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Lord Molyneaux of Killead: If the Committee will bear with me, I want to make a comment about the troubles in general. In the interval since the Committee last approached this matter on 12th October, intelligence sources have confirmed recent reports that a notorious terrorist supporter and American fund-raiser by the name of Martin Galvin, who is well known internationally, having originally represented Sinn Fein/IRA, has now announced rather dramatically that he is diverting his support and the large sums of money he has raised in America to an amalgam of Real IRA and Continuity IRA, both of which have pledged themselves to destroy the Belfast agreement.

That ungodly coalition is already preparing to contest the elections next year, thereby placing a very large question mark over Clause 65. In the light of those worrying developments, might it not be prudent to reconsider whether Clause 65 should be set aside, given that, in view of the information that I have disclosed, it is now at worst obsolete and at best a threat to democracy? Surely it would be far better to heed the pleas made from various parts of your Lordships' House to treat the United Kingdom as the one constitutional unit that we all know it to be.

Throughout the United Kingdom there is deep concern over this clause, which exempts Northern Ireland political parties from provisions which will apply in Great Britain to restrict overseas donations. The effect of the Bill's exemptions for Northern Ireland parties will be to enable Sinn Fein and the new amalgam to which I have drawn the Committee's attention to gain access to funds raised in America.

Lord Bassam of Brighton: As ever, I am grateful to the noble Lord for his contribution to these sensitive debates. I certainly understand the view that he has expressed. However, it is not a view which I feel able to accept. I believe that it is important that we proceed as we have determined to do. I believe that to be the right course for all the reasons that we have rehearsed

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briefly today and during our earlier discussions and deliberations on the exemption that Northern Ireland parties will enjoy, if "enjoy" is the right word.

We need to make progress towards normalisation. We need to have secure political institutions in Northern Ireland. We must all undertake to stand strong against the sort of intimidation which regrettably takes place within part of that political process. We need to monitor carefully the situation which Mr Galvin seeks to exploit and try to use, or perhaps more correctly abuse, politically.

I am content with what we have in our amendments to Clause 65 and I urge the Committee to support the Government in relation to that.

Lord Rogan: In the light of that information, I still have grave reservations about Clause 65.

Clause 65, as amended, agreed to.

Clause 66 agreed to.

3.45 p.m.

Lord Cope of Berkeley moved Amendment No. 182:

    After Clause 66, insert the following new clause--


. After section 379 of the Income and Corporation Taxes Act 1988 (interpretation of sections 369 to 378) there shall be inserted--
"Tax relief on political donations.
379A.--(1) Tax relief shall be available to an individual (the donor) in accordance with this section on qualifying political donations made by him of up to £500 in any year of assessment.
(2) A donation is a qualifying political donation for the purposes of this section if it is made to an eligible political party and--
(a) it takes the form of the payment of a sum of money,
(b) it is not subject to a condition as to repayment,
(c) it is not conditional on or associated with, or part of an arrangement involving, the acquisition of property by the political party, otherwise than by way of gift, from the donor or a person connected with him, and
(d) the donor is resident in the United Kingdom at the time the donation is made.
(3) For the purposes of this section a political party is an eligible political party if, at the last general election preceding the donation in question--
(a) two members of that party were elected to the House of Commons, or
(b) one member of that party was elected to the House of Commons and not less than 150,000 votes were given to candidates who were members of that party.
(4) If an individual makes a qualifying donation he shall be entitled, on making the payment, to deduct and retain out of it a sum equal to basic rate tax thereon.
(5) Where a sum is deducted under subsection (4) above the sum deducted shall be treated as income tax paid by the person to whom the payment is made.
(6) Any person by whom a qualifying donation is received shall be entitled to recover from the Board, in accordance with regulations, an amount which by virtue of subsection (5) above is treated as income tax paid by him; and any amount so recovered shall be treated for the purposes of the Tax Acts in like manner as the qualifying political donation to which it relates.

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(7) The following provisions of the Management Act, namely--
(a) section 29(1)(c) (excessive relief) as it has effect apart from section 29(2) to (10) of that Act,
(b) section 30 (tax repaid in error, etc) apart from subsection (1B),
(c) section 86 (interest), and
(d) section 95 (incorrect return or accounts),
shall apply in relation to an amount which is paid to any person by the Board as an amount recoverable in accordance with regulations made by virtue of subsection (6) above but to which that person is not entitled as if it were income tax which ought not to have been repaid and, where that amount was claimed by that person, as if it had been repaid as respects a chargeable period as a relief which was not due.
(8) In the application of section 86 of the Management Act by virtue of section (7) above in relation to sums due and payable by virtue of an assessment made for the whole or part of a year of assessment ("the relevant year of assessment") under section 29(1)(c) or 30 of that Act, as applied by that subsection, the relevant date--
(a) is 1 January in the relevant year of assessment in a case where the person falling within subsection (5) above has made a relevant interim claim; and
(b) in any other case is the later of the following dates, that is to say--
(i) 1 January in the relevant year of assessment; or
(ii) the date of the making of the payment by the Board which gives rise to the assessment.
(9) The Board may by regulations make provision--
(a) for the purposes of any provision of this section which relates to any matter or thing to be specified by or done in accordance with regulations;
(b) with respect to the furnishing of information by donors or recipients, including, in the case of recipients, the inspection of books, documents and other records on behalf of the Board; and
(c) generally for giving effect to this section.
(10) In this section--
"financial year" in relation to any person, means a financial year of that person for the purposes of the relevant regulations;
"interim claim" means an interim claim within the meaning of the relevant regulations;
"relevant interim claim" means, in relation to an assessment made for a period coterminous with, or falling wholly within, a person's financial year, an interim claim made for a period falling wholly or partly within that financial year; and
"the relevant regulations" means regulations made under subsection (9) above.
(11) Section 839 of this Act shall apply for the purposes of this section to determine whether one person is connected with another."").

The noble Lord said: This amendment seeks to insert a new clause which attempts to implement recommendations 38 and 39 of the Neill committee that small donations to political parties represented in the House of Commons should be eligible for tax relief. That is not a wholly novel principle as donations to political parties are already exempt from inheritance tax. Indeed, the wording of the new clause is based on the existing wording of the tax relief provisions and also on the recommendations of the Neill committee.

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The noble Lord, Lord Beaumont of Whitley, who energetically represents the Green Party in this House does not appear to be in his place just at the moment. The wording provides that that benefit would be available only to political parties represented in the House of Commons. The reason for choosing this wording is, as I say, that it follows the explicit recommendation of the Neill committee and we wish to stick to that recommendation.

That recommendation was not an isolated one-off in the Neill committee, a stand-alone recommendation. It was an integral part of what it was trying to achieve. The committee recognised that the base of political funding in this country needed to be broadened. But it also rejected, as do the Opposition, state funding of political campaigning.

At this juncture I should point out that the Neill committee did not regard tax relief along the lines set out in this proposed new clause as state funding any more than I do. No one argues that charities, which benefit from tax relief on the donations that they receive, are funded by the state. The right honourable gentleman the Chancellor of the Exchequer has extended considerably that charitable relief. But for a long time the principle has been that in tax law certain charitable donations, as defined and with the conditions expressed, were regarded as the income of the charity rather than the income of the donor; in effect, that the donor was diverting part of his income to the charity concerned.

In paragraph 8.7 of the Neill committee's report it is argued that tax relief is not only not state funding but that it would be necessary, given the reduction in large donations which the committee envisaged, to allow tax relief on small donations in order to prevent parties coming cap-in-hand to ask for direct state funding.

This amendment was tabled by my colleagues in another place to the Finance Bill in 1999 and also to this Bill when it was before another place.

It may be thought inappropriate to have a tax-relieving provision in a Bill of this character. Indeed, Her Majesty's Treasury would have judged it as such when I was a Treasury Minister because, generally speaking, tax relief has been restricted to Finance Bills. But that is not the view of the Treasury now. Indeed, in Committee on the Finance Bill in another place in June 1999, the Economic Secretary to the Treasury, in the course of rejecting the tax relief proposals along these lines put forward by my honourable friend,s said that this Bill--which was then a gleam in the eye, although the Bill was known to be on its way--would be the Bill in which such a measure should be included. That has the additional advantage of giving your Lordships the opportunity to consider that particular recommendation of the Neill committee.

In another place, this proposal was supported by my right honourable friend John MacGregor, who was a Member of the Neill committee. I hesitate to express the views of that committee in the presence of the noble Lords, Lord Shore and Lord Goodhart, who were both members of that committee and who will obviously speak on this issue if they wish and give more detail. But

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my right honourable friend made the point that, because of the new restrictions on donations which are involved in other recommendations of the committee and in other clauses of the Bill, and the reporting and disclosure requirements, large donations to political parties would be less forthcoming.

As I understand it, the committee wished to deal with that. It saw tax relief on smaller donations as,

    "a means of ensuring that sufficient funds to serve our democratic purposes were attracted to political parties".

That is why I say that it is an integral party of the other recommendations of the Neill committee and not a stand-alone provision.

The committee recognised that the new restrictions would reduce the political parties' income, perhaps significantly. It was intended that this measure would, in part, address the imbalance which would otherwise be created.

I should say that in another place this proposal was supported also by the Liberal Democrat spokesman and by the independent Member of another place, Mr Martin Bell, who said that it would encourage the little people to get involved in politics which would help our democracy and make it much healthier. The particular circumstances of his membership of another place makes that view of interest.

Of course, that would be of benefit to all the main parties, including the Labour Party. This measure would benefit that party as well as other parties because it would enable it to broaden the base of its finances and to move away from significant large donations to many smaller ones. That is what the Neill committee intended and is the spirit of other parts of the Bill.

There was also the question of cost, and no doubt the Treasury had a view on that aspect too. The estimate was that it could be expected to cost the Exchequer in terms of lost revenue £4 million or £5 million per year. I am sure that everyone would agree that that is not a particularly huge sum of money in the scale of things in the operation of Her Majesty's Treasury. Hundreds of millions have been spent on the Dome and tens of millions have been spent on the national changeover plan for the euro. That £4 million or £5 million, small as it is, would be well spent on the preservation of our democracy--and many of us believe that our political parties are an important matter in relation to that.

I should add that the noble Lord, Lord Neill of Bladen, wrote to the Home Secretary in October of last year to respond to the Government's White Paper. He said:

    "During the Committee's investigation of the funding of political parties we found widespread support for the view that political parties should be funded by a large number of small donations rather than by a small number of large donations. My colleagues and I remain of this view ... We are disappointed that you have decided against our proposals in relation to a tax relief system".

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It is no good the Labour Party or its spin doctors claiming that the Bill implements the Neill committee's recommendations because in this important respect it does not. As I have made clear, this is one of the key recommendations in the report. It is right in principle and in practice and it should be supported. I beg to move.

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