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Lord Marsh: My Lords, I am grateful to the Minister for giving way. Perhaps I may revert to the question of funding where an organisation does not fund any party's campaign but runs a parallel campaign. To pick an example at random, the European Commission has, quite legitimately, information offices throughout the UK and would have a very clear view on a referendum on EMU.

Lord Bassam of Brighton: My Lords, that is an important issue to which we shall no doubt give further consideration as we go through the Bill.

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The Earl of Onslow: My Lords, does the noble Lord's response indicate that he does not have the faintest idea of the answer to the question?

Lord Bassam of Brighton: My Lords, I am grateful. For example, candidates will be subject to controls on the source and disclosure of donations similar to those now introduced for parties. The opportunity has also been taken to modernise or remove a number of provisions of the 1983 Act which are now out of date. As I have said, it will fall to the Electoral Commission to continue this modernising process.

There is another amendment to the 1983 Act which I propose to table in Committee. As many of your Lordships will be aware, the existing £5 limit on what a third party may spend in support of, or in opposition to, a candidate at an election has been held by the European Court of Human Rights in the case of Bowman to amount to an unjustified restriction on freedom of expression. As recommended by the Neill committee, I shall table an amendment to increase the limit to £500 in the case of a parliamentary election. A limit of £50, plus 0.5p per elector, will apply to local government elections. With the agreement of the Scottish Parliament and Executive the amendment (to Section 75 of the 1983 Act) will extend to local government elections in Scotland.

Part IX gives effect to the Neill committee's recommendation that a company should be required to have the consent of its shareholders before making donations to political parties and other political organisations. It is now widely accepted that political donations by a company are of such a unique nature that the decision to make these donations should not be left to the general discretion of the directors. The requirement to seek the approval of shareholders at least once every four years will not be onerous but will ensure that companies maintain the highest standards of corporate governance.

I shall confine my comments on Part X of the Bill to Clause 134, which is concerned with the qualifying period for registration as an overseas voter. This provision does not stem from the Neill committee but from the Home Affairs Select Committee in another place. In its 1998 report on electoral law and administration the committee unanimously concluded that the existing 20-year qualifying period was excessive and proposed a reduction to five years. The Government agree with the committee's view that the existing qualifying period is excessive. It is wrong surely that British citizens who have lived abroad for a considerable number of years, and who have in many cases effectively severed their ties with the United Kingdom, should continue to be able to influence the outcome of elections here. That said, the Government felt that a reduction in the qualifying period to five years went too far in the other direction. Therefore, they have opted in the Bill for a qualifying period of 10 years.

I am aware that this clause was subject to considerable debate in another place. At Report stage a number of amendments were lodged which pulled in a number of different directions. In responding to

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those amendments the Parliamentary Under-Secretary at the Privy Council Office indicated that the Government remained ready to listen to alternatives to the 10-year qualifying period in Clause 134. This is very much the sort of provision which should, if possible, be the subject of a political consensus. We shall listen with close interest to what your Lordships have to say on this matter, and particularly to any suggestions which could pass the consensus test.

Finally, I should like to say a few words about the timetable for commencement. The lynchpin will be the successful establishment of the electoral commission. I have already indicated that we intend to commence the selection process for the electoral commissioners within the next few weeks. Subject to the Bill receiving Royal Assent by the Summer Recess, we would hope that the appointments could be made by November. Thereafter the priority will be to bring the controls on donations and campaign expenditure into force. Ideally this will be done in time for the next general election. Whether this is possible will naturally depend on when the election is called. Realistically, the earliest that Parts IV to VI of the Bill can be brought into force is in March or April 2001. Thereafter there is likely to be some staggering of the implementation of the other functions of the electoral commission. In particular, we do not envisage transferring the functions of the four Parliamentary Boundary Commissions to the electoral commission until after they have completed the fifth general review of parliamentary constituencies in 2005 or thereabouts.

This Bill will do much to strengthen public confidence in the democratic process. It will ensure that there is full transparency and openness in the funding of political parties and reinforce the existing rules for the fair conduct of elections and referendums. These are reforms which in many respects are long overdue. They are vital to the health of our democracy. I commend the Bill to the House.

Moved, That the Bill be now read a second time.--(Lord Bassam of Brighton.)

3.31 p.m.

Lord Mackay of Ardbrecknish: My Lords, I do not envy the Minister his task in explaining the detail of the Bill. What at first sight would seem to be a few simple, easily understood propositions in the Fifth Report of the Committee on Standards in Public Life have been turned into a long, complicated and, in many places, pretty impenetrable legalese which no ordinary person could be expected to follow. If ever a Bill needed to be written in plain English, it is this one, affecting as it does the very building blocks of our parliamentary democracy.

This Bill will need to be understood not just by the treasurers of our parties nationally--they may have access to legal opinions--but by the treasurers of every constituency association of every political party up and down the land. Frankly, if a potential candidate for the office of treasurer--it is never the easiest office to fill in any organisation--finds that he has to read, mark and inwardly digest the stuff in this Bill, he will

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pass up the chance of being constituency treasurer; and, worse, he will advise all his friends to do likewise--and we are supposed to be encouraging people to participate in the political process!

What are the simple propositions to which we can probably all agree, at least in part? First, there should be an electoral commission. Secondly, it should be responsible for the registration of political parties. Thirdly, there should be rules on the conduct of referendums, and these should be overseen by the electoral commission. Fourthly, there should be transparency in the larger donations to political parties and to other bodies which attempt to influence the outcome of elections and referendums. Fifthly, no foreigner should donate to political parties--although who exactly is a foreigner is an interesting question which my noble friend has already raised.

I start with the electoral commission. Your Lordships will recall that during the passage of the Referendums (Scotland and Wales) Bill in the summer of 1997, I argued in favour of a general referendums Bill to cover all referendums, and a referendums commission to oversee their conduct. I prayed in aid the report of the Commission on the Conduct of Referendums which was set up by the Electoral Reform Society and the Constitution Unit, and chaired by Sir Patrick Nairne. I see that the noble Baroness, Lady Gould of Potternewton, remembers my amendments. When we discussed the Registration of Political Parties Bill (now an Act), the need for an electoral commission also arose.

In many ways, the Government put the cart before the horse by introducing referendums and registration before setting up the proper body to deal with those issues. But I suppose we should be thankful that at last they have got round to setting up the commission--better late than never. We shall want to explore the kind of person who will be a commissioner and how that membership will be decided. There must be no possibility of the commissioners being Tony's cronies. I listened with interest to the Minister on the issue of who would be commissioners. I look forward to reading his amendments, and perhaps bringing forward some of my own.

We shall want to explore the way in which the boundary commissions will be composed; and the relationship between the Scottish Executive and Parliament as regards boundaries in relation to Westminster, Scotland and local government. I shall want to study carefully the Minister's remarks that the Government have no intention of bringing the next boundary commission within the rules of the electoral commission. I find that a very odd way for the Government to approach the issue.

We shall want to look critically at Clause 12(1). We are concerned that the commission might become a propagandist for electoral change and, even more oddly, for the European Union. I cannot understand what the first subsection of Clause 12 means.

We look forward to government amendments--it sounds as though we shall have many, but that is par for the course for most of the Bills which arrive in your

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Lordships' House--which will link the commission with the Representation of the People Act which we passed a few weeks ago. It is another example of putting the cart before the horse.

I turn to the commission's role in the Registration of Political Parties Act 1998. Your Lordships will remember our debates on that Bill. My suspicions and fears about Government putting forward legislation to regulate political parties were somewhat underlined today when I heard the Minister talk about the regulatory control of political parties. Perhaps that is what Mr Cook will talk about today to Mr Mugabe; I am sure that he would very much like a lesson on the regulatory control of political parties. The amazing thing about the Bill is that it repeals the 1998 Act. Is that a record? Why do the Government feel it necessary to do that and to add 16 clauses to what is already a large and cumbersome Bill? In Committee, I shall be looking to the Minister to justify any changes he has made to the 1998 Act in its shift into this Bill.

I turn to referendums. In Committee I shall be judging the details of the Bill against the proposals of the Nairne commission--proposals which were largely, but not wholly, echoed in the Neill committee's report. We shall want to explore the omissions. For example, do we have pre-legislative referendums or post-legislative referendums? Who decides the question? That is perhaps the most important question. What, if any, thresholds should be used to judge the result?

I welcome the fact that the Government accept the recommendation in Nairne and Neill that umbrella campaigning organisations should be recognised for core funding. Both Nairne and Neill looked at the case for capping expenditure and referendums. The Minister spoke about that at some length; and I am not surprised. The Government have cherry-picked both Nairne and Neill as regards this matter. At page 75, paragraph 14, Nairne said:

    "On balance, it is not considered practical to exercise government control over the total expenditure by those campaigning on either side in a referendum. Umbrella campaigning organisations should be required to undertake to provide accounts of monies received or spent on the campaign if they are to qualify for public money or services in kind".

Neill said that, perhaps more dramatically at paragraph 12.46 on page 170. Referring to the capping of expenditure, he said:

    "It appears to us that under these circumstances it would be impracticable to try to control campaign spending. The number of individuals and organisations involved would often be too large. The time-scale would often be too short. Adequate accounting procedures would often be impossible to put in place. The administrative apparatus required would resemble one of Heath Robinson's most outlandish contraptions-- and would almost certainly not work".

The Government will have to explain in detail why they have chosen to go against those recommendations. When I read the Bill, I wondered whether it was to show in Clauses 106 to 113, and more particularly in Schedules 12 and 13, which I invite your Lordships to read during a quiet moment, what exactly a Heath Robinson contraption looks like. I suggest

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that those two schedules are just that. I should have thought that transparent donation would be more than sufficient.

If the Government's motive is to have a balanced financial position between the sides in the referendum, their legislation fails. Let us consider the referendum in Scotland in 1997. The Bill does not indicate how the limits would be calculated, but, for easy counting, let us assume that it would be one-tenth of the UK figure given in Schedule 13. Each umbrella organisation would have been able to spend £0.5 million. The three parties in favour of a "yes" vote would have been able to spend between them £1.2 million. That is a total for the "yes" side of £1.7 million. The Conservatives would have been allowed £0.3 million, which would have given the "no" side £0.8 million. According to my arithmetic, £1.7 million and £0.8 million are not a balance, especially when the trade unions can pitch in with perhaps fifty grand each, as can a few more bodies on either side.

However it would have worked, there would have been no balance in the expenditure limits at that Scottish referendum. I suggest that it would be the same for any referendum one contemplates in the future. Therefore, Schedule 13 does not create balance; it ensures imbalance. Perhaps Nairne and Neill were right. We shall want to hear some convincing arguments from the Minister before we let the Bill go down that road.

Finally, I turn to donations and expenditure. Expenditure is simpler because it builds on the well-used system employed to limit expenditure by candidates in their constituencies during elections. We have no difficulty with the simple idea that there should be a limit, but that is where simplicity ends and the complexity, so beloved of this Government, takes over.

First, the limit is to cover 365 days leading up to the election. So my question to the Minister is: at this moment, are we inside that period for the next election or are we not? The Minister will not answer, even if he knows--and I doubt that he does. I do not blame him either way, but the mere fact that I can ask a question which every one of your Lordships knows is impossible to answer shows that the proposition is ridiculous. Have your Lordships heard anything so daft as counting expenditure in a whole year before an election, the date of which is known only to one person--namely, the Prime Minister--and, I suspect, not even to him at this moment? It would be retrospective accounting. The suggestion is crazy.

What is wrong with using the definition of "election period" used for constituency expenditure at the time of an election? That is simple. Or, if the Government want to cast their net a little wider, why not start the clock ticking when the Prime Minister announces the date of the election and Parliament rises?

However, I promise your Lordships that the proposal gets dafter! As regards elections to the European Parliament, the Scottish Parliament and the Welsh and Northern Ireland Assemblies, the period is to be four months before the date of such an

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election. That is a little easier because those elections are fixed, but there is every likelihood that there will be overlapping between some (and perhaps all) of those elections. That is where Part III of Schedule 8 comes in because it tries to deal with the various combinations of overlapping which might occur. It is seriously incomprehensible gobbledegook. I shall not read it to your Lordships now, but I promise those of your Lordships who are to attend the Committee stage that I fully intend to read it out then and to demand clear, simple explanations from the Minister. I give him plenty of warning of that. Frankly, I believe that the Government should abandon that system and use the one that is more related to our normal way of dealing with the situation; that is, to define the election period as the three or four weeks leading up to the election.

Then there are the expenses of the third parties--no, in this case, not the Liberal Democrats, the SNP or Plaid Cymru, but organisations such as pressure groups which want to campaign in the election, or individuals such as Mr Souter who is so annoying the Labour Party in Scotland by campaigning against the repeal of Section 28, or Section 2A as it is in Scotland. As we know, the cap for an organisation campaigning in a UK election is to be about £1 million.

Guess what, my Lords: trade unions affiliated to the Labour Party and taking part in elections in the Labour Party (elections of the leader, the recent elections of the mayoral candidate for London), and giving help in cash or in kind to the Labour Party will be considered as third parties. Talk about Chinese walls! And of course each and every one of them will be entitled to spend £1 million campaigning for the Labour Party. If they were all to spend the money--I accept that that is a large assumption, but one must work out how Bills can be used--the Labour Party's allowed expenditure would simply double. I call that cheating--pure and simple.

Mr Peter Riddell was kinder. At page 115 of the Neill report, he said:

    "Fuller disclosure should reduce the need for limits either on levels of donations or restricting central spending by parties. Overseas experience suggests that such limits can easily be evaded. Labour proposals for a national limit of £15 million on election expenses and of a tenth of this amount for national campaign spending by 'third parties' are open to abuse. Trade unions and other Labour allies could easily funnel money via such 'third parties', circumventing the intended national limit".

Peter Riddell is clearly politer than I am, but my point is made. We shall certainly want to take the Government to task on why they allow their cousins to escape the cap on expenditure for the Labour Party.

I turn from spending money to raising money. At paragraph 10.32 of the Neill report, the same Peter Riddell said:

    "the real issue concerns the raising of money rather than its spending".

However, John MacGregor, who was a member of the standards committee, disagreed with his colleagues and took the view that the disclosure of donations, not their spending, is the key. Given the horrendous complications I have mentioned, perhaps we ought to

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think carefully about the opinions of two such experienced men as John MacGregor and Peter Riddell.

Turning to donations, what I find surprising about the Neill report appears at the beginning, at paragraph 4.5 on page 45. In a report of this size, page 45 is near the beginning! It states:

    "In fact, the suspicions which are entertained concerning large givers are commonly lacking in any justification. We have been given no evidence that leads us to doubt that nearly all give generously either because they support the general aims of the party which they finance or in order to minimise the risk of the opposing party attaining power".

Normally, if there is no evidence, there is no case and there is no need to take remedial action. However, that position appears to be too logical. The report, and subsequently the Bill, propose that all donations over £5,000 should be made public by reporting to the electoral commission and that no donations should be accepted from foreigners. It seems simple, but nothing is ever simple in this Bill.

First, as regards donations, the boundary is set very inelegantly in a double negative of, "not less than £5,000". Why cannot it merely be "greater than £5,000", making £5,000 the limit? If someone wants to sign a cheque for £5,000, he will not have to declare it, but if it is for more than that, he will. That would seem to be a more sensible situation than opening up the old dodge, which we all see when we go shopping, of goods costing £9.99, or £19.99 or £99.99. In this case, it is £4,999.99 and I do not see the logic in it. I believe that £5,000 ought to be the top of the lower limit.

Furthermore, why report during a general election every seven days? Are we really trying to make things as difficult as possible for party and constituency treasurers at the busiest time for them and everyone else? Surely, a report after the election, when the expenditure has to be submitted, is a sufficient check. Why have not the Government accepted Recommendation 39 of the Neill report? That states, at page 99:

    "Political parties should be eligible to claim under the tax relief scheme if at the last general election two members of the party were elected to the House of Commons or one member was elected and the party won at least 150,000 votes".

The noble Lord, Lord Bassam of Brighton, told us that the Government did not agree. I was not in the least convinced about why they did not agree. Certainly, the cost of £4 million leaves me quite unmoved. I understand that that is approximately the cost to the taxpayer of the Labour Party supporters who work in departments in Whitehall as political advisers. When my party and other parties ask about that £4 million, we are told that it is "peanuts" in the whole scheme of things. If it is "peanuts" so far as concerns spending on political advisers, may I suggest that it is "peanuts" in this regard, too? If the Government want us to remain with the Neill report, they should jolly well not have cherry-picked it themselves first.

I turn to the matter of the "permissible donor". As usual, that begins simply but ends up as a little minefield. One might have thought that "British

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citizens" would be a good place to start; but no. After all, some of them live abroad, many working for British companies and many working in British interests. However, unless they are listed on the register as "overseas voters"--and that will be made more difficult by the Government--they will not be able to donate. Yet, citizens of the Commonwealth and of the EU who are resident here even for a short time can get on to the register and contribute.

Therefore, a Canadian citizen who is resident here for his work can register and donate. Yet, an American in exactly the same position cannot, unless that American stays in America and wants to donate to Sinn Fein/IRA. We all know where some of that money ends up, and it is not only in the democratic process. Yet, under the Bill, that will be all right. It is not all right in my book.

Let us consider the Scottish example. Why should the Irish diaspora be allowed to donate to a party which is deeply mired in violence, but a member of the Scottish diaspora be forbidden from donating to the Scottish National Party, which has never been involved in violence? Although I have no truck with the Scottish National Party's principles, I shall want to know the Minister's answer to that. He will have to work very hard to convince me that his approach is right.

I might be convinced of the Neill recommendation that citizens of the Irish Republic, or, to be logical, people on the register of electors in the Irish Republic, should be allowed to donate. However, I would put two conditions on that: first, they should be allowed to donate to any party in the UK, not only to the parties in Northern Ireland; and, secondly, any donation over the limit should be declared and made public. Otherwise, how will we ever know where the money is coming from and what source is providing those donations?

Lastly, I turn to companies. We start with a simple proposition that shareholders should agree donations. Why the Government feel that they have to legislate is beyond me. Actually, it is not beyond me; I believe that it is called "spite". If shareholders did not want money to go to political parties, they could raise the matter at the annual general meeting and do something about it.

Of course, the simple proposition soon collapses. Nevertheless, I hope that the Minister will be able to say that I am wrong in my reading of the Bill. A company incorporated in Europe and carrying out business in the UK will be able to give donations without seeking shareholder agreement. Therefore, for example, BMW might decide to give donations to any party (other than the Labour Party after the way that the Government have behaved) and it would not need shareholder permission; yet a British company would. That does not seem logical.

As I have said more than once, the intention of the Bill is to implement a number of simple propositions, most of which it is fairly easy to agree with. However, by the time those simple propositions are translated into the Bill, they become complicated, contradictory, illogical, certainly bureaucratic, and expensive for the

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political parties to implement. We shall subject the Bill to intense scrutiny and shall expect proper debate in Committee. We shall expect the Government to attempt to simplify the Bill as we go along so that ordinary folk who are interested in politics can understand what regulatory provisions are being placed on the fundamental freedoms of people in this country. We shall hope also that the Government will act in a non-partisan way in relation to a Bill which, in my view, strikes in parts at the very heart of our democratic process.

3.53 p.m.

Lord McNally: My Lords, I was quite looking forward to the Committee stage of this Bill until the noble Lord, Lord Mackay, explained how he planned to handle the schedules to it. Usually, his speeches are sparkling and witty. But the thought of him reading out in detail the schedules makes one think that it will be hard going. However, I agree with something that he said at the end of his speech. The Government may well have been motivated by feelings of "sauce for the goose; sauce for the gander" in terms of making companies justify their party political donations, pretty well as the Conservative government forced through ballots of trade unions. I believe that one of the dangers in approaching this Bill is the idea that, "It is now our turn to draw up the rules". If that is the case, we shall never obtain the kind of consensus that the Minister called for when he introduced the Bill.

On these Benches we give the Bill a broad welcome and broad support, although we make clear that we believe that it is the beginning of a process rather than the last word on the matter. Of course, there are anomalies which must be cleared up. Again, I agree with the noble Lord, Lord Mackay, on the question of part of the Bill being put in place a year before the general election. Perhaps I may help the noble Lord: I calculated 395 days to the general election. However, I am not sure that that will work for this Bill.

We are dealing with three important areas of politics: how political funds are raised; how they are spent; and how elections and referendums are conducted. As the Minister said in his opening remarks, it is a debate which is as topical as the morning's headlines. The noble Lord, Lord Mackay, referred to the difficulty of filling the post of party treasurer. I believe that we are probably all the poorer without the experience of "Lord Ashcroft of Belize". Perhaps he will join us in time for the Committee stage. If not, perhaps we could persuade the noble Lord, Lord McAlpine, to contribute. Both have considerable expertise.

We have always considered one of the specialities of this House to be that around us were dotted Members with particular expertise on the matter under discussion. Before the noble Lord intervenes, I recognise that someone who speaks from the Benches of Lloyd George should not dwell for too long on these matters. I believe that that may have been what he was intending to say.

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