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Lord Lea of Crondall: My Lords, I add my support to the amendment moved by my noble friend Lord Wedderburn of Charlton. It is perhaps a marker for the future. It is a modest proposal to add to the legitimacy of our system. The system has gained in legitimacy over recent years.

I should like to refer briefly to what happened in the mid-1980s. At that time, the Conservative government introduced a mandatory requirement for all trade unions that wished to have political funds to hold a ballot every so often to ascertain whether they wanted to continue having these funds. The expectation was that there would be some nibbling away at the degree of support and therefore at the number of trade unions that would have political funds. Let me remind the House of what actually happened: 100 per cent of unions with political funds endorsed by large majorities the principle of having political funds. If I remember correctly, some 15 trade unions which had never had political funds decided to have them. This was not specifically to do with affiliation to the Labour Party.

I do not know what the Liberal Democrats think about it, but there is a degree of argument that the Liberal Democrats, as well as the Conservative Party, would like to see more cross-fertilisation of political funding. That is a separate argument. But certainly the net result of the reforms of the mid-1980s was rather different to the intention. That added to the legitimacy of the system.

In that sense, there is less cynicism now than there was then about the political system so far as concerns financing. However, a number of questions remain, as the Neill committee discussed. The trade unions gave evidence to that committee as well as the Labour Party; the matter has been looked at quite thoroughly and the Bill is a step forward.

My noble friend's amendment does not seek to stop people making donations. I shall explain why that is not just a phrase. It is very important that the industrial interest in its broadest sense should be involved in the political arena. On all sides of the House there is now a greater balance of industrial experience than was the case 20, 30 and 40 years ago. That balance is necessary; it reflects the fact that there is nothing wrong with political donations. But when people in industry talk about a company being one big happy family and so on, anything which enables people to have a say in the political donations that are

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made is a step forward. It adds to the richness of our democracy. It gives me great pleasure to support the amendment.

Lord Bassam of Brighton: My Lords, in the view of the Government, the amendment seeks to extend the power of employees to participate in decisions of the company beyond those areas where they have a legitimate interest in so participating. I understand, of course, the enthusiasm and the loquacious elegance with which the points have been made, but that is the Government's view.

The purpose of these provisions is to ensure that, in a sensitive area of corporate governance, there are formal arrangements in effect for enabling shareholders to constrain and influence the decisions of the directors. It is the manner in which the directors dispose of the resources of the company which is in issue here. It is the shareholders who will bear the primary burden if the funds of the company are dissipated by directors on political ventures of no benefit to the company. The provisions aim to support the important monitoring role of the shareholders in this regard.

Where the shareholders exercise this control, the company and its employees will benefit. We do not think that by building in an element of what could be described as "worker participation" into these arrangements, this control on the directors' activities will be enhanced. Indeed, it may well be a case of too many cooks spoiling the broth, with another layer of monitors brought into the picture. That would seem to be the effect of the amendment.

We consider that the interests of the company, including those of its employees, are best advanced by the arrangements contained in the Bill as drafted. I urge your Lordships to reject these amendments, which would impose a further and unnecessary layer of control on the making of decisions in regard to political donations by companies.

The noble Lord, Lord Wedderburn, made the point that some of these measures would be welcomed by what he described as "progressive management". That may well be the case. If so, it is entirely a matter for companies to determine. If they wish themselves to extend the principle of participation in the making of these decisions, all well and good. We do not think that we should legislate for it; that is a matter for the companies.

Lord Wedderburn of Charlton: My Lords, I slightly regret the reaction of my noble friend, especially his phraseology. This is not a plan for "worker participation" in any sense that literature knows of the phrase. If I did not know him so well and value his friendship so much, I would say that his answer to the propositions reeked a little of the 1980s rather than 1997.

My noble friend rightly said that this is an issue of corporate governance. His brother or sister department, the Department of Trade of Industry, is in the middle of a huge debate and review of the

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company law duties of directors. At the middle of the enormous document it produced recently is the question of how far directors' duties in law should reflect duties to persons other than shareholders--to employees and to others, and, indeed, to creditors in certain situations. I regret to say that the DTI inquiry is a bit ahead of my noble friend. However, having heard what he said, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

8.45 p.m.

Schedule 19 [Control of political donations by companies: new Part XA of Companies Act 1985]:

Lord Wedderburn of Charlton had given notice of his intention to move Amendment No. 227:

    Page 208, line 23, leave out ("EU").

The noble Lord said: My Lords, I have taken advice and I understand that I am allowed two sentences in relation to the course that my noble friend Lord Evans of Parkside and I wish to take in regard to Amendment No. 227 and its family, if I may so refer to the groupings--other than Amendment No. 259, which again, mea culpa, should have been grouped with Amendment No. 253.

Having thought long about the matter, we believe that, because of decisions already taken in the House in regard to the Bill and because of the new government Amendments Nos. 236 and 237, it would be quite wrong to move this family of amendments--minus Amendment No. 259. We would be asking the House to contradict a number of previous tendencies and to pre-judge the debate, in certain respects, on Amendment No. 236. I seek the leave of the House not to move this family of amendments, other than Amendment No. 259.

[Amendment No. 227 not moved.]

[Amendment No. 228 not moved.]

Lord Bassam of Brighton moved Amendment No. 229:

    Page 208, line 25, leave out ("Chapter") and insert ("Part, but subsections (4) and (6A) have effect subject to section 347AA").

The noble Lord said: My Lords, the main purpose of this group of amendments is to amend the definition of an "EU political organisation" in relation to political donations by companies, in respect of both shareholder authorisation and disclosure. I shall try not to detain the House for too long, but there are some points of explanation which are important for the official record. I shall have to take a little time in moving through the group of amendments.

The drafting of the definition has raised difficult issues. The Government certainly accept that the definition must provide reasonable clarity, but, equally, we believe that it is important that there is no compromise on the issues of transparency and accountability, which lie at the heart of the Neill committee's work. We do not, for example, believe that it would be appropriate for the definition to be

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drafted in such a way that companies could make a donation without prior shareholder authorisation in circumstances where they would not want the definition to be disclosed. If the directors of a company are in reasonable doubt as to whether an organisation is "political", they should, we believe, seek shareholder authorisation for and disclose donations to that organisation.

The government amendments would make the main test in relation to the definition the intent of the organisation to affect public support for a political party or to influence voters in a referendum. This test, we believe, strikes the right balance between safeguarding the position of independent organisations which seek only to promote public debate while ensuring that the requirement cannot easily be circumvented by front organisations.

The amendment tabled by the noble Lord, Lord Blackwell, would amend the definition so that it applied to an organisation which carried on, or proposed to carry on, activities which are capable of being reasonably regarded as primarily intended to affect public support for a political party. There are two main reasons why the Government cannot support the noble Lord's amendment. In the first place, it would increase uncertainty about the interpretation of the definition. The second reason is a simple one. I believe that the test proposed by the Government is the right one. The test, based on intent to affect public support for a political party or to influence voters in a referendum, seems to us to be fair, proportionate and understandable.

The Government's amendment would also, in the interests of clarity, specifically exempt donations to all-party parliamentary groups and subscriptions to trade associations. We accept the arguments that have been put to us that all-party parliamentary groups are, by their nature, non-partisan, and that it would be harmful to the competitiveness of UK businesses to create uncertainty about the position under the Bill of subscriptions to trade associations.

I am grateful to the noble Baroness, Lady Hooper, and to the noble Lord, Lord Mackenzie of Framwellgate, for tabling an amendment which appears to signify their consent to the Government's proposal. I apologise to them if I have misconstrued their purpose.

Amendment No. 234 seeks to amend the definition of "EU political expenditure" so that it covers any expenditure incurred by companies in respect of activities which could reasonably be regarded as intended to affect public support for a political party or organisation or to influence voters in a referendum. The amendment would bring the definition of political expenditure into line with the amended definition of a political organisation; in particular, it would ensure that companies would be required to seek shareholder authorisation for political expenditure in relation to a national or regional referendum.

The Government are conscious, however, that some companies carry on business activities which may, by their very nature, involve the publication or

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dissemination of material which seeks to influence the views of members of the public: journalism is an obvious example. It is, therefore, our intention to table an amendment for debate at Third Reading providing that these controls will not apply to these forms of business activities.

The other main purpose of this group of amendments is to introduce a £5,000 de minimis threshold in relation to shareholder authorisation. The Government accept that, on practical grounds, there is a strong case for an annual de minimis threshold of £5,000 in relation to authorisation. It is possible, for example, that a company may wish to make a very small sponsorship payment in the course of a financial year which it had not anticipated at the time of its annual general meeting. This proposal would provide some flexibility in this regard. I beg to move.

On Question, amendment agreed to.

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