Memorandum submitted by Professor Keith Ewing (PPE 03)



Political Parties and Elections Bill




1 The PPEB addresses a number of issues arising out of the Hayden Phillips process. The main provisions of the Bill deal with the proposal for political commissioners (clause 5), the restriction of the political bar on employment by the Electoral Commission (clause 7), and the powers of the Commission (clauses 1 and 2). Other provisions deal with a number of loopholes that have emerged in the operation of the Political Parties, Elections and Referendums Act 2000 (clauses 8 - 10), though there are loopholes that may not be fully addressed, and others that have come to light since the Bill was drafted.



Political Commissioners


2 The proposal for political commissioners reflects a curious idea to have emerged from the Hayden Phillips process. The genesis of the proposal appears to lie in concerns about the effectiveness of the Electoral Commission, and a feeling that it could be made to operate better if it was more fully informed about the way political parties work in practice. The idea of a Political Parties Panel as provided by the PPERA appears not to have served this function, though it is not clear where responsibility for the failure lies.


3 The Committee may wish to consider whether the circumstances that led to the proposals for political commissioners now prevail. Over the last 12 months, the Electoral Commission has been seen to be robust and independent, and there are a number of people who may have cause to regret that they under-estimated its authority. The Committee may also wish to consider whether in these evolving circumstances an idea that was developed to strengthen the Commission may now serve to weaken it, by creating conflicts of interest on the part of commissioners.


4 This in turn raises questions about the independence of the Commission; the Committee may wish to consider whether other advanced Westminster democracies (Australia, Canada and New Zealand, for example) have political commissioners of the kind now proposed, and if not why not. Similarly, the Committee may wish to consider the other circumstances in which representatives of a regulatory community play a part as members of the regulatory authority by which they are supervised, and to which they are accountable.


5 Questions arise further about the detailed proposals in the Bill, and in particular the provisions that guarantee places for the three main parliamentary parties, with the other qualifying parliamentary parties competing for the fourth place. Apart from sensitive issues about the devolution dimension of the modern constitution, it is not to be over-looked that the Electoral Commission also oversees the activities of non-parliamentary parties. The latter may have no cause to believe that their interests will be well served by these arrangements.



Loopholes in the PPERA


6 The first of a number of loopholes in PPERA relates to transparency, and mainly to unincorporated associations like the Midlands Industrial Council which has made donations of 1.5m to the Conservatives since 2003; and organisations like Constituency Campaigning Services (Coleshill Manor) which supplies electoral services (on commercial terms) to Conservative Constituency Associations, and which has received registered donations in excess of 1.8m since 2004, mainly from the Midlands Industrial Council.


7 Although it gives significant sums to the Conservative Party, no one knows who is giving the money to the Midlands Industrial Council or how much they are giving, unless the Council itself agrees voluntarily to be transparent. The issue with Constituency Campaigning Services, on the other hand, is that - although registered as a 'regulated donee' with the Electoral Commission - no one knows its total income and expenditure (apart from donations in excess of 5,000), or how it spends its money on electoral activities.


8 Secondly, there is a problem of foreign donations, which arises as a result of a number of highly publicised claims that the law is easy to circumvent, allowing people (or companies) who may not be permissible donors effectively to make donations indirectly through private companies, which the individual (or company) in question may own or control. The private company operating here may itself be a permissible donor and perfectly entitled to make a donation in its own name, though it may be donating money not generated wholly from trading activities in this country.


9 One suggested strategy which is said currently to be permitted goes something like this: company A (not registered or incorporated or carrying on business in the United Kingdom, and so not a permissible donor) buys shares in British company B (which is registered and incorporated here and is a permissible donor). Company B then buys shares in company C (also British owned and registered, and carrying on business here), which then buys shares in company D (also registered and incorporated, and carrying on business here). Company D might then make donations to a political party, wholly or partly from the proceeds of transactions which may have enabled money to be channelled indirectly to it by company A.



Closing the Loopholes


10 The Committee may wish to consider whether these various gaps in PPERA are fully addressed by the Bill. If they are not, one solution to the emerging problem of transparency would be a series of amendments to provide simply that the 2000 Act should apply not only to political parties but also to related unincorporated associations and private companies (bodies which are otherwise largely unregulated, in contrast to the detailed regulation of public limited companies and trade unions).


A 'related entity' would be an unincorporated association or private company whose principal purposes include: (a) raising money for or making donations to a political party; or (b) providing services to a political party or its accounting units, whether or not on commercial terms. This would impose a number of additional (though not onerous) transparency obligations on these organisations.


In the first place, they would be required to submit annual income and expenditure accounts to the Electoral Commission, which would be published and available for public inspection; while secondly, they would be required to report their donations to the Electoral Commission, which in these circumstances might be set at a level of 1,000 in keeping with the current obligations on local party organisations.


11 This amendment would not, however, cover the foreign donations problem said to have emerged in recent years, with potentially important implications for party funding. Although there are perhaps various ways by which this question could be addressed, a straightforward legislative response would be to adopt the sound but apparently overlooked Neill Committee recommendations made in 1998.


It was proposed there that the British subsidiaries of foreign companies should be free to donate only from revenue generated by business activities in the United Kingdom. This principle could in turn be applied generally - extended to all companies including those based here which are not foreign owned subsidiaries, to prevent overseas transfers, however injected.


Steps might also be taken to address the question of ownership of private companies, and to consider the extent to which it would be possible to ensure that donations by private companies can be made only by those which are owned or controlled by an individual or individuals who are on the electoral register in the United Kingdom





12 PPERA will be in need of regular amendment and updating as fund - raising practices and electoral tactics of the parties evolve. Indeed, there has already been one major revision: Electoral Administration Act 2006. It is important that an evolving and dynamic process of review and reform is undertaken, to ensure that the core principles of the Act continue to be implemented by relevant legislation. To this end, the proposals to deal with the gap in candidate spending are part of this process (clause 10), though it may be necessary to go further to deal with other gaps in the legislation. While the extension of the powers of the Electoral Commission are welcome, it is not clear whether the same can be said about changing the composition of the Commission. Nor is it clear how far it is desirable to tilt the balance from criminal sanctions to civil penalties (clause 3), which may represent an unintended dilution of the parent legislation.



November 2008