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Lord Shore of Stepney: I support the amendment without any inhibition whatever. The nominees of the three political parties together with the rest of the Neill committee agreed with this point. It is important that the financing of political parties is put on a correct basis. Political parties are at the heart of British democracy and they are not to be run on the cheap. To conduct the research and organisational presence that is required throughout the length and breadth of the land costs money so that our democracy can be operated effectively.

From where does such money come? Some money comes from the state in various forms. What used to be called "Short money" is now I believe in this "other place", as we used to refer to it, called after the then Leader of the Opposition in this House. A certain amount of money is made available from the state to help in purely parliamentary activities. However, we do not want the state to finance political parties too much because that could lead to worries about independence and the independence of political parties is crucially important.

So we must look to external sources. Traditionally, for the Conservative Party external sources have included corporations. Businesses have traditionally looked upon the Conservative Party as their party. The trade unions and the Co-operative movement have heavily financed the Labour Party. Things are changing. In the Labour Party we now draw much more money from corporations than in the past. I shall not go into the reasons for that; I shall put it on one side as it is not germane to this debate. I believe that most people would agree that, on the whole, although it is not desirable to receive funds from large corporations and from trade unions, we do not want to be in a position where they dominate our political parties financially.

What is left? If we do not want our political parties to be run by large corporations and we do not want them run by trade unions and other collective bodies, we are left with one further possibility: donations from individuals. Increasingly, the tendency has been for very rich men and women to make donations. Now that all the parties are agreed that in future there has to be a declaration of any amount donated over £5,000, many people will be sensitive about making such donations. We now live in a world where people are cynical about other people's motives and inevitably a large donation, publicly acknowledged, will attract rigorous and detailed press and media scrutiny, if not hostility. Therefore, in future, the tendency will be for large donations to be less forthcoming.

So we are left with the donations of ordinary members. I believe that there are 300,000 individual members in the Labour Party, but I do not know the

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present score for the Conservative Party. If both parties rely more heavily on donations from individuals, that would be to the advantage of all. More people would become directly involved in politics and that will be important in relation to the internal democracy of political parties. It will not be good for party headquarters to be dependent upon a dozen or so rich donors. It would be much better if the funds were supplied by tens of thousands of people making an annual contribution. I am sure that the same argument applies to the Conservative Party.

On the Neill committee's recommendation, the arguments in relation to democracy are overwhelming. The proposal has been carefully thought out. We have the agreement of the Inland Revenue that such a scheme would attract tax relief and the major administrative work of collecting tax rebates from the Treasury would be carried out by the political parties. Not only has the practical scheme been worked out, but I believe that all possible criticism has been met by saying that the ceiling would be £500 a year. It is not a matter of rich people financing political parties through tax relief. Hopefully, ordinary citizens will be able to afford £100 or £200 a year, and some even £500 a year, without corrupting the system in any way. It is a workable, modest scheme. The noble Lord, Lord Cope, mentioned £4 million to £5 million--that depends on the assumptions made about the number who will contribute--and I have never heard anyone mention a sum beyond £8 million.

That being so, why on earth are the Treasury and a Labour Government, which on the whole give a special emphasis to contributions and democracy, saying no? I followed the debate when it first took place in the House of Commons and the reason given is difficult to take seriously. Perhaps it was possible to take it seriously a year ago, when it was forthcoming from the Treasury Front Bench Minister, but it clearly is not possible now. The reason given was that the country, in a period of great public expenditure stringency, would not like the thought of political parties benefiting even to the extent of £4 million to £5 million--or at the outside £8 million--a year. People would feel that that money should go towards a couple of schools here and there. Maybe, in those days of great public expenditure stringency, that was so. I simply remind my Front Bench that we are committed to spending an additional £50 billion in the next three years. The sheer flimsiness of that argument has to be judged against that background.

Once again my noble friend has the unhappy task of trying to justify the unjustifiable. My advice to him is do not try; take up the matter with your colleagues. We know that there is now a different political and expenditure environment and that they will not seriously object.

4 p.m.

Lord Goodhart: I too speak in support of the amendment. I do so principally wearing my Neill committee hat along with the noble Lord, Lord Shore. My party gives more qualified support to this amendment than I do. My party takes the view that tax

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relief is second best to state funding. My purpose is not to speak against the state funding of political parties, but to speak in favour of tax relief on small and medium-sized donations.

The Government have accepted virtually all of the 100 proposals made by the Neill committee. In a few cases they have modified them somewhat, but I believe that this is the only one--certainly the only important one--that the Government have rejected outright. The main purpose of tax relief is to give an incentive to parties to seek to obtain a larger proportion of their income from smaller donations.

Tax relief on donations to political parties is given in many other countries. The Neill committee visited several countries and we were particularly struck by a highly successful scheme for the funding of political parties in Canada. That funding included what might be called "direct" public funding, in particular matching contributions for campaign expenses, and also tax relief. The system for tax relief appeared to be both popular and effective.

In Canada there is tax relief on gifts at the federal level up to 1,150 dollars, which is somewhat more than the limit of £500 proposed by the Neill committee. On a gift of 1,150 dollars, tax relief is available in an amount of 500 dollars--again, considerably more generous than we are proposing for this country, though the system is different in some technical respects from that proposed.

I should like to quote briefly from paragraph 8.6 of our report, which is in very much the same terms as the letter read by the noble Lord, Lord Cope. It reads,

    "We have found very widespread support for the view that it is more democratic, and therefore in the public interest, that political parties should be funded by a large number of small donations rather than by a small number of large donations. A system of tax relief which increases the value to political parties of smaller donations is likely to encourage the parties to make greater efforts to obtain them".

We proposed to do that by allowing tax relief on the first £500 of a donation by individual taxpayers on a basis similar to that provided for charities by Gift Aid. It would mean that on each donation of £100 by a member, the party to which the donation was given would receive something in the order of £28 as the refund of tax from the Revenue. There are certain differences from the Gift Aid scheme. Unlike donations to charity, there would be a ceiling--as I said, £500--on the amount of donation qualifying for tax relief and, further, the donation could not be taken into account when calculating the donor's liability to higher rate tax, something which can be done in the case of donations to charity.

So the whole benefit of the tax relief, as we proposed it, would have gone to the party and none of it to the donor. There would be no great administrative burden on the Inland Revenue. If it can deal with Gift Aid claims from thousands of charities, it can plainly deal with claims for refunds from a small number of political parties.

Of course, there are arguments against tax relief. One is that, even with a ceiling, it would favour parties whose members have higher incomes, notably of

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course the Conservatives. There is some truth in that; £500 is a substantial sum and not many donors would be able to pay so much. Even so, there would be a considerable benefit both for my party and, to a greater extent, the Labour Party. There may have been some misunderstanding as to how substantial that would be. For instance, in evidence before us the finance director of the Labour Party, Mr David Pitt-Watson, said at paragraph 8.12 of our report,

    "Tax relief is of value only to people who pay tax and where the donations given are of significant size. It would be of little value to the Labour Party, which has 400,000 members who are paying an average £20 each to the Labour Party's coffers. It would be of enormous value to our opponents".

The fact is that what Mr Pitt-Watson was speaking of was a total of £8 million and the value of tax relief, under our proposals, to the Labour Party on that would be of the order of £2 million--a substantial sum.

The second argument against the scheme was that it would discriminate against donors who pay no income tax because they would not be able to confer any additional benefit on the party to whom they gave the donation. But, again, the fact is that, given the low level at which the basic rate of tax becomes payable in this country, few donors, except perhaps students, would be people who are not themselves taxpayers, at least at the basic rate.

The third and main argument on which the Government relied in rejecting our proposal was what I might call the schools and hospitals argument, which was mentioned by the noble Lord, Lord Shore. It was said that there would be less money available for public expenditure. When one asks how much less, as we have already been told, the Government estimated the cost of the proposal at £4 million to £5 million a year.

The Government's spending is rapidly approaching £400 billion a year. So £4 million amounts to around 0.001 per cent of government spending. That is not £1 in every £1,000; it is not even £1 in every £10,000; it is £1 in every £100,000 of government spending. It is the equivalent of someone earning £100,000 spending £1. That is far too small an amount for the schools and hospitals argument to be remotely credible.

I should emphasise the fact that tax relief is already given in the United Kingdom on bequests to political parties which are exempt from inheritance tax. That stems from a provision in the Finance Act 1975 which introduced what was then called capital transfer tax and is now called inheritance tax, and of course it was introduced by a Labour government. Given that inheritance tax is not payable on estates of less than £250,000, it is clear that that relief is directed at wealthy donors.

Let me conclude by saying this. I started by talking of the need to give incentives to parties to obtain more funding from small donations. But there is more to it than that. We give tax relief on charitable gifts in this country because we believe that support of charity is part of the role of a good citizen. Tax relief sends a message to people that giving to charity is a good thing. We need to send the same message about giving

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to political parties. We live in a time of cynicism about politics and politicians. Party membership is falling across the board in all parties. But parties are an essential element of the democratic process. They need members and they need money. Of course it is not a citizen's duty to belong to a political party or to contribute to it. But we should recognise that citizens who do that are supporting the democratic process and one effective way of recognising that is to allow tax relief on relatively small donations to political parties.

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