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Lord Molyneaux of Killead: I am grateful to the noble Lord for giving way. Does he accept that the situation is far more serious than just citizens of the Republic of Ireland subscribing to parties in Northern Ireland or in the United Kingdom? The largest contributor is bound to be Sinn Fein, which obtains its funds not from any part of the British Isles but from the United States of America, where £7 million or £8 million is raised by its sympathisers, all of whom are American citizens and will never be registered as United Kingdom electors.

Lord Mackay of Ardbrecknish: The noble Lord is absolutely right. We raised that point on the previous Committee day but received no satisfactory answer.

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But the position is even worse than that. An American citizen who is against terrorism and does not approve of some of behaviour in which Sinn Fein/IRA has indulged over the years and who comes to live and work in this country--my goodness, there are a quite a lot of them in London--will never be entitled to vote for any of our legitimate parties. Yet he will be able to give money to Sinn Fein/IRA if that is his wish. That underlines the hopelessness of the Government's position over Northern Ireland and it underlines the real problem with the whole concept of foreign donations.

The American living and working in London for a short time for one of the great international banks may become very interested in politics. He may think that Tony Blair is such a marvellous man that he wants to give money to the Labour Party. He will not be allowed to do so. But his Canadian chum working in the same bank will be able, as a Commonwealth citizen, to register here and will be able to give money. They may live just a few miles apart back in north America. It is a little illogical to make these distinctions and to try to defend them when we come to banning foreign donations. Frankly, as far as concerns intervening in British elections, my view is that the citizen of Canada and the citizen of the United States who are here for a short time are in exactly the same position. Either both should be able to give money or neither should be able to give money. But I do not suppose that we will make any progress there.

If Amendment No. 139 were to be agreed, I think that the situation we have discussed--a situation which has not been at all satisfactorily defended by the Government--about Sinn Fein/IRA, the United States and elsewhere, would not arise. The problem addressed by the Neill committee, to which I have already referred in other debates and to which I have given my sympathy and support, would be resolved. Citizens of the Republic of Ireland, as was stated in the Government of Ireland Act 1949, would not be considered to be foreigners. That would resolve one of the problems.

The amendment tabled by my noble friend Lord Norton of Louth, Amendment No. 135A, along with my Amendment No. 136, address a key issue where the Government have directly rejected the recommendations of the Neill committee. I know that the nameless and faceless spin doctors of the Labour Party in the House of Lords claimed on Tuesday that the Bill was in line with the Neill committee recommendations, but here that is demonstrably not the case. The committee recommended that an individual should be eligible to register to vote in order to donate; in other words, eligible to register, not actually register, but merely eligible to register. The Government have applied a far narrower definition. The Neill committee noted the distinction between its own position and that subsequently adopted by the Government when it stated in paragraph 521 of its report that,

"we think that a donation could be properly received from a person who was eligible to be put on the electoral register because such a person has, under existing legislation, the right to participate in the electoral process".

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The Government have departed from Neill and, indeed, have moved in another direction. I believe that the argument in favour of my amendment is that we would then be implementing exactly the suggestion made by the Neill committee.

The Bill as it stands makes it clear that an individual can make a political donation only if he or she is actually registered on the electoral register. The rolling register, which is to be introduced when the relevant provisions of the Representation of the People Act 2000 are brought into force, will provide some relief to those unable to donate because they are not registered. But delays will still occur between an individual discovering that he is not allowed to donate because he is not registered to vote and the subsequent registration coming into force.

The rolling register does not take into account people who choose not to register to vote in the first place. Some people choose not to register for very good reasons. The register is made available for public inspection in town halls. I shall refer again to examples that we discussed during our debates on the Representation of the People Act. Some people, such as police officers and others, choose not to register because they fear that their addresses will become known to criminals or to stalkers. As the Minister will know, the issue of people registering to vote is of considerable importance when it comes to personal safety. I suspect that even some Members of this House or the other place are in exactly the same position because of positions they have held in the past and the dangers they now face from terrorists and such like.

In another place, where an all-party consensus was reached that this matter should be addressed, the Minister, Mr Mike O'Brien, said that,

"there is a real issue here which deserves further study".--[Official Report, Commons, 12/1/00; col. 385.]

The situation may have deserved further study, but I am not aware that any subsequent action has been taken by the Government to change the position. Perhaps the Minister will enlighten me.

Under the provisions of the Bill, a British citizen, resident in the United Kingdom, who has chosen not to register to vote for quite understandable reasons of personal safety, will be barred from contributing to a political party or other political organisations or even to a referendums campaign and thus denied the chance to contribute to the democratic process. I believe that there is here a powerful argument in favour of my amendment, which would bring the Bill into line with the Neill committee. I cannot believe that the effect that I have described in relation to the Bill--where people will be deprived of the right to donate because they do not wish to be named in the public register for reasons of safety--is the intention of the Government.

Perhaps I may say that there may also be implications under the Human Rights Act relating to Articles 9, 10 and 11 of the convention, as well as Article 3 of the First Protocol. I hope that the Minister was advised on this before he signed the Section 19

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statement which certifies that the Bill is compliant with the Human Rights Act. I hope that he will be able to do that without seeking some help from the Liberal Democrat Benches, but I do not see the noble Lord, Lord Lester of Herne Hill, in his place, so perhaps that help will not be as forthcoming as usual.

Some of these points were raised in another place by my honourable friend Mr Robert Walter. He cited examples of students who fail to register or those who, for other reasons, are inadvertently missed off. On those occasions the arguments were not fully addressed by the Minister, Mr Tipping. I hope that the Minister will defend the reasons why the Government have declined to accept the recommendations of the Neill committee in this regard and I hope, too, that he will address the problem of how to accommodate those who, for reasons of security and safety--a point on which we all agreed during the passage of the Represention of the People Act--do not wish to register on the electoral register.

As I have said, many of these amendments are different from each other. I look forward to the Minister's detailed views, but I should warn him that if I do not receive some satisfactory answers, I may be tempted to test the opinion of the Committee.

6 p.m.

Lord Shore of Stepney: The noble Lord has covered an enormous range of extremely important subjects in his remarks. I feel, as I am sure do many other Members of the Committee today, that, in spite of the pressures of time we are currently experiencing, these matters are too important to be brought together under huge umbrella-like collections of amendments and then decided in a debate conducted over a few hours.

I shall not attempt to follow the noble Lord, Lord Mackay, by touching on such a wide range of issues. I shall simply concentrate on speaking to one of the amendments tabled by the noble Lord; namely, Amendment No. 137. It seeks to delete subparagraph (ii) of Clause 49(2)(b) which forms part of the list of permissible donors. It includes companies,

"incorporated within the European Union",

which is to be amended by my noble friend, rather dramatically, from the "European Union" to the "UK and other member states". I do not know what "other member states" could mean, unless the words "European Union" are added.

However, the very serious and earnest point that I wish to make, and which I ask my noble friend to take on board, is this. The words "coach and horses" are often employed to describe parts of Bills which appear to contradict their main purpose. If ever there was a "coach and horses", here it is.

I, too, was a member of the Neill committee and I largely concur with what was said about its approach by my committee colleague when he spoke from the Liberal Benches. We began with the aim--shared by the two major political parties as well as the nuanced difference of the Liberal Party--of trying to make British politics healthier in the future than they had

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been in the past. We aimed to do this by excluding foreign money; in other words, we deeply objected to the notion of British party opinion makers being to some extent "bought" by interests outside our own country. In the case of foreign governments, it is clearly a disgrace for anyone even to contemplate that as being acceptable.

In the case of foreign corporations, however, a whole flood of money could be used for the financing of British political parties. I hope that we have in place good internal defences against that, but those internal defences are crucially dependent upon our sense of ourselves as a country as well as our sense of honour about how we behave politically. In a Bill of this kind, it is not enough to assume that undesirable influences and foreign contributions would not have a bad effect on decision-making here in Britain. For that reason we went over the ground very carefully in the Neill committee--with, I may say, the encouragement of the Labour Party manifesto and with a declaration from the Conservative Party leadership.

We looked at cases for possible partial exemption--that is, those companies which were only branches in Britain of companies overseas, for which a case can, to some extent, be argued--and we came unanimously to the conclusion that we should oppose it. We opposed it.

Where I differ from my colleague on the Neill committee is that, unfortunately, the case he cited was not the only one where the Government, almost unbelievably, departed from not only the Neill recommendation but from their own commitment. For reasons which we shall have to hear explained--I do not believe that there is an explanation--we have exempted the companies of the countries of the European Union from the control that otherwise applies to foreign companies in the rest of the world.

This raises matters of very grave importance. Is the implication that we are no longer, as it were, a nation state? Are we hearing that the European Union, with whom we hope to have a good, productive, co-operative alliance and friendly relations, has been turned into a single unit of which we are only a part, and that we have no longer the right and the power even to decide the rules that apply in our own democracy?

I questioned my noble friend on this very point. His reply indicates why this provision goes wider than the Neill committee's recommendation. It states:

"As we indicated in our White Paper...to confine the ability to make donations to companies incorporated in this country"--

which I take for granted. It is perfectly all right for a British company incorporated in our own country, possibly subject to some rules and limitations, to make contributions to political parties; that is not seriously in dispute--

"would be an infringement of EU rules on freedom of establishment".

The letter then goes on to try to spell that out. It states:

"All EU nationals...have the right to establish themselves in the United Kingdom and to carry on business here in any appropriate legal form".

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Of course they have--but this has nothing to do with setting up businesses and operating without discrimination within the United Kingdom. The so-called limitations imposed on us by, I think it is, Clause 43, and others in the European treaties, is totally, bogusly misapplied to this regulation concerning the conduct of our own internal democracy and the moneys available to our political parties.

I should say to my noble friend that this is not at the fringes of the issue; it is absolutely basic. I cannot believe that the Government have got themselves into such a corner where they accept that they have no longer the right to determine the rules that govern our democracy. I cannot believe the answers they have given to me and the worries they have expressed: that it may infringe EU rules; that one or two ECJ judgments in areas very adjacent to this might be cited and quoted against us.

Even if EU rules and judgments were clearly applicable on the basis of precedent or the basis of treaty, I say defy them, and let us control our own affairs according to our own interests and our own standards.

6.15 p.m.

Lord Wedderburn of Charlton: It may be convenient to the Committee if I speak to Amendment No. 137B. I must start with an apology for the fact that, through accident, the amendment did not appear in the Marshalled List. But I gave my noble friend notice earlier in the week that it would be brought forward.

My reason for speaking to that amendment now is that it will lead me to disagree with both the noble Lord, Lord Mackay of Ardbrecknish, and, to some extent, with my noble friend Lord Shore--whose basic sentiments I share on this matter--when we come to look at what Clause 49 does.

The object of my amendment is to make, as far as possible, the position of incorporated bodies broadly the same as that of unincorporated bodies, especially in view of the resources available to large companies. This is not a technicality; it is a matter of great importance to our political life. With that I wholly agree.

The Government's position was set out in another place in Standing Committee G on 25th January by my noble friend Mr Tipping. He said:

"We asked Neill to stop foreign donations".

He then went on to say:

"We would like to restrict this Bill to British-based companies...We are advised that it is not possible to draw the Bill in such a way as to exclude companies that are incorporated in the EU and operate and register here. I wish it were possible".--[Official Report, Commons, Standing Committee G, 25/1/00; col. 109.]

He went on to say that his advice on European law was that it was not possible.

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Even after those debates, the Government stuck to their structure of what is now Clause 49. With the greatest respect to my noble friend and to the noble Lord, Lord, Mackay, it is no good trying to understand Clause 49 by picking out bits of it. Clause 49 has a great strength on this matter for our political processes. My amendment seeks to reinforce that.

Clause 49(2) tells us who can be permissible donors. It is true that subsection (2)(b) deals with "a company". If I read it fully, the Committee will see that there are three requirements--not merely one or two--before a company can get into this bracket. This clause is widely misunderstood and I should be grateful if the Minister will say whether he agrees with this interpretation of it.

The Bill states that a company can be a permissible donor if it is a company,

"(i) registered under the Companies Act 1985"--

or under the equivalent order in Northern Ireland--

"and"--

it states "and", not "or"--

"(ii) incorporated within"--

it used to be "the European Union". I congratulate the Government on dropping those words because they are meaningless. The Government now want to use the words "incorporated within the United Kingdom or another member state". The end of the subsection then states,

"which carries on business in the United Kingdom".

As the Bill stands, surely these three requirements are cumulative; they are not disjunctive in any way at all. The word is "and" not "or" between paragraphs (i) and (ii), and the third requirement clearly applies to all such companies. The reason the Government's Amendment No. 137A is superior is that it will make the second requirement read: "incorporated within the United Kingdom"--the company already has that from registering under the Companies Act--"or another member state". It is a matter of company law which is partly harmonised, but not entirely so.

I agree with those who say that the technicalities in the European harmonisation of company law are supposed to produce a level playing field in company and financial markets for blocks of capital. They were never devised to control the central features of political life in each and every member state. They should not be permitted to creep into our political system unless what they are doing is absolutely clear. The Government's three-part structure in Clause 49 follows the advice that they were given according to debates in another place.

So it is not enough for a company registered in a member state in Europe merely to come forward and state that it is registered there and can, therefore, be a permissible donor. The question will arise: have you registered also under the Companies Act 1985?

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That raises a number of important issues. Perhaps I may give one example in order to make the point stick. Having registered under the Companies Act 1985, the company will come under the provisions relating to "shadow directors". Shadow directors are persons,

"in accordance with whose instructions directors of the companies [named directors] are accustomed to Act",

(other than acting only in a professional capacity). A company incorporated in, let us say, Italy would be required, on registering in Britain, as is required by Clause 49, to disclose in the relevant documents and records the shadow directors--and they would have to do this much more directly and strictly than under Italian company law--if the directors were under the instructions of some eminent person in Italian politics or the media such as Mr Berlusconi, or even Professor Prodi. That would have to be disclosed under the provisions of the 1985 Act. Similarly, hidden controllers of the company would have to be revealed in the company's register and returns, whether they controlled the company from Bologna, Borneo or Belize.

It is at this point that my amendment points to the inequalities that will remain, if it is not accepted, between incorporated and unincorporated bodies, even after the acceptance of government amendments such as Amendment No. 137A.

Clause 49(2)(f) deals with unincorporated associations. It requires that, in order to be a permissible donor, an unincorporated association must carry on a business,

"wholly or mainly in the United Kingdom",

and have a "main office" there. Those are two requirements of a quite strict character. Those conditions afford some assurance that the unincorporated body at least has some direct concern for interests within our jurisdiction and, therefore, the interests of the country as a whole.

But let us contrast the incorporated company and the third requirement in Clause 49. After it has been incorporated in another member state, and has gone through the formalities of registering as a company under the Companies Act 1985, it can then qualify merely by carrying on business in the United Kingdom. There is no assurance in that formula that its British "business" is more than vestigial or wholly ancillary to its main business or activities, still less to any business in a group of companies of which it may form part. To be a permissible donor, it need do no more--even though it may run a massive business in services or manufacturing in some other member state--than set up a sweet shop in Brighton; then it will be considered as carrying on a business in the United Kingdom. That is not satisfactory.

There are internal and external reasons for that provision. I shall touch on both before concluding my remarks. The first reason is that it would leave the Government's amendments in the Bill in an absurd state. Unincorporated associations looking at the provisions of the Bill when it becomes an Act will say, "We have to have a business wholly or mainly in the United Kingdom, and our main office must be there".

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I say in parenthesis that I have not laid down a requirement for the company to have a main office or site in the United Kingdom. However, I ask the Minister to consider the question: is it because of the first company law harmonisation directive that they seem to think that that demand cannot be made? I am not sure that that is correct. There are arguments both ways. I have not included that point in the amendment, but the question of the company's main office or its main site might perhaps be raised in a correct discussion of this matter on what I submit is the correct interpretation of Clause 49.

Returning to the argument, the unincorporated association would say, "We do not want to have 'wholly or mainly' our business in Britain and our main site within the United Kingdom. Let us incorporate"--and it is often in many member states a pure formality that a business can be incorporated there, as it is here--"let's satisfy the British Act by also incorporating under the 1985 Act; we shall be all right if we just run some kind of business in Britain". My amendment does not discriminate between British and European companies; and I see no objection, even in the stringent advice that the Government were given on the matter, in any European base for discussion of company law to placing such a requirement on a business which is wholly or mainly carried on in Britain--especially, to return to our own affairs, in the light of the conclusions of the noble Lord, Lord Neill. It promotes government policy in so far as they think it is possible, but it goes a little further, without in any way infringing European provisions in the direction suggested by the Neill committee of excluding foreign donations. If a company is registered in France or Italy, and then registers in this country and has to comply with the disclosure provisions, and has a business which is wholly or mainly carried on in this country, I can see the argument for allowing it to make some kind of donation. I do not particularly like the idea, but I can see the argument.

If my noble friends in government wish to go further than my suggestion, they should examine the rest of Clause 49. I mention one of only two points on trade unions and on limited partnerships. They have tabled an amendment on limited partnerships which is limited to partnerships under the Limited Liability Partnerships Act 2000. If they are following the advice that they have been given, they must be careful about that, because limited partnerships have been known to several systems of commercial law on the Continent for many years, if not, in one case, for centuries.

On the question of trade unions, Clause 49(2)(d) allows,

"a trade union entered in the list kept under the Trade Union and Labour Relations (Consolidation) Act 1992",

to be a donor. But it goes no further. It does not allow trade unions within the Community outside Britain to donate as permissible donors. I accept that, and I submit that the line is drawn correctly, with trade unions being under a much stricter provision than companies, as is so often the case in our statute law. In this case, I would accept and promote that distinction. I do not see why an Italian trade union--much as I like

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most of the people in those unions-- should be allowed to put money into our political processes. Similarly, I do not really see why companies in Europe need to be in that position. However, as things stand, the Government have been advised that, unless they go as far as they have gone in Clause 49, the matter will be upset in the Luxembourg court.

The position of trade unions at least strengthens the case--my basic case--for not treating companies in a different manner as far as is possible. It is matter of requiring that the company registered in Europe and here does not merely go through steps that are pure formalities; it must be an entity that carries on, mainly or wholly, its business in this jurisdiction. Only then should it be allowed to give donations--possibly colossal donations--which might affect our political processes. I hope that my noble friend the Minister will accept my Amendment No. 137B. However, if he cannot, I hope that he will at least agree that the matter is worth discussing further.

6.30 p.m.

Baroness Fookes: I have two small queries to put to the Minister who will respond to this debate. First, as regards the phrase,

"an individual registered in an electoral register",

I presume that we are not unique in this country in having electoral registers. How can we be sure that this is the British one? Could not a citizen of another country, who is registered on that electoral register, presume to make a donation?

My second query relates to Amendment No. 137A tabled in the name of the noble Lord, Lord Bassam, which is an amendment as regards the company that is able to donate. Under the amendment, the paragraph would refer to a company,

"incorporated within the United Kingdom or another member state".

Can the Minister tell the Committee what is meant by "another member state". Clause 150, which gives interpretations of meaning, does not contain any reference to a member state; indeed, with the omission of the reference to the "European Union", it could be a member state of anything.

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