House of Lords - Explanatory Note
Political Parties, Elections And Referendums Bill - continued          House of Lords

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Part IV: Control of donations to registered parties and their members etc.

Chapter I (Clauses 46 to 48) : Donations to registered parties

90.     These clauses, as a preliminary to the restrictions on their receipt imposed under Chapter II and the reporting requirements imposed by Chapter III, define what does and does not constitutes a "donation".

Clause 46 : Donations for the purposes of Part IV

91.     "Donation" is defined in subsection (2) as gifts of money and property (including money or property transferred to a party for consideration which is less than its value); subscriptions and affiliation fees; money spent (other than by the party) to meet expenses incurred by the party; loans, property, services and other facilities provided to the party on other than commercial terms; and the provision of any sponsorship in relation to the party. Anything given or transferred to an officer, agent or member of the party in that capacity will be regarded as having been given or transferred to the party, unless it is given solely for his own use or benefit (subsection (4)). A donation to a member or officer of a party for use otherwise than on the business of the party as such - for example, in assisting him or her in standing for an internal election - is subject to the separate controls in clause 66 and Schedule 6. The definition of a "donation" applies to anything given or transferred to the party either directly or indirectly through a third person (clause 46(6)(a)).

Clause 47 : Payments, services etc. not to be regarded as donations

92.     Clause 47 specifies those payments or services to a party which are not to be regarded as a "donation". Any donation whose value is less than £200 is to be disregarded (subsection (2)(b)). Also to be disregarded are policy development grants made to parties (under the provisions of clause 11) and grants for security costs at party conferences. In addition, the definition of "donation" excludes the national benefit to parties of air time for political party broadcasts, the use of public rooms at elections and the distribution of election addresses to electors, all of which facilities are provided free of charge. The definition also excludes the provision by an individual of his own services provided these are provided freely and in his own time (subsection (1)(f)). It is not intended that, for example, a voluntary officer of the party should be regarded as making a donation if, in their own time, they contribute professional services (such as accountancy) within their personal sphere of expertise. However, services which were provided free of charge by an individual who was nevertheless paid by his employer while providing those services would fall within clause 46(2)(e) and thus count as a donation by the employer.

93.     Subsection (2)(a) also excludes donations made for the purpose of meeting a candidate's election expenses (which will continue to be the subject of a separate statutory return under the relevant provisions of the Representation of the People Act 1983 (as augmented by clause 125 and Schedule 15) and other enactments relating to elections).

Clause 48 : Value of donations

94.     Clause 48 deals with the valuation of donations. Gifts of property are required to be valued at their market value, that is at the price they would fetch on their sale in the open market. Where money or property is transferred to a party for a consideration less than the market value of the property, the value of the donation is the difference between the value of the money or the market value of the property and the consideration provided by the party. Similarly, where loans, property, services and other facilities are provided on other than commercial terms, their value will be taken to be the difference between their actual cost to the party and the cost which the party would have incurred if they had been provided on commercial terms.

Chapter II (Clauses 49 to 56) : Restrictions on donations to registered parties

Clause 49 : Permissible donors

95.     This clause introduces the concept of a "permissible donor", as a means of prohibiting the foreign funding of political parties. Subsection (1) provides that a party may accept a donation only from a permissible donor and where the identity of the donor is known. The latter requirement is intended to cover not only cases where a donation is made anonymously but also where an identity has been given but is clearly fictional (and it is therefore impossible to establish that the donor is a permissible donor).

96.     Subsection (2) specifies those sources of funding which are to be regarded as permissible. They include individuals registered in an electoral register; a company registered in the United Kingdom and incorporated in the European Union and which carries on business in the United Kingdom; a registered political party; a trade union; a friendly society or industrial and provident society and any other unincorporated association which is carrying on business or other activities and has its main office in the United Kingdom.

97.     Subsections (4) and (5) provide that where a person ("the principal donor") makes a donation on behalf of two or more other persons the individual contribution of each will be treated as a separate donation for the purposes of controls on donations under this Part. The recipient party will therefore need to establish the identity of each separate donor (and to this end the principal donor will be under a duty to provide such information) and whether each constitutes a permissible source.

Clause 50 : Payments etc. which are (or are not) to be treated as donations by permissible donors

98.     Clause 50 makes special provision in respect of donations from certain specified sources. By virtue of subsection (2) any payment in cash or in kind to a party out of public funds (other than one of the payments listed in clause 47(1)(a) and (b), which do not constitute donations) is to be regarded as a donation from a permissible donor. Such payments will include the financial assistance paid to opposition parties in the House of Commons ('Short money') and House of Lords ('Cranborne money'). Subsections (3) and (4) provide that where a party receives a donation to meet the reasonable travel and subsistence expenses of a member or officer of the party for the purpose of undertaking an overseas visit, such a donation is to be regarded as being from a permissible donor, irrespective of whether the donor is not one of those listed in clause 49(2). Subsection (5) provides that a donation by a trustee, acting in his capacity as such, shall be regarded as a donation from an impermissible source unless the trustee is acting as an agent of a person who is a permissible donor or is acting in pursuance of a bequest made by a person who was registered to vote at the time of his or her death.

Clauses 51 and 52: Acceptance or return of donations

99.     Upon receipt of a donation it will be incumbent upon the party to take all reasonable steps to identify the donor and determine whether the donor constitutes a permissible source (clause 51(1)). This may require that the party makes some enquiries and it is perfectly possible that a donation will remain in a party's account while those enquiries are carried out. The Bill therefore distinguishes between the receipt and the acceptance of a donation and makes provision for a period of 30 days during which the status of the donation may be determined and appropriate action taken before the party is to be regarded as having accepted the donation. Clauses 51(2) and 52(1) provide for the return of a donation to its source where that source is an impermissible donor or where it proves impossible to ascertain the donor's identity. In the latter instance, if it is not possible to return the donation to its source, it is to be surrendered to the Electoral Commission for payment into the Consolidated Fund.

Clauses 53 to 55 : Forfeiture of certain donations

100.     Clauses 53 to 55 apply sanctions to the acceptance of donations from an impermissible source or where the identity of the donor is not known. These provisions should be read in conjunction with clause 61 which requires the treasurer of a party to declare (and makes it an offence falsely to declare) that the party has not accepted any donations from an impermissible source.

101.     Clause 53 enables the Electoral Commission to apply to a court to order the forfeiture of a donation which a party has accepted from a source which is either impermissible or not known. Clause 54 provides for appeals against such an order. Clause 55 enables rules of court to be made in respect of applications or appeals under clauses 53 and 54. It also provides that any sums forfeited under these provisions shall be paid into the Consolidated Fund. Subsection (5) of clause 55 specifies that, where a registered party is not a body corporate, forfeiture proceedings will be brought against the party in its own name and not in that of any of its members and that any sums forfeited will be paid out of the funds of the party.

Clause 56 : Offences concerned with evasion of restrictions on donations

102.     In addition to a party's civil liability under clause 53, clause 56 makes it a criminal offence for any person knowingly to participate in an arrangement or to withhold information, or supply false information, so as to evade the restrictions on the sources of donations. The bringing of criminal proceedings would not preclude the Commission from also applying for forfeiture of the donation in question (see clause 53(4)).

Chapter III (Clauses 57 to 65) : Reporting of donations to registered parties

103.     These clauses set out the scheme for reporting large donations to the Electoral Commission and for publishing details of them.

Clause 57 and Schedule 5 : Quarterly donation report

104.     Clause 57 requires a party to prepare a donations report in respect of each quarter of a calendar year. A quarterly donations report will record any donation of £5,000 or more (or £1,000 or more in the case of a donation made to an accounting unit of a registered party) accepted during that quarter or any donation which, when added to other donations from the same source during that calendar year, brings the amount up to £5,000 or more (£1,000 in the case of donations to accounting units). It must also record any further donations of £1,000 or more from a source which, during the same calendar year, has already been recorded in a donation report. To comply with these requirements political parties will need to keep records of all donations received and accepted above the de minimis level of £200 (as set out in clause 47(2)(b)).

105.     A quarterly donations report will also record all donations received by the party from an impermissible or anonymous source during that period.

106.     Where a party has received no donations which fall to be recorded, it will be required to report to that effect.

107.     Subsection (12) gives effect to Schedule 5 which makes additional provision as to the information to be included in a quarterly donation report. In particular, the treasurer is required to record, in respect of each recordable donation, the identity of the donor (including their name and address), the value of the donation and the circumstances in which the donation was made.

Clause 58 : Weekly donation reports during general election periods

108.     During a parliamentary general election period, clause 58 requires donation reports to be sent to the Electoral Commission in respect of each seven-day period (and any final period of less than seven days). Weekly donations reports differ from the quarterly donations reports in that they will include disclosable donations received whether or not they are eventually accepted. Only donations of £5,000 or more made to a party or, in the case of a party with accounting units, to the central organisation of a party need to be recorded in the weekly reports. The general election period is defined for the purpose of this clause as the period commencing with the date of the announcement of Her Majesty's intention to dissolve Parliament and ending with the date of the poll. In the fifteen general elections since the Second World War the length of this period has, on average, been thirty-three days.

Clause 59 : Exemptions from section 58

109.     Clause 59 enables any registered party which does not intend to field candidates at a particular general election to be exempted from the requirement to submit weekly donations reports.

Clause 60 : Submission of donation reports to Commission

110.     Clause 60 requires the submission of quarterly donations reports within thirty days and of weekly donations reports within seven days of the end of the period to which they relate, and makes it an offence for the treasurer to fail to submit donations reports or to submit reports which do not comply with the requirements.

Clause 61 : Declaration by treasurer in donation report

111.     Clause 61 requires donations reports to be accompanied by a declaration made by the treasurer. The terms of the declaration in respect of quarterly reports are set out in subsection (2) or (3) (the latter subsection applies where the treasurer makes a 'nil' return), while those for weekly reports are set out in subsection (4). It is an offence knowingly to make a false declaration (subsection (5)).

Clause 62 : Weekly donation reports in connection with elections other than general elections

112.     Clause 62 enables the requirement to submit weekly donations reports to be applied (with modifications) by order to elections to the European Parliament, the Scottish Parliament, the National Assembly for Wales and the Northern Ireland Assembly.

Clause 63 : Reporting of multiple small donations

113.     Clause 63 is a counter-evasion provision. Under clause 47(2)(b) a donation of less than £200 is disregarded for the purposes of Part IV. This de minimis limit is intended to alleviate the administrative burden on political parties arising from the controls on donations. In particular, a party will not need to verify the source of any sum below the de minimis limit and will not have to record the name and address of the donor. Whilst the £200 threshold reduces the administrative workload on parties, however, it opens up the prospect of evasion of the disclosure requirement by the device of multiple small donations each of which is below the de minimis limit. Clause 63 accordingly places a duty on a donor who makes a number of donations to a party in a year, each of which is less than £200 but which in aggregate exceed £5,000, to report the donations to the Electoral Commission. Reports must be delivered to the Commission by the end of January following the year in which the donations were made. The donor is required to report to the Electoral Commission, rather than the registered party concerned, because the latter may not have kept records of the receipt of the individual donations and could not, therefore, verify any information provided by the donor.

Clause 64 : Register of recordable donations

114.     The Electoral Commission is required by subsection (1) to maintain a register of all reported donations. To protect the privacy and safety of individual donors, the published register will not include their home addresses. In addition, information supplied by a registered treasurer under paragraph 6(b) of Schedule 5 will not be published to guard against such information being used to circumvent the disclosure requirements in this Part.

Clause 65 : Special provision for Northern Ireland parties

115.     Clause 65 enables the Secretary of State by order to exempt Northern Ireland parties (defined as registered parties represented in the Northern Ireland Assembly or which have one or more Members of the House of Commons elected for Northern Ireland constituencies) and/or donations to them from the scope of any or all of the provisions of Part IV of the Bill. The intention is to allow suitable arrangements to be made, along the lines recommended in the Neill Committee report, in recognition of the special circumstances which apply in Northern Ireland.

Chapter IV : Control of donations to individuals and members associations

Clause 66 and Schedule 6 : Control of donations to individuals and members associations

116.     Clause 66 gives effect to Schedule 6 which applies, with appropriate modifications, the provisions of Chapters I to III to donations made to individuals and members associations for their own use or benefit. (Donations made to individual party members or officers for the benefit of a party would be regarded as donations to the party (clause 46(4)) for the purposes of Part IV.)

117.     The controls set out in Schedule 6 apply to donations made to individual members of a registered party, members associations and holders of relevant elective offices. Paragraph 1(6) defines a 'members association' as an organisation which is comprised wholly or mainly of members of the party. These are groups which lie outside the formal structure of the party for the purposes of controls on funding and which, therefore, will not have been included in the scheme proposed and adopted in accordance with clause 23. They would, for example, include groups which are formed within parties to champion particular policies or ideas (such as the Tribune Group or the Tory Reform Group). Paragraph 1(8) identifies the relevant elective offices, the holders of which are subject to the controls, namely that of Member of Parliament, Member of the European Parliament elected in the UK, member of a devolved legislature, member of a local authority (other than a parish or community council), member of the Greater London Assembly and Mayor of London or any other elected mayor within the meaning of Part II of the Local Government Act 2000.

118.     A donation made to an individual party member or members association would be subject to the controls set out in Schedule 6 if it were either offered to or retained by an individual or association for their own use or benefit in connection with political activity within the party. Such activities include the conduct of internal elections to positions within the party (for example, that of party leader or positions on the party's management committee) and the conduct of "primaries" for the selection of a party candidate for an elective office (for example, that of Mayor of London). A controlled donation to a holder of a relevant elective office would be a donation offered to or accepted by him in connection with any political activities of his. Such activities might include campaigning for re-election or the running of his office. Donations made to individuals or associations for their private use or for purely social purposes would not be subject to control unless, despite the intention of the donor, the donation was used in connection with political activities within the party.

119.     Paragraph 2 of Schedule 6 defines "donation" for these purposes in terms equivalent to those in relation to donations to a party (see clause 46(2)). Paragraph 3 defines those payments and services which are not to be regarded as a donation. These include any remuneration or allowances paid to the holder of a relevant elective office in that capacity.

120.     Paragraphs 5 to 8 of Schedule 6 apply restrictions, including those on permissible sources, on the acceptance of donations by individuals and members associations equivalent to those applying to registered political parties under clauses 49 to 56.

121.     Paragraphs 9 and 10 of Schedule 6 require the disclosure to the Electoral Commission by an individual or members association of the source and amount of any donation of £1,000 (including aggregate amounts) or more within thirty days of its acceptance as well as the disclosure of any donation received from an impermissible or unidentifiable source. Paragraph 11 creates offences in relation to failure to deliver a required report and the delivery of an incomplete report, as well as providing for the forfeiture of a donation where failure to comply with the requirements of Schedule 6 is due to an intention to conceal the existence or the true amount of the donation in question. Paragraph 12 makes provision, equivalent to that under clause 61, for any report as to a disclosable donation to be accompanied by a declaration attesting that the donation has been received from a permissible source.

122.     Paragraph 13 makes equivalent provision to clause 63 to counter evasion by a donor of the disclosure requirements by making multiple donations under the de minimis threshold of £200. Paragraph 14 provides for the inclusion of donations disclosed in accordance with Schedule 6 in a register of disclosable donations.

123.     One effect of these provisions is to require that donations made to a holder of an elective office, which are disclosed in a register of members' interests, will also be subject to the reporting requirements set out in Schedule 6. This will mean some overlapping of registers of members' interests and the Electoral Commission's register of disclosable donations. But the controls on donations to MPs and others will not in any way circumscribe the ability of the House of Commons or the devolved legislatures to regulate the interests and conduct of their members.

Part V: Control of campaign expenditure

Clause 67 and Schedule 7 : Campaign expenditure

124.     Clause 67 defines the terms "campaign expenditure", "election campaign" and "for election purposes" for the purposes of the controls on registered political parties' election expenditure as provided for in this Part of the Bill. Subsection (2) defines "campaign expenditure" by reference to lists of qualifying expenses set out in Schedule 7. Part I of Schedule 7 lists direct expenses incurred for election purposes. Any expenditure on a matter set out in this list during the relevant period for an election (as defined in Schedule 8) will need to be accounted for as campaign expenditure. Thus, for example, the full production costs of all party political broadcasts screened in the 365 days before a parliamentary general election would count as campaign expenditure. Part II of Schedule 7 provides for the apportionment of a party's normal running costs during the relevant period for an election between costs incurred for election purposes and costs incurred for other purposes. To assist parties with such apportionments and more generally in identifying what does or does not constitute campaign expenditure, paragraph 6 of Schedule 7 provides for the Electoral Commission to prepare a code of practice giving guidance on such matters. Before a code of practice comes into effect it must be approved by the Secretary of State (in this case, the Home Secretary) and laid before Parliament. Although the code of practice is not made by statutory instrument, an equivalent of the negative resolution procedure applies so that either House of Parliament may resolve not to approve the draft code.

125.     Paragraph 7 of Schedule 7 empowers the Secretary of State to amend Parts I or II of the Schedule by order. An order made under this provision may either give effect to a recommendation of the Commission or be made after consultation with the Commission.

126.     The definition of the term "for election purposes" is cast in broad terms so as to capture all expenditure by a party that is incurred in order to enhance its electoral prospects. However, excluded from the definition is any expenditure incurred with a view to enhancing the prospects of a particular candidate. Such expenditure is already subject to separate controls under the provisions of enactments relating to elections. The relevant enactments are:

         a)     in the case of parliamentary and local government elections (including elections to the Greater London Authority), the Representation of the People Act 1983;

         b)     in the case of Scottish Parliamentary elections, the Scottish Parliament (Elections etc.) Order 1999 (SI 1999/787);

         c)     in the case of elections to the National Assembly for Wales, the National Assembly for Wales (Representation of the People) Order 1999 (SI 1999/450);

         d)     in the case of elections to the Northern Ireland Assembly, an order made under section 34 of the Northern Ireland Act 1998;

         e)     in the case of elections to the European Parliament, the European Parliamentary Regulations 1999 (SI 1999/1214).

127.     Subsection (8) provides that in the case of the list-based elections to the European and Scottish Parliaments and to the Welsh Assembly, expenses incurred for the benefit of one or more candidates on a party's list are to be treated as campaign expenditure incurred by the party and, as such, accounted for in a return made by the party under clause 75. Expenditure by candidates included in a party's list for return as a London member of the Greater London Assembly will continue to be accounted for in a return made under section 81 of the Representation of the People Act 1983.

Clause 68 : Notional campaign expenditure

128.     The Neill Committee's report recommended that national expenditure limits should cover benefits in kind as well as cash expenditure and that the nature and value of such benefits in kind should be itemised separately in parties' accounts of expenditure. Subsection (1) therefore provides that campaign expenditure not only includes direct expenditure by a registered party but also benefits in kind (ie. property, services or facilities provided free of charge or at a discount of more than 10% of their market value) conferred on a party by a third person. Subsection (4) requires that any such benefits in kind must be accounted for by means of a declaration, which will be included in the return of election expenditure required under clause 75, as to the value of the benefit (except where its market value, or the difference between what the party pays and its value, is less than £200).

Clause 69 : Officers of registered party with responsibility for campaign expenditure

129.     The registered treasurer of a party is responsible for accounting for the party's campaign expenditure, and he therefore performs a function similar to that of a candidate's election agent under the Representation of the People Act 1983. In the same way as an election agent may, in a county constituency, delegate his functions to a deputy election agent, clause 69 provides for the appointment of up to twelve deputy treasurers. Such number would enable a United Kingdom-wide party to appoint a deputy to cover each of Scotland, Wales, Northern Ireland and the nine English regions, although whether the remit of the deputy is confined to a particular geographical area is a matter for the registered treasurer. The names of any deputy treasurers and the address of their office is included in a party's entry in the register of political parties (subsection (6)).

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Prepared: 17 March 2000