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I have already set out the problems presented by the records of Her Majesty's Revenue and Customs-as a result of the PAYE system, a large number of taxpayers simply do not have tax records, so there must be self-declaration.
If the amendments are approved, it will take some time-I cannot provide an exact timetable-to ensure that regulations are brought in and guidance is established so that the provisions are workable and political parties, not least party workers at the local level, know where they are. Overall, I believe it is possible to make the sentiment behind these Lords amendments workable. That is what we have sought to do.
Mr. Cox: I hope that the House forgives me, but at the moment I am struggling to understand the rationale for the amendment. The Secretary of State has provided no justification for it. If someone is entitled to vote in a general election, what is the rational connection between participation in the tax system-someone might be abroad for a few years, working as an expatriate-and not being allowed to donate? If the Secretary of State would address that fundamental issue, I am sure that the House would be grateful.
Mr. Straw: It is a matter of judgment, but all parties have stated their desire to see big money taken out of politics and to see foreign donations removed from politics. My starting preference was to get an examination in the round of the connection that was needed by people who were otherwise British citizens before they could participate to a greater degree in our politics -[Interruption.] I am responding to the hon. and learned Gentleman's point-by way of donations or standing for and sitting in Parliament. However, that was not to be. If the hon. and learned Gentleman looked at the contribution of Lord Neill of Bladen to the debate in the other place on 15 June, he would be struck by the fact that Lord Neill, who was the Chairman of the Committee on Standards in Public Life, which produced the original plan that fed into the 2000 Act, now says that he supports Lord Campbell-Savours' amendments. He voted for them and explained why in a short but powerful speech.
I understand the argument that the hon. and learned Gentleman is making-it would be fair to say that I have made it myself-but the truth is that others not just of one party, but of all the parties and none, take a different view, which we have to take into account. I thus support amendments (a) to (f).
Mr. Jonathan Djanogly (Huntingdon) (Con): May I first support the Secretary of State's kind words about Lord Kingsland, who was a truly fine gentleman? He was caring, charming and a good lawyer; he was always fair in debate and rational in his approach. I have always enjoyed working with Lord Kingsland, who will be sadly missed by colleagues. Our thoughts are with his family.
We can see the outline purpose of the Government amendments on clause 8's permissible donor provisions, but the fact remains that the clause will be extremely hard to implement. We feel that it could be unreasonable to impose requirements that are so difficult to meet, particularly when the consequences are so draconian. It may be an infringement of an individual's right to freedom of expression; it is most likely to be contrary to European law; it would contribute to the isolation of UK citizens living abroad; it is contrary to regulatory principles; and it links political rights to taxation. Furthermore, it does not correctly address a mischief that the Political Parties, Elections and Referendums Act 2000 aimed to address-namely, a clarification of the rules on party donations.
The Electoral Commission was concerned that those it regulates will not be able to comply with these proposals in their current form and that the resulting law will likely be unenforceable in practice. It has called on the Government to review clause 8, so the Minister might wish to report on the Commission's view in his reply.
The change of Government policy over the past few days and the provision of these amendments only today are simply unacceptable. As my right hon. Friend the Member for Horsham (Mr. Maude) said, is it not true that only last Monday the Secretary of State told Labour Back Benchers that the Government proposed to impose a three-line Whip today to overturn these provisions? The Secretary of State said that that was not quite the case, but he did not answer my right hon. Friend's question about what had happened in the meantime. This is legislating on the hoof, and we do not much like it.
Dr. Palmer: Does the hon. Gentleman feel that freedom of speech implies a freedom to donate money, which is a peculiarly American interpretation of the idea of freedom of speech? It is the idea that "money talks".
Let me explain why we believe that these provisions will not work. The permissible-donor provisions would impose a three-prong test, which all political parties would have to perform before accepting any political donation. The first test-whether the donor is on the electoral register-was introduced precisely because it was straightforward and easy to implement and to check.
When the Political Parties, Elections and Referendums Act was enacted, Parliament chose to use a formulation that would have included, in the category of permissible donors, individuals who were eligible to be on the electoral register-recognising the difficulties that any other formula would create. Registered parties are entitled to a free copy of the electoral register in hard copy or in electronic data from the relevant registration officer for the purposes of complying with the controls on donations. It is therefore relatively straightforward to check whether a donation is from a permissible donor under section 54(2)(a), as currently in force.
The two further tests proposed, following the Lords amendments, are not quite so straightforward. The first test relates to residency. According to paragraph 2455
of the explanatory notes to part 14 of the Income Tax Act 2007-that gives some idea of the volume of our current tax legislation-
"The question whether or not a person is UK resident is primarily to be determined in accordance with case law. A limited number of statutory rules either supplement or disapply the case law rules in specific circumstances."
There is no statutory definition of "residence". The tests for residence are based on a mixture of legislative interpretation and case law. In addition, Her Majesty's Revenue and Customs has published guidance in HMRC 6 that outlines its view and interpretation of the legislation and case law, which is intended to help people to determine their residence status. There is no register of UK-resident individuals. It would therefore be necessary to provide individuals with information in an attempt to enable them to determine whether they are resident in the UK, and then to require them to make a declaration that they are resident at the time they make a donation.
The Secretary of State quite properly mentioned the problems that treasurers would have in verifying residency details. In some circumstances, it may not be possible to establish with certainty whether a person is UK-resident on the date when he or she makes a donation. It is conceivable, albeit unlikely, that people could make a donation to a political party at a time when they believed themselves to be resident in the UK, but it could be determined at a later date that they were not. Such a situation might arise as a result of one of the different tests for determining a person's residence that are summarised in HMRC guidance, which may combine an individual's intention with average-day counting over a four-year period to determine whether the individual is UK-resident.
Let me give an example. Those who spend 183 days or more in the UK in a tax year will always be treated as UK-resident. However, those who spend less than 183 days in the UK in a tax year but come to the UK with the intention of spending, on average, at least 91 days, and then spend an average of 91 days or more per tax year over a four-year period, will be treated as being UK-resident from the tax year in which they first came to the UK. If their intention fails and they leave the UK earlier than expected, they may not be treated as UK-resident from the date on which they first came to the UK. It would clearly be impossible to determine with certainty until the end of the four-year period whether a person should be treated as UK-resident according to that test, and that may affect the validity of a donation made to a political party during the period.
Another question that might arise is whether there would be any tracing rules that would prevent non-domiciled or non-UK resident husbands or wives, for example, from giving their UK-resident and domiciled spouses money to donate to a political party. Has the Minister considered that issue?
David Howarth (Cambridge) (LD): I am finding it difficult to envisage the practical circumstances in which the hon. Gentleman's example would apply. It seems to me that people making a claim to the tax authorities would know what they had claimed to be their resident or non-resident status. I cannot imagine circumstances in which someone would say to the tax authorities "Yes, I am resident" and then, strangely, turned out to be non-resident. I cannot see what tax advantage there could be for the taxpayer in such circumstances.
Mr. Djanogly: If, after what I have said, the hon. Gentleman will not accept that the individuals concerned, not being tax advisers, might themselves encounter practical difficulties in understanding all this, as a corporate lawyer he is not in touch with Joe Public. Furthermore, given that people's circumstances may change during the four-year period, his original statement may be wrong.
The third prong of the test in the permissible donor provisions is domicile, a notoriously slippery concept to anyone who has had to deal with or advise on it. Political parties will have to determine, in relation to every political donation, whether a person is a non-domiciled UK resident. HMRC recently issued new technical guidance on domicile, consisting of 42 pages. The introduction stresses the difficulties inherent in the determination of domicile. HMRC states:
"It is vital to remember that domicile is primarily a matter of common law. The decisions of the courts in the UK and other jurisdictions provide a set of guiding principles, but each case will depend on its own facts".
"As domicile depends on the facts of an individual's life, each case is unique."
Many people will never have had cause to consider the question of where they are domiciled. In general, the only people who will have had cause to consider it will be those who are resident in the UK and who have substantial foreign income or gains in respect of which they would like to claim the remittance basis of taxation, or those who have been involved with certain family law issues that may require their domicile to be considered. Such persons are likely to be confined to a relatively small proportion of the total number of individuals who have come from abroad and settled in the UK. It is therefore likely that not only would the vast majority of people never have considered the question of where they might be domiciled, but they would not be familiar with the test for determining domicile. As there is no register of UK-domiciled persons, the political party in receipt of a donation would probably need to ask the donor to make some form of declaration that he or she was so domiciled.
Domicile is a general law concept, and is therefore not defined in statute. Given that many people are likely to be unfamiliar with the general law concept, it would be necessary to provide some form of guidance on what domicile means, and how people could determine where they were domiciled in order to make the relevant declaration. It is clear from the guidance notes published by HMRC that it is not necessarily straightforward to determine domicile in all cases, and it is arguably unreasonable to require political parties to make the complex and intrusive inquiries that they would have to make to ascertain whether a donor was non-domiciled.
Let me explain the tax issues in slightly more detail. It is not absolutely clear what would be meant by income tax liabilities to be determined on the basis that the individual was domiciled. That applies more to the Government's latest amendments. Under current rules, an individual's income tax liabilities are affected by domicile only if the individual elects for the remittance basis of taxation. The election can only be made by non-domiciliaries, but can be made on a year-by-year basis. Is it intended that a resident non-domiciliary who has not elected for the remittance basis in the previous
tax year should be eligible to donate, or are such people ineligible because they were non-domiciled although, for that year, they chose not to elect for the remittance basis of taxation? I think that the Minister ought to make that clear, as the issue is open to misrepresentation.
Dr. Palmer: I have been listening attentively to the hon. Gentleman's speech for nearly a quarter of an hour. He has been saying, basically, that it is all very difficult. Does he agree in principle that it is undesirable for British politics to be financed from abroad?
Many non-domiciliaries-those with no significant foreign investments, who are likely to constitute the great majority-will not have given any thought to their domicile status. The only residual concern, if the restriction relates to an actual claim to the remittance basis, is that the claim does not need to be made until the individual files his tax return. That may not be until 31 January, following the end of the tax year which is 10 months through the donation year. The exception will be that many individuals will not take the decision until close to the filing date because they will need to calculate whether the election is to their advantage. They may not have the financial information to enable them to do that until some way through the year.
There is, therefore, a clear possibility that an individual might make a donation in the expectation that they would not be claiming on the remittance basis, but at a later date decide to make a claim. Would a donation in that context have to be repaid? Would someone commit an offence in making a declaration that they expected to be true at the time it was made? Once they had made a donation, would they be prohibited from claiming on the remittance basis? If a declaration that is given in good faith is wrong or turns out to be incorrect, is the effect still that the party will have received a donation from an impermissible donor and the donation will therefore be subject to forfeiture?
The party, however, will not be guilty of an offence even if the declaration was made in bad faith if it can show that reasonable steps were taken to verify that the donation was permissible and that the treasurer believed that the donation was permissible, assuming the defence in the Bill is passed. What is considered to be reasonable is likely to depend on the circumstances of the donation and the individual donor. For example, are there factors that might suggest residence outside the UK? A party may ask to see an individual's tax return.
In addition to potential confidentiality issues, the clause might give rise to timing issues. Parties might have to consider repaying donations once a tax return is available making it clear that, contrary to previous expectations, the donor is not permissible. This might be one of the reasonable steps required. A check for Irish nationality might require sight of a passport. It is not clear whether that will be sufficient.
The hon. Gentleman suggests that parties might take the complicated step of asking to check people's tax returns. Currently, when he and his party
receive a donation to the Huntingdon dining club, for example, do they check the donor's bank statements to see whether they have also donated to Ribble Valley dining club, for instance, or Horsham dining club, in order to ensure that the maximum amount currently allowed under criminal law has not been breached? I suggest to the hon. Gentleman that they do not.
Mr. Djanogly: I do not know what individual associations do. What I am doing is explaining that this will be pretty unworkable without some serious thought going into it, and I do not think I heard anything from the Secretary of State that addressed that.
Mr. Redwood: As we have been reminded by the Secretary of State, the voluntary tradition in all British parties is an important part of what we do and, in that sense, it makes our democracy special. What my hon. Friend is saying, however, is that all this is complicated and difficult and that no one who is sensible would want to be a voluntary treasurer and have to sign off on this kind of thing. That would apply to Labour and the Liberal Democrats as well as to Conservatives.
David Howarth: I am still having difficulty following the hon. Gentleman's argument. He argued very strongly for the introduction of the reasonable excuse defence across a lot of offences in this area, but he now seems to be saying that the reasonable excuse defence is too complex to apply. Will he make up his mind about which side of the argument he is on?
Mr. Djanogly: I have to say that I never had the opportunity to apply the reasonable excuse defence to these measures, but we will have to do some more thinking about this for the reasons I have just given.
Mr. Evans: In my halcyon days, I was vice-chairman of the Conservative party, looking after Conservatives abroad. I wonder how that will work now, because we will be campaigning in places such as Marbella and Majorca to get people to register and participate in elections, but at the same time we will tell them, "For goodness' sake, don't you dare give any money whatever to reinforce your democratic rights that you will be exercising at the general election, because you will not be permissible."
Mr. Djanogly: My hon. Friend makes an important point, which I shall return to later. The provision will put off people who live abroad-regardless of why they want to live abroad-from becoming engaged in party politics. To that extent, it is an exclusive, rather than an inclusive, set of provisions, and a poor set for that reason.
On the overall tax position, I have tried to explain that this is complicated stuff, as the Secretary of State also said. It is very poor and unacceptable that we were given these six pages of Government amendments only this morning and expected to come here and present on them in an expert and advised fashion. It seems that the Government amendments' broad impact is to tighten the residency test and introduce a declaration requirement for donors above £7,500. While the latter is certainly a
move in the right direction, we still have many other concerns. As to the specifics of the amendments, however, there was no way that we could have had time to study them, so we will have to revisit them in the Lords.
Returning to the principles behind the permissible donor provisions of clause 8, we believe that it is unreasonable to impose requirements that are so difficult to meet, especially when the consequences of not meeting them are so draconian. That point was also made by the Electoral Commission. The prohibition on the acceptance of impermissible donations and the duty to return any such donations within 30 days of receipt are subject to criminal and civil enforcement regimes. The party and the treasurer are guilty of an offence if the donation is not from a permissible donor and is not sent back to the donor within 30 days of receipt. The court has the power to order forfeiture of an amount equal to the donation.
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