Political Parties and Elections Bill

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Mr. Turner: Will the hon. Gentleman explain how people are disabled, or whatever it was that he said. He said that in Canada and some of the United States—
David Howarth: I am sorry, but the hon. Gentleman misheard me. Corporate donations of all types are not allowed in those jurisdictions, and under one interpretation, new clause 22 would have the same effect. The argument against such a system is that it would require great dollops of state funding for political parties—the Minister made the same argument against a donation cap—which would not be acceptable to the public in present, or any, circumstances. But is that really the case? Should we not set out a long-term goal, perhaps with a date or a power for the Secretary of State to introduce an order with that radical effect, and say to parties, “You have a certain amount of time to sort yourselves out, because we are moving to a system of funding radically different from the one that we have now”? In that interim period, some state funding might be necessary. My party has always been more in favour of state funding than I have, but that could be a requirement, although it would not be necessary to have vast state funding of political parties forever.
The campaigns in the United States that have just been completed used a very different model of party funding that we could not introduce in this country now—I agree with that—but if all parties knew that eventually we would have to move to such a system, we would all do it. That is similar to what happened in Canada where the four main parties were dramatically affected by the reforms. The Liberal party—the equivalent of my party—was dependent on large donations, and the New Democrats were dependent on trade union funding. The Conservatives and their predecessors were rather less dependent on big donations than the Liberals, but there was a similar problem.
All three parties in Canada have now adapted to a radically different, far more restrictive and individual system. It seems to me that we should be thinking about doing that here and weaning ourselves off the way we do things now, because it produces, rather than public confidence, intermittent scandals and, more than that, long-term, low-level distrust of the political class, so we have to think about radical reform.
Martin Linton: The hon. Gentleman forgets the fourth party in Canada, the Bloc QuĂ(c)bĂ(c)cois, which was the origin of that policy simply because it did not get funding from trade unions or business but invented what they called le financement populaire to do away with all business funding.
David Howarth: I am tempted to answer the hon. Gentleman, “C’est exact.” That is an interpretation of new clause 22 that I did not intend, but it is a possible interpretation and I hope that the hon. Gentleman and other members will make clear their views on what the long-term goal should be and their support for the idea of moving away from institutional funding entirely.
Our original intention in tabling new clause 22 was to raise the question of whether it is proper for Members of the House of Lords to be donors to political parties. All parties represented here—obviously the Scottish National party would be in a different position—regularly receive donations from Members of the House of Lords, which can be substantial, and in certain cases very substantial. I do not want to cast any aspersions on Members of their lordships’ House at all.
Mr. Djanogly: Is the hon. Gentleman saying that people can give money before they are made Members of the House of Lords but not after?
David Howarth: The hon. Gentleman raises a point that I will get to later, because that is at the heart of the intention behind the new clause. That is what will change the nature of donations to political parties by people who later become lords.
Mr. Djanogly: I am trying to understand where the hon. Gentleman is coming from. Presumably he is trying to stop money being related to peerages, but is he suggesting under his solution that people would have to give their money up front rather than afterwards?
David Howarth: I will get to that point later, but I think that the hon. Gentleman is thinking about that the wrong way round. He needs to think about the question from the point of view of the political parties and whether they would want major donors to be nominated to the House of Lords, were the new clause to be adopted. I will get to that clause in a moment.
I do not want to cast aspersions on those of their lordships who make donations, but the question is whether an individual, who already has great access and influence over politics by virtue of their appointment to the legislature under this extraordinary system that we have, should have the additional opportunity to influence the political process via donations, and that is a question that we ought to raise. It is a question of perception.
I fully accept that many of their lordships who give donations do so because of their desire to further the causes that they believe in, and that is true of their lordships in all three parties. As the hon. Member for Huntingdon hinted, if we are talking about the problem raised by the hon. Member for Chichester about captains of industry who gave large donations to the Conservative party and then miraculously appeared in the House of Lords, this new clause on the face of it does not have much to do with that. They had given their donations and then appeared later, so no further advantage of that sort could be looked for. There is, however, the subsidiary question of ministerial office. Again, this is entirely a question of perception but Members of the House of Lords are eligible for ministerial office in a way in which ordinary members of the public are not. That might be another reason for restricting donations from them.
Let me turn to the point raised by the hon. Member for Huntingdon. How does this new clause affect the serious problem of perception—in some cases perhaps beyond that—that large donations lead to ennoblement, to becoming a Member of the House of Lords? The answer is simple. Imagine a political party—not one of those present—that found itself with a very generous donor who was giving that party large amounts of money. The rule—new clause 22 having passed—would be that if that person were to be appointed to the House of Lords they would no longer be able to make these large donations to that party, so what interest would there be for that party to suggest that that person should become a Member of Lords? It would remove any incentive that a party had for making its large donors peers. It would introduce into the system an interference in the way in which this has been done and talked about for a long time, going back, I confess, to the days of David Lloyd George.
David Lloyd George’s approach was based on his view that he did not like aristocrats and if he could do anything to discredit them by selling peerages that was all right by him. But the problem has carried on beyond that for a long time. We are still in a position where members of the public are quite cynical about what happens in politics. People frequently mention to me the fact that of the people who have recently given £1 million to the Labour party only two are not Members of the House of Lords. One of those is J. K. Rowling and I am sure she does not want to be. Nevertheless, only one of the others is not. We need to look for ways of getting out of that problem. We have looked at strengthening legislation, directly saying there should be no sale of honours. That legislation has serious weaknesses, as anyone who has tried to raise a possible problem with the police has found.
I am suggesting a different approach aimed at the incentives the parties have in the first place to raise their donors to the peerage. That is the central intention of new clause 22. It raises a second point. There might or might not be an opportunity later to discuss this point directly under new clause 10, but new clause 22 does refer to new clause 10, and I am sure it is legitimate to discuss the issues raised there in this debate. The issue is whether someone who is not a permissible donor should be allowed to use the corporate form to evade the regulation that makes them a non-permissible donor. New clause 22 says that, with regard to this particular form of impermissible donor, that will not be allowed. It refers to new clause 10, which does the same thing for a different class of impermissible donor, namely foreign donors.
2.45 pm
This goes back to the debate on unincorporated associations, although here we are talking about corporated bodies. The question is, should it be allowed to use the corporate form to make a donation in a way that would not be allowed were the individuals to do it themselves? We have seen cases of this being reported in the media recently—that concerning Lord Ashcroft, and the potential one concerning Mr. Deripaska and LDV, which raise the issue directly. If people who are not allowed to make donations are allowed to get through that by using the corporate form, we must ask whether we should raise the veil of the corporation to see who the real donor is.
The hon. Member for Huntingdon and I spent many days, possibly in this room, or perhaps it was next door, on the Companies Bill. During the course of that debate we talked about the issue of the corporate veil and the extent to which people should be allowed to set up their businesses in whatever way they want, using the corporate veil to separate their various businesses and the debts and obligations that those businesses might create. Never, in the course of those debates, did anyone make the point that people should be allowed to use the corporate form to evade the law on donations to political parties. It seems that we should make an exception to the rule in Salomon v. Salomon that companies should be treated legally as separate people.
New clause 22 says that a company that is controlled by an impermissible donor shall, itself, count as an impermissible donor. That is the way to do it. The question then is who counts as controlling the company? Going back to the debates that the hon. Gentleman and I had on the Companies Bill, now Act, there is an answer to that question in company law and we should use it. There are three ways in which people control companies and we should catch all of them in trying to stop the evasion of the law. The first, which is the most obvious, is where a shareholder owns 75 per cent. or more, of the shares in a company, that shareholder can give the company an instruction by resolution; it can tell the company what to do. If the shareholder has less than 75 per cent. they cannot do that. They might be able to elect the board, but they cannot tell the company what to do; the board runs the company. The first condition, therefore, is that anyone who owns 75 per cent. or more of the company should, for donation purposes, be counted as controlling the company.
The second concerns boards of directors. If there is a board of directors, it—rather than the shareholders—will run the company. If the board of directors is dominated by impermissible donors, the company itself should count as an impermissible donor. That seems to be quite straightforward. The third, and perhaps most important, concerns shadow directors. A company that is controlled indirectly by someone should count as well for these purposes. Section 251 of the Companies Act 2006 says that a shadow director is
“a person in accordance with whose directions or instructions the directors of the company are accustomed to act.”
The normal circumstance is where there is a dominant shareholder with enough votes to make anyone a director or not a director at that person’s will. But there are other circumstances where this applies. Were we to adopt this rule, we could remove the possibility of people setting up shell companies in various ways to make donations that would not otherwise be lawful.
That is the overall intention of the new clause: to remove the possibility of making donations to Members of the House of Lords and to make sure that that intention cannot be evaded or got round by the creation of companies. I know that many members of the Committee are uncomfortable discussing this kind of issue. I can see it in their faces as I look round. [Interruption.] I certainly was not looking at the Government Whip. He was not one of the people I had in mind. But this is the central issue in the Bill. It should be about donations, expenditure and the nature of our political system where it is now, which is not good and not well respected, and where it should be going. If we do not discuss it now, when?
Mr. Djanogly: We are in favour of transparency, but we do not want to prevent people from donating. When I read the amendment I was not entirely sure what the hon. Gentleman was aiming at. Having heard him I am slightly the wiser. He is basically looking at the laws. First, I thought of foreigners, but they are already banned. Then I thought of people under 18: 17-year-olds. Then I thought of mental health cases. Then I thought of prisoners and thought it had something to do with Liberals wanting prisoners to get the vote.
Basically, the new clause needs a bit more work, even to achieve the objective that the hon. Gentleman wishes for it. The other point that jumped out was how to define someone who is not qualified to vote. Does a person who ought to be on a register, but who is not, count as someone who is not qualified to vote? Could a non-registered person who is an anarchist give money to an anarchist party? It was all quite confusing, but I see where the hon. Gentleman is coming from. However, we do not agree with it.
Mr. Tyrie: There are three types of amendment or new clause. There is one that seeks to change the law, there is one that seeks to probe what the law might mean and there is a third, into which category this new clause falls, which is to make a point, which may or may not appear initially relevant to the clause, come what may, whatever the procedure of the institution one happens to be sitting in. The hon. Gentleman is a clever lawyer. He has found a wheeze to debate new clause 10 and get all his points in, just in case we do not reach it. I take my hat off to him for that.
As it happens, having heard the hon. Gentleman’s description of new clause 22, although I certainly think that it would need a great deal of work, I agree with what he described as its intention, which is, in summary, to exclude all institutional donations, including trade unions and corporate donations from party funding and to force parties to rely on local activism. That is where we have to go. I strongly agreed with his description that it should be a long-term goal and that we should not try to implement something like this overnight, which would have huge implications for all political parties, but particularly the Labour party. It would be unfair and damaging to any party that tried to introduce it in that way. We should mark out that territory, recognising that many other jurisdictions have also tried to go down that road—he made that point about Canada, and the Canadian point is well taken.
I also agreed with the hon. Gentleman that, if there is to be state funding, it should be considered transitional—in order to help bring in such a scheme, while parties adjust and find a way of establishing and broadening their local base. There is a stench in the nostrils of the electorate about how parties are funded at the moment. People have heard me say that on numerous occasions. I feel strongly that we need to deal with that. I regret that the Government have been unable to take forward the key measures required to enable something substantive to be done about it, which was a consequence of the breakdown of the Hayden Phillips talks.
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