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Lord Shore of Stepney: How can my noble friend explain and justify that this is, as it were, a discrimination or a breach of Articles 43, 46, 48, or whatever they are, of the treaty when those concern a freedom of establishment and the right of companies outside the UK to conduct their business in the same way as ours? This is nothing to do with that and they know it. I am sure that my noble friend understands this point. All I want from him is not just acquiescence but some resolve to do something about it with his right honourable friends in the Cabinet.

6.45 p.m.

Lord Bassam of Brighton: I greatly respect the noble Lord's trenchant views on this matter. However, if we are in the European Union, we have to comply with European Union law. It is not enough simply to say that we should defy it. That does not work; we must play by the rules.

Amendment No. 137B in the name of the noble Lord, Lord Wedderburn, seeks to narrow the circumstances in which a company would qualify as a permissible donor. The noble Lord made an interesting and compelling case in one of the most interesting speeches in the debate; namely, that in order to qualify as such a donor a company would have to carry on its business wholly or mainly in the United Kingdom. The amendment does not attempt to define the criteria against which the "wholly or mainly" test is to be judged. Is the test to be based on the percentage of a company's turnover in the United Kingdom; the number of staff it employs in this country; or by some other criteria? Whatever the criteria may be, it is not a test that I can recommend to the Committee.

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Lord Wedderburn of Charlton: I am most grateful to my noble friend for giving way. Does he therefore still stand by the test applied to unincorporated associations in paragraph (f) of Clause 49(2), which is that business is carried on,

"wholly or mainly in the United Kingdom"?

Lord Bassam of Brighton: I believe that we do. As I say, whatever the criteria may be, it is not a test that I can recommend to the Committee. In the global economy in which we live it is neither here nor there whether a company conducts more than half or less than half of its business in this country. If we adopted the amendment, many multinational British companies would no longer qualify as permissible donors. I do not have the relevant figures, but I suspect that a company such as British Petroleum--which is clearly identified as a British company, having the word "British" in its title--does not conduct its business wholly or even mainly in the United Kingdom. It cannot be right to prevent such leading blue chip companies donating to a political party in this country. It is sufficient to require--

Lord Goodhart: I am grateful to the Minister for giving way. Does he accept that multinationals would almost certainly--whatever their overall field of operation--operate in the United Kingdom, at least in part, through subsidiaries whose business was conducted wholly or mainly in the United Kingdom and which would therefore be permissible donors?

Lord Bassam of Brighton: I accept that that appears to be the case.

Lord Wedderburn of Charlton: I am sorry to interrupt my noble friend again and I am most grateful to him for giving way so often. Would it be more acceptable if the "wholly or mainly" business test were applied to those companies which fell within the provisions of paragraph (b)(ii) of Clause 49(2), rather than merely across the board? Exactly what are the sources of European law which are cited in the advice given to the Government? If my noble friend cannot answer that point immediately, I hope that he will write to me or place the information in the Library.

Lord Bassam of Brighton: I am grateful for the noble Lord's comments. With his background and understanding of these matters he has much greater experience of company law than I. I am happy to write to the noble Lord on the matter stating the position with regard to the European Union.

I turn to government Amendment No. 137A which simply replaces the words "European Union" with the words

"United Kingdom or another member State".

The noble Lord, Lord Shore, referred to that point. This is simply a drafting point--a company will only be registered in a particular member state, not the European Union as a whole. Amendment No. 139 returns--

Lord Molyneaux of Killead: Does the Minister intend to reply to the question posed by the noble

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Baroness, Lady Fookes: member state of what? I am not being facetious. I hope that I do not weaken the strong case made by my noble friend Lord Shore. In Clause 49 there is no mention of the European Union. Does membership refer to NATO, the Commonwealth or the Council of Europe?

Lord Bassam of Brighton: The noble Lord anticipates the fact that I shall attempt to do justice to the noble Baroness's questions by responding to them.

Amendment No. 139 returns us to territory which we have already addressed at some length. However, as the noble Lord well knows, the Neill committee made it clear in its report that the limited extension to the definition of a permissible donor as set out in its Recommendation 29 was to apply only in relation to donations to political parties in Northern Ireland. The effect of this amendment is that any registered party could accept a donation from a citizen of the Republic of Ireland. This is clearly contrary to the general scheme in Part IV which is designed to implement our manifesto commitment to ban the foreign funding of political parties. Even if the amendment applied only to Northern Ireland parties we have reluctantly concluded that an extension to the definition of a permissible donor along these lines is impractical.

The Neill committee itself recognised that under its formula there would exist the possibility of overseas donations, for example from the United States, reaching the Republic of Ireland, where there is no ban on foreign funding, and then being re-routed to the north by an individual or via one of the parties' offices in Dublin. The committee fully acknowledged that it had not been able to devise anything that would prevent this other than statutory provisions which would arguably be incompatible with the letter and spirit of the Good Friday agreement.

In these circumstances extending the definition of a permissible source in the manner proposed by the Neill committee would in practice leave a Northern Ireland party free to accept donations from any source. In addition, if Northern Ireland parties are exempted from the requirement to disclose donations there will be no way of checking where they have come from. It seems preferable simply to acknowledge these facts and exempt, regrettably, Northern Ireland parties from the controls on foreign donations using the order-making power in Clause 65.

The purpose of Amendment No. 138 is to prevent one registered party from making donations to another registered party. The Bill adopts the concept of a "permissible donor" as a means of giving effect to the ban on foreign donations. I do not see that regarding a registered party as an impermissible source will further that objective. Given the application of the controls set out in this part of the Bill, registered political parties should in future be "clean" as regards foreign money. The exception is the possibility of a Northern Ireland party which has received foreign funding then making a donation to a party based elsewhere in the United Kingdom. This possibility will be addressed by government Amendment No. 180.

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There is otherwise no particular reason why one registered party should otherwise be precluded from making a donation to another. It is possible that where particular parties share the same objectives on an issue, one of those parties may see fit to provide some financial support to the other. That is a matter for the parties concerned and their members.

Lord Mackay of Ardbrecknish: The Minister opens up a Pandora's box. He may recall that when we debated the Scotland Bill we discussed whether a party could encourage the setting up of satellite parties so that it could defeat some of the objectives of the list system. The Labour Party might separate itself from the Co-operative Party. The Labour Party would put up candidates on the first-past-the-post but not-in-the-list system. The Co-operative Party would put up candidates in the list system and between the two they would gain many more seats. I shall not debate that again. Noble Lords who heard the discussions on the issue will recall, I am sure with delight, the long discussions we had. I am happy to say that, perhaps due to those long discussions, no one contemplated doing that--despite advice from one academic that it should be considered.

The point is this. The same little trick could be done under the provisions of the Bill. A party which finds itself with pots of money but up against the limit could decide to create another political party and to give it some money in order to campaign. In that way it would have two bites at the cherry. I do not understand why the Government have made an exception for political parties to give donations to each other. I should have thought that that defeats the object of the exercise. A donor might be irritated if his money went to party A and was then slid over to party B. If we are trying to prevent underhand arrangements I suggest that the Minister looks carefully at my amendment.

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