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Lord Bassam of Brighton: My Lords, I am not in a position to comment on it. I shall take some time to study the example carefully. But we have been given clear legal advice on this point. I do not think that it would be right for us to put ourselves on the wrong side of that legal advice. Clearly other countries within the European Union--France and Spain--regulate in a slightly different way. We are trying to regulate in an entirely consistent way so that companies understand precisely where they are with regard to the UK electoral system.

Lord Shore of Stepney: My Lords, I shall be brief because I have spoken at some length. I am grateful to those who have supplemented, added and contradicted. It has made an interesting debate.

One of the most memorable contributions was the speech of the noble Lord, Lord Barnett. He advanced the doctrine of what I would call unlimited European sovereignty based upon common citizenship of the European Union. So it no longer matters whether you enter into a specific agreement, as we do with 101 international treaties which we honour and accept. That no longer applies. You hand over great areas of decision making to institutions, in particular the European Court of Justice, which then make the decisions which were previously made by your own Parliament. That is the real issue here.

To my noble friends I say again that this is a clear, unequivocal commitment of the Labour Party's manifesto and the clear, unanimous recommendation of the Neill committee. The Government do not want it. They would like to do without it but they are fearful of Europe and European rulings. The Government are anxious not to offend. Depending on how the House votes today, and on the outcome of this issue, we shall or shall not continue to proclaim that we have a sovereign Parliament and a sovereign electorate. If this goes, we shall have surrendered the very bulwark of our state, our nation and our society.

I say to those who are thinking of betraying this Parliament that I should not like to be them when looking in the glass when shaving tomorrow. I commend the amendment.

7.3 p.m.

On Question, Whether the said amendment (No. 90) shall be agreed to?

Their Lordships divided: Contents, 96; Not-Contents, 140.

21 Nov 2000 : Column 720

Division No. 1


Ampthill, L.
Astor, V.
Astor of Hever, L.
Attlee, E.
Blackwell, L.
Blatch, B.
Brookeborough, V.
Brougham and Vaux, L.
Bruce of Donington, L.
Burnham, L.
Campbell of Alloway, L.
Carnegy of Lour, B.
Carr of Hadley, L.
Cavendish of Furness, L.
Coe, L.
Colwyn, L.
Craigavon, V.
Cranborne, V.
Crathorne, L.
Dean of Harptree, L.
Denham, L.
Dixon-Smith, L.
Elliott of Morpeth, L.
Elton, L.
Fookes, B.
Gardner of Parkes, B.
Geddes, L.
Glentoran, L.
Greenway, L.
Hanham, B.
Hanningfield, L.
Henley, L. [Teller]
Higgins, L.
Hodgson of Astley Abbotts, L.
Howe, E.
Howell of Guildford, L.
Islwyn, L.
Jeger, B.
Jopling, L.
Kimball, L.
Kingsland, L.
Kirkham, L.
Lamont of Lerwick, L.
Lane of Horsell, L.
Lang of Monkton, L.
Liverpool, E.
Lucas, L.
Lyell, L.
McColl of Dulwich, L.
Mackay of Ardbrecknish, L.
Mancroft, L.
Mar, C.
Marlesford, L.
Marsh, L. [Teller]
Monro of Langholm, L.
Monson, L.
Mowbray and Stourton, L.
Murton of Lindisfarne, L.
Noakes, B.
Northbrook, L.
Northesk, E.
Norton of Louth, L.
O'Cathain, B.
O'Neill of Bengarve, B.
Onslow, E.
Oxfuird, V.
Palmer, L.
Park of Monmouth, B.
Patten, L.
Peel, E.
Perry of Southwark, B.
Phillips of Sudbury, L.
Prior, L.
Rawlings, B.
Reay, L.
Rees-Mogg, L.
Renton, L.
Roberts of Conwy, L.
Rogan, L.
Sanderson of Bowden, L.
Seccombe, B.
Selsdon, L.
Sharples, B.
Shore of Stepney, L.
Stewartby, L.
Stodart of Leaston, L.
Stoddart of Swindon, L.
Strange, B.
Strathclyde, L.
Taylor of Warwick, L.
Tebbit, L.
Thomas of Gwydir, L.
Trefgarne, L.
Wilcox, B.
Willoughby de Broke, L.
Young, B.


Acton, L.
Addington, L.
Amos, B.
Andrews, B.
Archer of Sandwell, L.
Bach, L.
Barker, B.
Barnett, L.
Bassam of Brighton, L.
Berkeley, L.
Bernstein of Craigweil, L.
Billingham, B.
Blackstone, B.
Blease, L.
Borrie, L.
Bragg, L.
Brennan, L.
Brett, L.
Brooke of Alverthorpe, L.
Brookman, L.
Burlison, L.
Carter, L. [Teller]
Chandos, V.
Clarke of Hampstead, L.
Clement-Jones, L.
Cohen of Pimlico, B.
Crawley, B.
Davies of Coity, L.
Davies of Oldham, L.
Dean of Thornton-le-Fylde, B.
Desai, L.
Dixon, L.
Donoughue, L.
Dubs, L.
Evans of Parkside, L.
Evans of Watford, L.
Falconer of Thoroton, L.
Falkland, V.
Farrington of Ribbleton, B.
Faulkner of Worcester, L.
Filkin, L.
Fyfe of Fairfield, L.
Gale, B.
Geraint, L.
Gibson of Market Rasen, B.
Goldsmith, L.
Goodhart, L.
Goudie, B.
Gould of Potternewton, B.
Graham of Edmonton, L.
Greaves, L.
Hamwee, B.
Hardy of Wath, L.
Harris of Greenwich, L.
Harris of Haringey, L.
Harris of Richmond, B.
Harrison, L.
Haskel, L.
Hayman, B.
Hollis of Heigham, B.
Howells of St. Davids, B.
Howie of Troon, L.
Hughes of Woodside, L.
Hunt of Kings Heath, L.
Irvine of Lairg, L. (Lord Chancellor)
Jacobs, L.
Jay of Paddington, B. (Lord Privy Seal)
King of West Bromwich, L.
Kirkhill, L.
Layard, L.
Lea of Crondall, L.
Lipsey, L.
Lofthouse of Pontefract, L.
Macdonald of Tradeston, L.
McIntosh of Haringey, L. [Teller]
McIntosh of Hudnall, B.
MacKenzie of Culkein, L.
Mackenzie of Framwellgate, L.
McNally, L.
Maddock, B.
Massey of Darwen, B.
Merlyn-Rees, L.
Miller of Chilthorne Domer, B.
Mitchell, L.
Molloy, L.
Morgan, L.
Morris of Castle Morris, L.
Newby, L.
Nicol, B.
Northover, B.
Oakeshott of Seagrove Bay, L.
Parekh, L.
Patel, L.
Peston, L.
Plant of Highfield, L.
Prys-Davies, L.
Puttnam, L.
Ramsay of Cartvale, B.
Rea, L.
Redesdale, L.
Rennard, L.
Rodgers of Quarry Bank, L.
Russell, E.
Sainsbury of Turville, L.
St. John of Bletso, L.
Scotland of Asthal, B.
Scott of Needham Market, B.
Sharman, L.
Sharp of Guildford, B.
Shepherd, L.
Simon, V.
Smith of Leigh, L.
Stone of Blackheath, L.
Strabolgi, L.
Symons of Vernham Dean, B.
Taylor of Blackburn, L.
Thomas of Walliswood, B.
Thomson of Monifieth, L.
Thornton, B.
Tomlinson, L.
Tordoff, L.
Turnberg, L.
Turner of Camden, B.
Uddin, B.
Varley, L.
Walker of Doncaster, L.
Wallace of Saltaire, L.
Walmsley, B.
Walpole, L.
Warner, L.
Warwick of Undercliffe, B.
Whitaker, B.
Whitty, L.
Wilkins, B.
Williams of Crosby, B.
Williams of Mostyn, L.
Williamson of Horton, L.
Woolmer of Leeds, L.
Young of Dartington, L.
Young of Old Scone, B.

Resolved in the negative, and amendment disagreed to accordingly.

21 Nov 2000 : Column 721

7.13 p.m.

Lord Wedderburn of Charlton moved Amendment No. 91:

    Page 38, line 24, leave out ("member").

The noble Lord said: My Lords, I have tabled this amendment and Amendments Nos. 92, 93 and 94 to detain your Lordships slightly further on Clause 52. The amended clause would not breach any community law, in particular Article 43 of the so-called treaty on the common market.

I thank my noble friend the Minister for his great courtesy and kindness in making himself and his advisers available to me. When two or three lawyers are gathered together, they may not end up with agreement, but at least they can clear the ground. That

21 Nov 2000 : Column 722

meeting has made it easier for me to see the points that I should address. I have explained them to my noble friend. They come under three headings.

I begin not with a debating point, but with a statement by my right honourable friend the Prime Minister, who described the position under the various treaties as,

    "an association of free, independent sovereign nations".

My conclusion comes from that in the sense that putting UK companies and those incorporated in the European Union together in one box may allow for the question of whether that is what Gilbert Ryle used to call a "category mistake".

I agree with those who have said that the problem is the electoral and constitutional system and its relation to money. The best explanation that I have heard was by the noble Baroness, Lady Williams of Crosby, a few days ago in an interview on "Newsnight". I have checked the quotation with her. She said that her worry was that,

    "money is beginning to take over the system",

of democratic politics.

That was said in a different context, but it was the concern of the Neill report and it has long been a concern of Labour governments. That is why we introduced a provision in the Companies Act 1967 to disclose in company accounts political expenditure over a threshold of £200. That has been repeated in Schedule 7 to the Companies Act 1985.

The most valuable aspect of the Bill is the Government's determination to introduce further disclosure and control over the diversion into political donations of funds raised for a company's normal activities so as to influence political parties and policies. That is certainly the aim of the Bill--at least until we come to Amendment No. 237, which would apparently withdraw some of the excellent extensions of disclosure and control in Schedule 19.

My noble friends know of many past examples of that philosophy. Trade unions were put under much stricter legal control in 1913 because of the notorious Osborne judgment, the spirit of which, as we saw yesterday, is still not dead. Amendment No. 94 would update that regime at a transnational level for trade unions.

Articles 43 to 48 of the treaty are mainly directed at maintaining and extending an integrated market in the European Union. Article 43.1 prohibits:

    "restrictions on the freedom of establishment of nationals of a member state in the territory of another member state".

My noble friend the Minister told me in a letter that Clause 52 was necessary in its simple form because otherwise Article 43 would make it a breach of Community law. It is my contention that that is not correct. I am happy to say that in the face of the advice given by the Government's advisors. Thanks to my noble friend's kindness, I have heard the arguments, but I remain unconvinced.

Article 43 extends to companies and firms what the Court of Justice has understandably held to include covert or even implied restrictions on freedom of

21 Nov 2000 : Column 723

establishment. The Bill raises a question about donors in the political system. From that, the first of my three submissions is drawn.

With great respect to the noble Viscount, Lord Astor, there exists a harlequin variety of measures throughout the world, particularly in western Europe. The diversity is far greater than he suggested. In France, donations by companies to political parties are banned. A similar rule applies in Belgium. There are scarcely any rules in Austria and Luxembourg. The Swedish constitution forbids government interference with political party funds. In a large number of member states donations from companies must be disclosed primarily by the recipient political parties, though in the Netherlands and Denmark the identity of the donor company may be withheld. In Ireland, candidates receiving donations above £450--the noble Lord, Lord Tebbit is not in his place but that is the answer to his query--or other financial donations above £3,500 to a party must be entered in what is called the statutory declaration of donations. Your Lordships will find an analogous proposal in our Amendment No. 93, where all donor companies would, without any discrimination at all, undertake to disclose donations in a declaration statement entered on a register open to public scrutiny. There is no discrimination in Amendment No. 93.

It is true that in Germany there still appears to be a bizarre discriminatory provision, as Annex 1 of the Neill report reveals, that certain donations are allowed from business enterprises in which more than 50 per cent of the shares are held by German citizens. In Portugal and Italy, no companies with mixed private and public holdings may make a donation for electoral or political purposes; and Italians get a tax rebate. I can tell the noble Viscount that in Spain the law is undoubtedly as he described it, but it is under review.

Since 1968 nine directives on the harmonisation of company law have been adopted in the Community. Five more are proposed but not yet fully adopted. However, not one of them has touched this subject within a mile, nor would it be proper for them to do so, on the basis of what in the trade is called the treaty base of a company harmonisation directive. To my knowledge, no one has ever threatened action in the Court of Justice against any of these states which have such different rules. Nor is there any reason to believe that in European or domestic law the treaty provisions of Article 43 on the freedom and right of establishment must control the status of permissible donors, except, of course, in the case of flagrant discrimination against companies in the EU. I take the law as it is. I understand what the Minister said. By all means, let us face what the European Court of Justice might do. The answer to the noble Baroness who asked what sanctions it could employ is that it could employ the sanction of an order, and if we eventually fail to obey the order, it is quite clear that we could be fined, but only if the clause offends the Article 43 of the Treaty.

The clause as presently drafted contains three requirements: first, that the company must be registered under the Companies Act, which includes both ordinary registration and registration as an

21 Nov 2000 : Column 724

overseas company, if it has a place or business or a branch here; secondly, that it be incorporated in the United Kingdom or in another member state; thirdly, that it must carry on business in Britain. I raised in Committee the question of carrying on business in the United Kingdom. I apologise to noble Lords for not having raised these issues at greater length in Committee. I moved one amendment and was struck down, no doubt by some non-party virus, which meant that I could take no further part in the Committee proceedings. But I did raise the question of the "wholly or mainly" test, namely, that if we are to say in Amendment No. 90, as we do, that a company should have a sufficiently close connection with the United Kingdom to be allowed to bankroll any democratic processes, surely the test should not be that of carrying on business in the United Kingdom. I gave the example of a vast multinational which had no other business here except a sweet shop on Brighton pier, which would be very difficult to discover on inspection of all the piers. However, if it were "wholly or mainly" within the United Kingdom, that would not be discriminatory and, in view of the declaration under the other amendment, it would be particularly easy to find by reference to the register.

It has been said to me--and this is a very complex point but I shall try to deal with it briefly--that such a law can impact illogically on different types of multinational company. Some have headquarters here or in Detroit; some have subsidiaries here; some have branches here; some have places of business which they can register as overseas companies. That is absolutely right. However, it is equally true of the Bill as it stands as it could possibly be under our amendments. Had I time, I would want to suggest that our amendments make that problem slightly easier to solve. But for the moment, in a global world of transnational capital, it is quite impossible to accommodate all the prolix structures of every multinational company; otherwise, we would never start on Clause 52.

It is true, of course, that in the House of Commons (Standing Committee G, 25th January, col. 109) the Government spokesmen said that they would like to restrict the Bill to British-based companies. I quote:

    "We are advised 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".

There is no hubris in saying that, in correspondence in which I engaged after consulting practical experts at the Bar, an academic figure of very great consequence and also friends in Italy, France and Germany who were kind enough to answer my quick questionnaire, we have found, if we look at those various types of law, that Article 43 is not in any way infringed, especially if we add Amendment No. 92, which prescribes not merely that a company must carry on business here but that it should carry on business "wholly or mainly" here and can be found through the register.

The Government responded at Committee stage by saying that they did not know what was meant by the phrase "wholly or mainly". I believe I quote my noble friend correctly. But, of course, 15 lines later in the

21 Nov 2000 : Column 725

same clause we find that unincorporated bodies, which include unincorporated partnerships, which would be subject to Article 43, were it to apply, engage the test of carrying on business,

    "wholly or mainly in the United Kingdom"

and, in addition, having a registered office here. If the Government think that Article 43 applies, having a main office here is probably an improper test. But, since it does not, and since there is a second reason for not doing so--and I promise your Lordships that I shall not try to relate the three learned treaties, the three learned articles and the 14 cases, the names and references of which I sent to my noble friend--I now turn to my second submission.

Although the Court of Justice is quick to ban discriminatory, explicit or covert restrictions on freedom of establishment, it has held otherwise in a long line of judgments, commencing with the rather delightful title of the Cassis de Dijon judgment in 1978, which was summarised in the European Court of Justice case of Gebhard in 1994, as follows:

    "It follows...from the Court's case-law that national measures liable to hinder or make less attractive the exercise of fundamental freedoms guaranteed by the Treaty must fulfil four conditions:--

that is to say, if they are to avoid liability under Article 43--

    "they must be applied in a non-discriminatory manner, they must be justified by imperative requirements in the general interest, they must be suitable for securing the attainment of the objective which they pursue, and they must not go beyond what is necessary..."

Other judgments have followed that test. A case in Ireland discriminated against shareholders if they did not live within three miles of the land, justified under rural land policy, and there were provisions in Belgium and Denmark which might have been thought to be discriminatory but which, in each case, were accepted by the courts because of the demands of the environment. The Keck judgment of 1991 stated that even minimal prices for retail sales might be acceptable and not necessarily an impediment to free circulation of goods in certain circumstances.

Our amendments would strengthen the clause in four ways; precisely the four tests in the Gebhard summary. It would be non-discriminatory on its face; it would be justified by the general interest; suitable to attain a constitutional objective and, I submit, proportional to what is necessary to attain it.

States often fall at the last fence when they go beyond what the court thinks necessary. Without citing it I simply state that this analysis is also supported in a rather different reasoning in a judgment regarding the Daily Mail in 1988. The court upheld the right of a state to prohibit the transfer of the central office of a company registered in its jurisdiction. In that respect, there are many ways in which the application of Articles 43 to 48 is not quite the same with regard to natural persons, as the court puts it, as to companies.

Finally, in the previous debates there was much play about Article 46 which provides an exception in the case of,

21 Nov 2000 : Column 726

    "special treatment for foreign nationals on grounds of public policy, public security or public health".

It is wrong to think that public policy is a wide category. The court has applied it strictly. I mention it because there is no authority to say that it would not apply in this case. I cannot imagine why the Government believe that it cannot possibly apply, without further argument, which is the case. That is my third limb. If I am right--I submit I am--it would not be needed on the Cassis de Dijon line of cases.

I would be less than candid if I did not say that I was alarmed when it appeared from a letter I received from my noble friend that no reference was made to this somewhat refined line of case law of some 30 or 40 cases under the Cassis de Dijon rules. Through no fault of the Minister, I was left with only one small reference to the case against France which is rather irrelevant.

Even if Clause 52 was said to be discriminatory there might still be a defence, and I submit there probably would be, under Article 46. In that state of the law, there is no reason why a government which believes it must obey Community law, which is the premise of my amendments, should refuse to amend Clause 52 so as to make it more transparent, clearer, less discriminatory and obviously valid. It is no good saying that the Government do not believe that there would be a defence under Article 46. I have found no explanation for that, either from the Minister or any other source, as against the opposite.

I have no interest to declare, except perhaps one point, which I do not regret putting on the record. Friends who are scholars in the field would know that it would be improper, in fact dishonourable, for me not to make this view available to the House because I have written about it in the past. Although I am much wiser than I was then, the basic argument is the same. The category mistake of Clause 52 and what we are about sets the Bill off in a wrong direction. Ignoring the Cassis de Dijon principles caused it to go further astray. The available life-belt in Article 46 was not fully explored. In fact, we threw in the towel because we say that that is impossible as a defence.

All three aspects would be assisted by our amendments. They are relevant to the interests of the United Kingdom and are valid under both domestic and Community law. I entreat my noble friend the Minister to look again at Clause 52, and at any source he would like to name upon the matter. I entreat him to come back and say that he has given consideration to at least one or more of Amendments 91 to 93. I beg to move.

7.30 p.m.

Viscount Astor: My Lords, the noble Lord, Lord Wedderburn, made an extremely interesting case. I listened with great care to his detailed argument. He said, rightly, that I had given only a small example of what goes on in Europe. He is absolutely right. I intended to give only a small example. He gave a much wider and clearer example which made my point further and improved it. It showed how absolutely different the rules are in almost every country. However, listening to the noble Lord, I gained the

21 Nov 2000 : Column 727

impression that a greater number of European Union countries do not now accept donations from companies than ones which do. However, it may be quite close; I did not count.

The arguments used by the noble Lord were extremely interesting. They show how everything is different in Europe. The noble Lord talked about Article 43. He is an expert. I profess that I am an amateur on the matter, so I shall not go into it. However, I believe that it is an issue to which the Government should respond.

Amendment No. 92, which inserts "wholly or mainly" is useful. Subsection (2)(b) refers to a company which carries on business in the United Kingdom. In Committee the noble Lord, Lord Wedderburn, asked how one defined "carrying on business". He gave the example of a sweet shop. Does it mean a company which is registered for VAT or one that is over the threshold? Does it mean that its registered office is here; that it is paying national insurance contributions; that it is a branch, or that it is incorporated in any way? How do the Government define

    ""carries on business in the United Kingdom"

or "trades in the United Kingdom". When the Minister comes to reply, perhaps he could give an explanation.

The noble Lord, Lord Goodhart, who is in his place, was unable to be present for the previous debate. If he had been, he would have heard the noble Lord, Lord McNally, say how much he supports the Government in their proposal to accept donations from European Union companies. It is a pity that the noble Lord did not speak then, but he has the opportunity to do so now. The unanimous view of the Neill committee, and therefore not the view of his Front Bench, is that such donations should not be accepted. I should be interested to hear the noble Lord if he contributes to the debate.

A question I asked the Minister in the previous debate is perhaps as pertinent to these amendments as it was then; it concerns companies. I think the noble Lord agrees that neither political party would wish to accept donations from companies that did not have the approval of their shareholders. However, under European Union rules, European companies will be able to make donations to political parties in this country without the approval of their shareholders. Do the Government condone that? Will the Labour Party accept those donations? What are we to do about that? I should like to know the Government's view. Is that something which they feel should happen? We have made great play of the fact that companies should gain shareholder approval, but here we have a whole raft of companies which may or may not wish to do so. I am not quite sure why foreign companies would want to give money to political parties, but that is a different matter. I have not noticed many British companies rushing to make political donations in Europe, but we know that European parties readily accept donations from rather bizarre sources and regard that as perfectly normal. The noble Lord, Lord

21 Nov 2000 : Column 728

Wedderburn, made some extremely important points. We shall listen extremely carefully to what the Minister has to say in response.

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