the Crown Prosecution Service to make decisions in relation to this in the normal way and, of course, the Attorney General would not interfere in the normal course of decisions being made.

Q98 Mr Tyrie: I am glad you are able to give that assurance. Do you know of any bar to the bringing of a private prosecution under the Honours Act?

Lord Falconer of Thoroton: None that I am aware of.

Q99 Mr Tyrie: In the event of a conviction under that Act, or indeed any other serious criminal offence that may have been perpetrated by a member of the legislature, and I am thinking particularly of the Upper House, is it the Government's view or intention that we should ask those who have had such honours or achieved such positions to relinquish those honours or stand down, in this case, from the House of Lords? At the moment we have got a convicted perjurer who is permitted to assist in the making of laws. I do not support that, I never did and I said so publicly at the time. We may find ourselves with more such characters in the future.

Lord Falconer of Thoroton: In relation to the convicted perjurer, the position was that we indicated in the proposal for Lords reform in 2002 or 2003, I cannot remember which year it was, that where you were sentenced to a prison sentence of 12 months or more you should have your peerage, and possibly your other honours, taken away. That seemed a perfectly sensible provision at the time. I am not going to speculate remotely on what the consequences of any prosecutions may be.

Q100 David Howarth: In the event of a private prosecution for any of these offences can you give an assurance that the Attorney General will not enter a plea of nolle prosequi in any of those proceedings?

Lord Falconer of Thoroton: No, I can give no such assurance. The normal rules would apply and from time to time in relation to private prosecutions if they are completely hopeless then the CPS will step in. I cannot give any such assurance. All I can say is this will be dealt with with complete propriety and the normal rules will apply.

Q101 David Howarth: Thank you. Turning to the other part of the equation, which is the House of Lords itself, what impact do you think the current difficulties about party funding have had on the legitimacy of the House of Lords?

Lord Falconer of Thoroton: I do not think they have had a significant effect on the legitimacy of the House of Lords. I think people's views remain the same in relation to it. It has made greater interest in the question of Lords reform.

Q102 David Howarth: Could it not be argued that what has happened recently has made completely untenable the view that the House of Lords should be entirely appointed? Is that point of view not far more difficult for the Prime Minister to maintain?

Lord Falconer of Thoroton: The House of Commons will have a free vote on the issue of composition of the House of Lords in the fairly near future. If the view that the House of Commons takes is influenced by these events then that will plainly have an effect on whether or not they think you can have a significant or wholly nominated element in the House of Lords. I do not believe that people now do not take the House of Lords in the same vein as they did before.

Q103 David Howarth: You talk about a free vote in the Commons but has the Government's thinking on Lords reform moved on from when we last had you before us?

Lord Falconer of Thoroton: Since I last came before you, and before the issues that we are discussing now arose, I have said that what we need to do is to see whether we could build a consensus in relation to Lords reform talking about the process rather than talking about the precise policy. There are differing views on the composition of the House of Lords right across all political parties. My political party has within it differing views about what the make-up and composition of the House of Lords should be. I think the Conservatives within its party has differing views and I assume the Liberal Democrats do as well. I think what we said before the issues we have been discussing arose was we now need to now look at this with some degree of urgency because I think people had become interested in the issue again and I think the effect of the issue we have just discussed is that people have become even more interested.

Q104 David Howarth: I agree with you on urgency but is it not the case that given what has happened there is a need for some interim mechanism for appointment to the House of Lords which is more clearly independent of the Government and of political parties, something along the lines of the Judicial Appointments Commission, something of that sort?

Lord Falconer of Thoroton: We have got a House of Lords Appointments Commission at the moment. It is chaired by Lord Stevenson, who is a cross-bencher. It has got a membership, two of whom are not Members of the House of Lords and three of whom are representatives of the parties: Lord Hurd, Baroness Dean and Lord Dholakia. The Committee is, I believe, widely respected as being independent. In practice it selects all save a very few cross-benchers and those very few cross-benchers it does not select are those senior civil servants like the Chief of the Defence Staff or the Cabinet Secretary who go there, in effect, ex officio. That body, the House of Lords Appointments Commission, also vets the political appointments for propriety. Obviously the Judicial Appointments Commission does something different but the fundamental difference between the two is one is statutory and one is not. I do not think that is a critical difference for these purposes.

Q105 David Howarth: Is there not a case for suspending the political parties as a source of nomination for the time being?

Lord Falconer of Thoroton: I do not think so because I think that the House of Lords is a body where party political issues are debated. I do not think it would be right to say you cannot have any more party political appointments to the House of Lords. The arrangements that currently exist with the House of Lords Appointments Commission vetting party political appointments provides the sort of filter that you are looking for, Mr Howarth. I cannot tell you how it works in practice because, understandably, the process is conducted confidentially, but some process by which disclosure is required of information by the prospective political appointments and an independent body then looks at the propriety of those appointments is the sort of thing that you are after and it is there.

Q106 David Howarth: Is there not a case for a very great deal more transparency in how it happens now? If you do not accept there is a case for any interim institutional change, surely the present arrangements should be far more clear and open than they are now as you have just indicated.

Lord Falconer of Thoroton: It is absolutely public that those are the arrangements. The confidential aspect comes from the fact that if that body says no to an individual it is pretty unfair if that becomes public knowledge. It is something that should be done privately, I would have thought.

Q107 David Howarth: Turning to a slightly different aspect of the House of Lords reform question, which I seem to remember was the original reason why you were invited to come and speak to us. I see there was a motion put down in the House of Lords yesterday on court conventions where the Lord President is to move that: "A joint committee of Lords and Commons be appointed to consider the practicality of codifying the key conventions in the relationship between the two Houses of Parliament" and this would cover conventions on secondary legislation and so on. How can that be carried out without making the relationship between the two Houses a justiciable matter for courts, thereby completely changing the way the constitution of this country works?

Lord Falconer of Thoroton: That is a question that the joint committee has got to look at. Nobody would remotely think it was sensible to make the issue justiciable.

Q108 David Howarth: So what does "codifying" mean in the resolution to move this?

Lord Falconer of Thoroton: The way our constitution has worked in relation to the relationship between the two Houses is that there are conventions that exist between the two and those conventions are respected by both Houses. It has never been put to the test as to whether or not justiciability is required, and nor would it be appropriate to do so.

Q109 David Howarth: So you are looking for a codifying convention, not anything on the face of a statute?

Lord Falconer of Thoroton: This joint committee is to look at the issue of the practicality of codifying the key conventions. They have got to consider how you would do it, if it could be done, should it be done in Standing Orders, can it be done in the statute.

Q110 David Howarth: Yet any House of Lords reform along the lines of introducing an elected element of the House of Lords would have to be statutory.

Lord Falconer of Thoroton: Of course, yes.

Q111 David Howarth: So the question arises whether such a code could be incorporated in the statute or simply left as a convention.

Lord Falconer of Thoroton: One of the big issues in considering compositional reform is what are the powers of the Lords in relation to the Commons and there is an issue that is always raised, quite legitimately, that if you have a significantly elected element in the House of Lords what effect would that have on the relationship between the Lords and the Commons. Most people, including the Government and the Labour Party, accept the primacy of the House of Commons. How do you give effect to the primacy of the House of Commons if you change the composition? That is why we thought, and this was reflected in our manifesto, that the first stage of looking at the issue of Lords reform was to seek to try to identify what the current relationship between the two Houses is.

Q112 Chairman: Are ministers not working to an agenda here in that you quite clearly believe that it is necessary if the House of Lords is elected so firmly to entrench your interpretation of the conventions that the increased authority of the House of Lords would not enable the House of Lords to challenge government's decision on a piece of legislation even if that government had only 35 per cent of the voters who supported it at the last election and even if it was ambiguous as to whether it corresponded with what was said in their manifesto? Are you not really trying to set in stone a particular interpretation of conventions because you feel that very shortly the House of Lords might have more authority than it has now?

Lord Falconer of Thoroton: No, I am not. The reason this is the process that has been adopted is because quite legitimately very many people in considering what the make-up in compositional terms of the House of Lords should be want to know what is it envisaged that the Lords should do, what is it envisaged its power should be, and for most people the composition question and the powers question are intimately linked.

Q113 Chairman: Do you meet more people, perhaps because of the circles you move in, who believe the burning question is how you control the House of Lords or more people who believe that the burning question is how you ensure that the government in the Commons cannot force its will through on the basis of a limited degree of electoral support in the face of very widespread opposition?

Lord Falconer of Thoroton: I meet very few people who discuss those issues actually.

Q114 David Howarth: To come back to your original answer, the problem is that you have simply ignored the question of why the Commons should have primacy. If one believes the reason the Commons should have primacy is that it is elected then if the Lords becomes elected that argument itself falls and you need another reason.

Lord Falconer of Thoroton: There is another reason.

Q115 David Howarth: You seem to have simply assumed your conclusion.

Lord Falconer of Thoroton: The government comes from the Commons. Our constitution operates on the basis that the government of the day is selected from the political party or group that can maintain the confidence of the House of Commons in that grouping or political party being the government of the day. You may take the view that you want to change that, and you need the confidence of both Houses before you do, but I do not agree with that. I think the fundamental proposition that the government should be selected from the Commons is what gives the primacy of the Commons its importance. I am not seeking to support that one needs to reduce the powers of the Lords if there is an elected element but there needs to be clarity and definition over what the relationship between the two is.

Q116 David Howarth: But it does raise the fundamental point which I think previously there was some reluctance to talk about that the conclusions that we come to must include conclusions about the function of the Commons, not just conclusions about the function of the Lords, which you have just done.

Lord Falconer of Thoroton: Is there any dispute about the functions of the Commons? I apologise for asking you a question. The selection of the government of the day from the Commons has not been a substantial issue and is not an issue as far as the Government is concerned.

Q117 David Howarth: Surely not!

Lord Falconer of Thoroton: The role of the government to pass legislation, to hold the government to account, to found the government and to make decisions on legislation, which are points of principle and points of detail, does not seem to me to be remotely in dispute.

Chairman: I want to turn to another issue on which you probably have views and on which you are not waiting for the results of any investigation - you have voiced some of them - and it is devolution and its consequences.

Q118 Barbara Keeley: I understand you have previously dismissed the idea of an English Parliament, or of voting restrictions on Members from Scotland. Can you tell us what your main objections are?

Lord Falconer of Thoroton: I think the test in relation to these issues is what most promotes the Union. Devolution to Scotland and Wales was to meet the legitimate desire of the Scots and the Welsh for power in relation to certain issues to be closer to the people who are affected by those decisions with a view to them feeling much more comfortable within the Union. I think the issue is if you allow English MPs only to vote on English only questions you are in effect having two tiers of Member of Parliament. I think that is divisive and unnecessary because, unlike Scotland and Wales, the vast majority of Members of Parliament in the Commons are English.

Q119 Chairman: Who represent English constituencies.

Lord Falconer of Thoroton: I am sorry, who represent English constituencies. I apologise. Something like 80 per cent of the Members of Parliament represent English constituencies so the possibility of the English being forced to do things by other groups of people is nil and if every single Scottish, Northern Irish and Welsh Member of Parliament got together they could not resist effectively what the English MPs, if they all got together, want to do. Devolution was to avoid the fear of Wales and Scotland that had been growing - can I leave Northern Ireland out because it raises different issues - that, as it were, English views had been imposed on the Scots and Welsh. That does not arise in relation to the English. To have two tiers of Member of Parliament would be to create, it seems to me, a division which would lead to the sense that there were two sorts of MP.

Q120 Barbara Keeley: Do you accept that there is a perception of unfairness in the participation of Scottish MPs, and now Welsh MPs since the legislative changes under the Government of Wales Act, on these English only questions? Do you accept that there are some perceptions of unfairness around that and in some ways since devolution that feeling is greater now?

Lord Falconer of Thoroton: It is plainly possible that the Scots and the Welsh with a minority of English MPs could impose measures on England, so there is a theoretical possibility that could lead to circumstances in which that is how the majority is created. I do not get a sense that there is a sense of unfairness amongst the public in relation to these issues.

Q121 Barbara Keeley: So how do you see the devolution settlement developing? Clearly we have parked the issue of regional assemblies for the time being but do you see further travel in the devolution settlement?

Lord Falconer of Thoroton: The critical way to avoid the sorts of worries that you are referring to is that the government of the day, whatever its political complexion, should not do things that are unacceptable to the majority of those who live in England. I get no sense that is happening. I get no sense there is any pressure along those lines. In relation to the devolution settlement, I think it is working well at the moment. By the test I set myself at the beginning of my answer - is it promoting the Union or promoting separation - I think it is promoting the Union. The Union of England, Wales and Scotland is closer after devolution than it was before.

Q122 Barbara Keeley: Do you think we have seen the end point of that process? Do you think the regional issue is well and truly parked?

Lord Falconer of Thoroton: In terms of elected regional assemblies, I do not see that reviving in the near future. In relation to are we at the end of the road in relation to the detail of the devolution settlement, in the House of Lords at the moment we have just started the committee stage of the Government of Wales Bill, so I am not sure that we are at the end.

Q123 Chairman: You are aware presumably that the development of regional governmental activity, regional decision-making, is becoming something of a controversial issue in parts of the country?

Lord Falconer of Thoroton: I certainly am but, in answer to Ms Keeley's question, I do not envisage the question of elected regional assemblies coming back in the near future. On the issue of regional decision-making, the role of regional assemblies, the role of the RDAs, all of those issues seem to me to be very important issues that are being looked at in a big way.

Q124 Chairman: In your speech you said that it was valuable that the Secretaries of State for Scotland and Wales within government represent the interests of Scotland and Wales when the United Kingdom Government formulates policy in non-devolved areas.

Lord Falconer of Thoroton: Yes.

Q125 Chairman: Many people see the continuing secretaries of state as a bit of an anomaly since devolution. Certainly if you compare the English position, why should not the North East of England or the South West of England have its interests brought to bear by a secretary of state when the government is considering policy in what is by definition a non-devolved area because nothing is devolved to them?

Lord Falconer of Thoroton: Historically there has been a Secretary of State for Scotland and a Secretary of State for Wales who represented their interests on all issues until devolution. I think it would be wrong, having recognised the separate identity of those two places as more separate than the regions of England, as a matter of politics and a matter of policy to deprive them of a secretary of state to speak on their behalf in relation to devolved issues in the government. One of the aspects of this issue, and I advert to this in my speech, is it is always possible to identify the anomaly like the one that you have just identified, like the one that Barbara identified that the Scots do not vote on Scottish devolved issues but they do vote on English devolved issues. The solution to the anomaly always brings with it more difficulties than leaving the anomaly, so saying Scots and Welsh MPs cannot vote on English issues leads to the difficulty of two tiers of MP, which is worse than the anomaly. The removal of the Welsh and Scottish Secretaries of State from the Cabinet is anomalous in one sense in the way that you have put it but to remove them would lead to worse consequences because you have got two independent parts of the country that should have a voice on those issues in the Cabinet.

Q126 Chairman: You are the Secretary of State for Constitutional Affairs and you could do that job, could you not? They are, after all, ministers in your Department in one sense.

Lord Falconer of Thoroton: The Secretary of State for Scotland and the Secretary of State for Wales are certainly not ministers in my department. I think you need somebody from Scotland or Wales to speak for those two countries.

Chairman: Thank you very much for the time you have given us this afternoon.