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Lord Mackay of Ardbrecknish: My Lords, I was simply going to say that I was under the impression that at least one of his colleagues is, or had been, treasurer of his party.

Lord McNally: My Lords, I shall move on quickly! I believe that Sir Edward Heath and, indeed, the noble Viscount, Lord Cranborne, said all that has to be said on that matter. However, I recommend to noble Lords the article in today's Guardian by the noble Lord, Lord Hattersley. He is not in his place, but then he rarely is. There is no doubt that there is about the noble Lord, Lord Hattersley, the fervour of the born-again radical. Somehow, my complete approval is tempered only by that old Hollywood saying, "I knew Doris Day before she became a virgin"!

The background to the Bill is that it is part of a whole package of reforms. Having read an article by the noble Lord, Lord Rees-Mogg, in this morning's Times, it is clear that some elements view with disapproval the attempt to bring our politics up to date. However, as the Minister intimated in his remarks, the point is that there was a need to rebuild public confidence in our political system, a need to devolve power from Whitehall and Westminster, and a need to make the systems fairer and reflect more the will of the people. In particular, there was a need to remove the stench of sleaze that had gathered around politics. I believe that today's Bill is part of another building block in that process. In our view, the aim should be to make political funding transparent and accountable. Spending rules should be fair and manageable.

We should not be setting up a system, rather like some elements of our tax laws, where the challenge is how you get around them. We need a system that is going to be obeyed. I agree with the noble Lord, Lord Mackay, that to achieve that, the system needs to be simple, understandable and usable by people, many of whom are amateurs. It is not just professional politicians that will make the system work, but thousands and thousands of volunteers. If the system becomes too complicated, it will become extremely difficult.

I can tell your Lordships of my own experience in 1983. I was passing a newspaper stand where the headlines were: "Five candidates to be prosecuted for election malpractice". Having had some experience of these matters I wondered who the fools were who were not able to get their returns in within their expenditure limits. I bought the paper and saw my own name there. The fact is that I had consulted Stockport Town Hall which had given me a figure. I told my voluntary agent that she should return figures accurately and within the figure we received from Stockport Town Hall. Stockport Town Hall had made a mistake. But it was my responsibility, not theirs or even that of my agent. I ended up being interviewed by two policemen from Greater Manchester police about possible election malpractice. The spending limits must be simplified, as the Bill attempts to do, so that volunteers and political innocents, such as myself, do not fall foul of them.

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The other problem is that national expenditure was uncontrolled and it overlapped increasingly with local campaigns. It really did not matter how much I spent in Stockport when the work of the noble Lord, Lord Saatchi, was all over the constituency on national campaign hoardings. Added to that, we now have the massive increase in telephone canvassing, which is very hard to link to any particular constituency. There is an increasing use of the Internet. I am told that at Millbank there is already a special unit gathering Internet names for Internet campaigning. I am sure that the Conservatives have likewise. That kind of new technology campaigning will be difficult to control or account for. Therefore, we must set limits to party fundraising which, once and for all, cuts the umbilical cord between party fundraising and party-political patronage. It offends the general public.

I say that it is not the end of the matter because I think we shall have to return to it. We have said consistently that state funding is the real way to keep politics clean. The sums mentioned in the Bill for the two major political parties are extremely difficult to raise by means that do not involve either organisations or individuals making donations to political parties which imply some influence-buying.

If we are to achieve a political system that is truly clean, we need state funding. There has been a degree of hypocrisy regarding state funding, not least among the parliamentarians. They have consistently resisted state funding for the party outside Parliament, and yet been ever ready to extend state funding to parliamentarians through the Short money and now the Cranborne money. They take it for themselves but do not to see it as a logical extension in relation to this matter.

Short money was introduced because Harold Wilson was determined that not a penny piece of state funding should get to Transport House, which was then under the control of the ever-loyal Mr Wedgwood Benn. Therefore, the Short money scheme was devised. We should try this system of capping and transparency. However, if we really want to clean up our politics, the only way is through a proper system of state funding.

I wish the electoral commission well. I think this is an important innovation. It must be seen to be truly independent. I query what the Minister said as regards the exclusions that he set out. Outside of a Cistercian monastery, I am not sure who he will find who is qualified to sit on the electoral commission. I see some old friends there, but I have never been as dazzled by the independence of the Cross Benches in this place as some people purport to be. I do not believe that political eunuchs are particularly well qualified to take on the particular roles set down for this commission. After all, we have had some fairly good examples in the past of ex-MPs becoming extremely good judges. Furthermore there are those who were active in political parties who have become very good magistrates. The point I make is that being active in party politics should not be a disqualification, as the Minister seemed to be implying, from taking on a role

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that requires independence and judgment. I think that that is an unnecessary debarment of extremely worthwhile talent, although I take the point that "cronyism" has to be avoided as well.

I look forward to the debates on how we organise our referendums. I see a few familiar names on the speakers' list today who might be examining this. My own suspicion is that even if the noble Lord, Lord Stoddart, were allowed to count every vote personally, he would still object to the outcome of some referendums. But I look forward to his speech.

We shall take up a number of matters in Committee. The Minister indicated my party's continuing concern about federalism, and we welcome the constructive attitude he has taken in relation to that. We are still worried about the overall expenditure limits allowed by the Bill, although they are less than the £28 million spent by the Conservatives, the £26 million spent by the Labour Party and the £3 million spent by the Liberal Democrats--that was not mentioned--at the last election. But it is still an enormous amount for the Conservative and the Labour parties to raise. We are also concerned that the by-election campaign expenditure limit has been very high. I return to a point I made earlier, and I believe it was made also by the noble Lord, Lord Mackay. We must remember that, particularly in relation to smaller parties, one is dealing with volunteers and with very small organisations. Therefore, we should not impose too rigorous legal requirements upon them. Mention has also been made of the need--and we shall deal with this in Committee--to look at the qualification for overseas voters.

I was interested to hear what the Minister said about exhibition stands at party conferences. From my experience, I have seen a growth of trade fairs around the party conferences which are now major sources of funds for all the political parties. That is something which may need to be looked at so that funds are not dog-legged through large charges for exhibition stands to overcome the other restrictions.

I look forward also to our discussions about third party campaigning. I believe that there are dangers for democracy if we do not look carefully at and perhaps learn something from the American experience of how very well-funded, single-issue pressure groups can distort the electoral process. That needs to be looked at. We must also take on board the points made about the capacity of organisations with an interest in the outcome of a referendum trying to distort the process.

In the end, from these Benches, we welcome the Bill because it takes us in the direction of greater fairness and transparency in relation to both the funding and organisation of political campaigning. It is a beginning, not an end but, as such, we support it.

4.11 p.m.

Baroness Gould of Potternewton: My Lords, like the noble Lord, Lord McNally, I look forward to the Committee stage of the Bill which I believe will be lively. But I hope that, as in the other place, we can

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proceed on a consensual basis and that we do not get so bogged down in the detail that we lose sight of the principle of the Bill.

It seems to me that the Bill is an important milestone in the development of our democratic institutions. It will be the first time that political parties have been subject to statutory regulation. We should offer our congratulations to the Neill committee on its work in making the Bill possible. We should congratulate the Government on following through many of the recommendations of the Neill committee. As most of those recommendations were ones I suggested in my evidence to the Neill committee, I feel particularly strongly about that.

There is a powerful democratic and ethical, as well as constitutional, case for the financial affairs of political parties being open and accountable. A vacuum of legal principle has led to a level of disquiet about the financial affairs of political parties. I hope that this new era of openness, transparency and accountability will help to restore the electorate's faith in the political process. That is a faith which we have tried to uphold historically.

From the early days of universal franchise, it was seen as an essential principle of democracy that economic power should not be able to buy political power: from the passing of the Secret Ballot Act 1872, which protected voters from intimidation, to the introduction of the Corrupt and Illegal Practices Prevention Act 1883. That Act remains the basis of our election law. But it takes into account only the expenses of the candidate and the election agent. That was understandable at the time because political parties barely existed outside the constituency or the parliamentary caucus. But things have changed. There have been dramatic changes in campaigning techniques over the past 120 years. Political parties have become more dominant. There has been much more control from the centre. That created an anomalous situation which has to be rectified by the introduction of a level playing field for national expenditure at general elections. It is a great pity that we have had to wait so long to do that. I shall return later to that point.

It is always gratifying when something for which one has argued and campaigned comes to fruition. The Labour Party was the first political party to promote the case for an independent electoral commission. It is encouraging to see the Conservative Party now converted to that view. It is better late than never. The party was certainly opposed to it in government, and I have the evidence to prove it.

I understand that it is hoped that the electoral commission will be in place before the end of this year. It is crucial that a speedy timetable is adhered to because the work and functions of the commission underpin all that follows. It is the bedrock on which the Bill is based. As there is such general consensus on the establishment of a strong, independent commission, there is no need to argue the case for supporting--at least in principle, if not in detail--Part I of the Bill.

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It is important that the commission is seen to be open and transparent. The accountability and regulation applying to the political parties must apply also to the commission. Its independence is crucial to its successful operation.

As the Minister said, the Bill identifies clearly the commission's independence from the government of the day. The arrangements to be followed are those which apply to the National Audit Office, and I do not believe that anyone can say that that is controlled by government. It will be directly accountable to Parliament, and the distinctive machinery for appointing members of the commission and for setting its budget will help to reinforce that independent status.

I have a small problem with absolute independence, as has the noble Lord, Lord McNally. I believe that the commissioners must have a detailed understanding of the reality of running elections locally and running political parties nationally. The commission's many functions rightly cover all aspects of political party and election activity; that requires a real level of expertise, experience and an understanding of the political process. The issue is important because I do not believe that there will be time for a learning curve. The commission's first actions will determine its success for the future.

It has been suggested--and no doubt the claim will be made again today--that the commission could become merely an advisory body or that it will be partisanly packed. That is a complete misinterpretation of the provisions in the Bill in respect of the commission's membership and functions. Representation on the Speaker's Committee, which will oversee the work of the commission, has also been challenged by the suggestion that it will be dominated by senior government appointees. Those seem to me not very valid attempts to challenge the conduct of referendums as proposed in Part VII prior to the referendum on British entry to the European single currency. Of course, we must be concerned that there is independent oversight and monitoring of the conduct of all referendums, not just that one, and that both sides of the argument have a fair opportunity to put their case to the voters. I believe that the Bill adequately meets both of those requirements.

The commission's structure and functions in respect of referendums fully satisfy the views of the Nairne commission, of which I was a member, and provide the necessary guidance on organisational, administrative and procedural matters relating to the holding of a referendum. Like the noble Lord, Lord Mackay, I look forward to having discussions about the detailed funding of referendums in Committee and at future stages.

However, I make one point today on the wording of the question, which we discussed in the debate initiated by the noble Lord, Lord Hayhoe. It is essential that the question should be short, easily understood, objective, fair and designed for only two possible answers--"yes" and "no". It should not be multi-optional nor open to alternative meanings. I hope that the commission will advise the Government on that issue.

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I make one further point on the role of the commission. It is right that the registration of political parties now comes under its umbrella, even though the Bill was passed only two years ago, and that the process of registration is no longer voluntary. However, I wish that the Bill had gone further. I believe that registered parties should have to prove that they have a membership of a certain level and that they are properly constituted bodies.

The constitutional logic behind public disclosure laws is that political corruption thrives on secret financial gifts. In exercising their vote electors have a legitimate right to know who is financially underwriting the political parties they are being asked to support. The public scrutiny of large donations by permissible donors will give that right, eliminating, as it does, donations from secret sources, blind trusts, foreign donations and loans which suddenly become donations. It is right also that donors should have to be registered electors. I might go further and suggest that they should be resident in the UK.

Donations from institutions must be treated differently from those of large individual donors. Since 1913, trade union funding has been controlled by legislation, added to by further regulation in 1984 and 1993. In 1989, your Lordships' House interestingly passed an amendment to put donations by companies on much the same footing as donations from trade unions. The amendment was rejected in the other place. On this occasion, its Members have finally been persuaded of the unfairness of the current position. However, one aspect of this part of the Bill requires further examination. The subject may be covered by the Minister's reference to exhibitions at conferences. Currently, there is no provision for small-scale sponsorship. While retaining the principle, there could be a case for setting a de minimus limit which would be of benefit both to companies, as the CBI has suggested, and to political parties.

I turn to expenditure. I have a number of queries, although not, I hasten to say, concerning the £20 million maximum limit on national expenditure, which was another of my suggestions to the Neill committee. I wish to probe the requirement in the Bill that political parties nationally declare all expenditure regionally and locally not covered by the current statutory requirements in the RPA as part of the £20 million. It is difficult to understand how that provision will work in practice. Clarification is needed. For instance, what is the position of a national party which may unknowingly exclude from its returns an item of local expenditure which should have been included but could not be because the party knew nothing about it? We need to see how such a situation would be covered. Equally, from my experience of over 40 years as a party organiser, both voluntary and paid, and having spent time in police stations, I believe that Schedule 7, outlining the list of accountable expenses, is too detailed and will be rather difficult to enforce. I am uncertain also how that detailed list will allow the commission to prepare a code of practice as laid down in paragraph 6(1)(a) of the schedule. I hope that the

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Minister will agree to further discussions on both those points. They are important for both national and local treasurers.

My main concern, however, relates to there being no provision in the Bill to limit third party expenditure at local level. I was pleased to hear my noble friend say that an amendment is to be made to the Bill to cover that situation. I do not understand why the provision was dropped from the draft Bill, but I am pleased that it is coming back. Without such a provision, third parties would be free to spend as much as they liked in a constituency campaign for or against a candidate. Not only were vast amounts of money spent in the Ayr by-election, to which the noble Lord, Lord Mackay, referred, but it is reported also that the same source of funding is attempting to spend £1 million on a referendum on Section 28 in Scotland.

It is not the issue that is relevant, but the example illustrates that vast amounts can be spent to influence local opinion. If that money was spent during an election, such action would seriously erode the concept of equity between the parties and corrupt the election process. There is also the whole question of Precious Life in Scotland, now being funded by international donations from all over the world. We cannot say that it should not receive money from all over the world, but we must regulate what it can spend during an election period.

I have one point for clarification on the trade unions. It is not, however, the point made by the noble Lord, Lord Mackay, based on a rather selective reading of the Neill report. Clause 83(2)(c) cross-referenced with Clause 49(2)(b) implies that trade unions are unincorporated associations. My understanding is that under trade union legislation, they are classified as quasi-incorporated organisations. I do not know whether I am right, but if I am, the definition should be the same. Many points will be raised in Committee, not least the question of whether the formula in relation to overseas voters is right or whether we should be looking for differing views. As I said, I hope that we can go through the Bill on a consensual and friendly basis because it provides the foundations for an open and transparent system of party funding. It provides the foundations for the fairest and most equal elections and the best enforced election campaign regime. The Bill is long overdue and deserves support.

4.25 p.m.

Lord Howe of Aberavon: My Lords, I hope that I may be forgiven if, not for the first time this Session, I beg absence from the end of the debate, because I have a longstanding commitment to entertain the Minister for Justice of the People's Republic of China on his arrival in this country. I daresay that our discussion will not touch upon items of the kind before the House in this legislation.

I speak with great diffidence, particularly at this stage in the debate, speaking immediately before the noble Lord, Lord Neill, and immediately after the noble Baroness, Lady Gould, both of whom have

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expertise far beyond my wildest dreams. I cannot plead any such thing, nor can I plead any recent coalface experience, although I can offer some other insights.

My position corresponds in a strategic sense closely to that of my noble friend Lord Mackay of Ardbrecknish and the noble Lord, Lord McNally; a Scotsman and an Irishman followed by a Welshman, dissenting on the same point. My experience goes back a long way in the sense that as a Law Officer I had to deal with the enforcement of election law in the early 1970s, when we were still quite content to rely upon the 1883 legislation. We had to give consent to prosecutions. They were extremely rare events and I appreciate that the world has moved on since then. I want to speak much more about my experience at the sharp and modest ends of the coalface to which noble Lords have referred; at constituency level. I am concerned that in the strategic sense the scope, intrusiveness and detail of this legislation go beyond what is sensibly manageable.

Although half of my dozen election campaigns were undertaken in the lush comfort of Surrey, the other half-dozen were undertaken in more arduous settings: two in a marginal seat on Merseyside; two in my home seat in South Wales; and two in a different capacity in Poplar. It is with the concept of an accounting unit as set out in Clause 23 as applied to a minimum recordable donation of £200 that I am concerned, particularly with the detail of surveillance contained in the Bill.

It was difficult, even in those unregulated days, to find anyone able or willing to act as treasurer. How much more difficult will it now be when this legislation will be judged not simply by the particular provisions brought to bear on any action, but by the fact that it is contained in a Bill of 180 pages with 19 schedules, one of which is five pages long, listing 75 possible offences, 30 of which are punishable by up to one year in prison? It is that overwhelming, comprehensive set of provisions which will be the worry when the legislation comes to be applied. It will be seen as a serious legislative intrusion into the arteries, and indeed the capillary tubes, of democratic life, at a time when the lifeblood of democracy seems to be coursing ever more slowly and in ever shorter supply. I am deeply concerned about legislation, however well considered, on that scale, passed at such speed. The noble Baroness, Lady Gould, talked about the need to get the legislation under way quickly and I understand why that is part of the aspiration, but I am concerned that we place too much faith in the legislative process.

In my evidence to the first meeting of the Nolan committee, presided over by the noble Lord, Lord Nolan, I said:

    "My first"--

and most important--

    "point, please do not expect too much by way of salvation from detailed legalistic provision ... One can too easily be led to think that things have been rightly done by compliance with a whole series of rules rehearsed by rote, so I think it is very important not to go too far down that road".

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I make that point with due modesty because I am not without experience of the disillusionment that follows the enactment of comprehensive and swiftly considered legislation. I plead guilty to introducing prices and incomes legislation; the first Bill on consumer credit; one of the early Bills on the regulation of insurance companies. I also plead guilty to faltering attempts to amend company law which were subsequently taken up by the noble Lord, Lord Shore of Stepney, and, in the area of industrial relations, to a comprehensive attempt to resolve all our problems at speed, which, even after much consideration, was not wholly successful.

I do not mean to be frivolous by suggesting that in the end the tempo followed, over a series of Parliaments, by my noble friends Lord Prior and Lord Tebbit produced a more durable and a more effective solution and a solution with more consensus than the alternative. But, broadly speaking, consensus now reigns on that.

By all means let us proceed to establish the electoral commission, but I am worried about the possible consequences that may face such a body if it is so overloaded with a burden of obligations to be performed at high speed that they may be incapable of being fulfilled. Once again, we have the experience of similar situations in relation to the Passport Agency, asylum seekers or the Criminal Cases Review Body. In relation to each of those, quite suddenly huge waiting lists appeared and there were inadequate resources with which to deal with them.

I hesitate to quote again from a learned judge who was quoted only a week or two ago by the noble Lord, Lord Lester, but he deserves to be quoted. In 1944 Judge Learned Hand of the United States said in Central Park in New York:

    "I often wonder whether we do not rest our hopes too much upon constitutions, upon laws and upon courts".

He said that a society that needs a court to save it "no court can save".

It is not because, as a lawyer, I shrink from reliance on the law where it is appropriate, but I believe that in some important matters it is best to make progress by agreements outside the law, agreements of a self-policing kind. In the 1920s a Liberal Peer, Lord Moulton, said:

    "There are three great domains of human conduct. The first is where our actions are limited or forbidden by law. Then there is the domain of free personal choice. But between these two is a third domain, that in which there is neither law nor unfettered freedom. This is the domain of 'obedience to the unenforceable', where people do right although there is no one and nothing to make them do right but themselves".

I may be naive to quote that, but I believe that that thought is worth bearing in mind, as we develop regulation of a kind that is necessary in an extremely sensitive area.

I offer two reasons for being so naive. The first is that our past experience often leads us to conclude that even without detailed legislative interference the truth will out. As some lawyers say, "even in an affidavit, the truth will out". The fact is that the circumstances surrounding contributions to my own party by Mr Asil Nadir and those to the Labour Party by Mr Bernie

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Eccleston saw the light of day in advance of and without the need for legislation. The parties themselves then changed the rules so as to deal with the problem.

In a wider area, on the regulation of advertising by tobacco companies--the noble Lord, Lord Harris of High Cross, will be glad to hear--I found it difficult to explain this to his friend Mr Jacques Delors. We have been able, in this country, to regulate advertising of that kind without any legislation, but by a code drawn up between the parties that may or may not subsequently need legislation. Self-policing of the right kind can often be as effective because we are capable of developing, even in political parties, a sense of guilt.

That is what concerns me in this legislation. In truth the concern, the sour taste in our mouth, as the Minister said, does not arise because of our fear of corrupt wickedness on the part of the treasurer of the Birkenhead Conservative Association, or the Poplar Labour Party. Dismay and shock are not caused by donations of £200 from people at that level. I regret that the real concern is much more often at a higher level. Whether the concern is justified, the concern about the treasurer of our own party has caused concern among the former leaders of my party in both Houses. So it cannot be dismissed as mere triviality. It is related to these issues.

Similarly, there is the recent accession to membership of this House of a group of supporters of the Labour Party. No doubt they too have many achievements to their credit, but the one qualification that the public perceive of that self-serving mass baptism is the scale of the substantial donations made by many of them--although not all--to the Labour Party.

This huge legislative mountain--I wish my noble friend Lord Mackay of Ardbrecknish and his colleagues well as they plough their way through it in Committee--may well suffer from over-intrusiveness, over-prescription and over-detail, and, I add from bitter experience, from the inclusion of errors and mistakes, particularly if it is driven through the House at speed. To deal with the matter in that way adds little credit to our legislative process.

That is my main concern. What could be an alternative approach to some aspects of this? I mention two points. First, I am not sure that we are right, as the Bill provides, to concentrate so much on the regulatory process of expenditure as a whole. Are there not other ways of limiting the demand for political money as well as doing so in the aggregate sense? In this country, by prohibiting paid-for advertising and propaganda on broadcasts on television or radio, we have already achieved what our American friends have not. We do not have to face that huge level of expenditure, but the Americans do. Is it unthinkable that we should adopt a similar approach to the strident, sight-bite, over-simplification of posters and newspaper advertising? That is not much more sophisticated than some of the sound-bites that one hears on American broadcasting channels. Advertising of that kind on posters and on

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campaigns cost 50 per cent of the money spent by my party at the previous election and a little over 40 per cent of the money spent by the Labour Party.

My second proposal which does deserve support, sadly the one proposal put forward by the noble Lord, Lord Neill, and his colleagues that has so far been rejected, is for tax relief for political donations. At a time when the Chancellor is liberalising the provision of tax relief for charitable donations, which is to be respected, the concept of doing the same for £4 million in relation to political donations seems to me to be entirely attractive and cannot be dismissed on budgetary grounds.

Perhaps I am revealing a previously undisclosed secret, but one surprise that met me when making out my first Budget was that the size of the public sector borrowing requirement had to be measured to the nearest £0.25 billion. In that context I do not believe that £4 million, or even £5 million or £6 million, would be too much to begrudge.

Those are my two positive points: consider the prohibition of poster advertising and newspaper advertising; accept the recommendation of the Neill commission for tax-free charitable contributions; and reflect seriously on whether the other detailed and intrusive provisions to which I have referred will encourage or discourage participation in the political process at a time when we badly need it. Is it really necessary, even in today's sour atmosphere--as the Minister said--to proceed on the assumption that the mischief that this legislation is aimed at is to be found among the foot soldiers of the democratic process at constituency level? The commission, and I hope the House, if it gets that far, will consider carefully whether these ever-forward-rolling frontiers of legislation may not be restrained. We can learn more by proceeding step by step.

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