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Lord Goodhart: My Lords, I have put my name to this amendment and I strongly support it. If a recent article in the House Magazine is correct, this Bill may well prove to be the noble Lord, Lord Mackay's, swan song on the Front Bench of his party. If that is correct, it will be a great loss to his party and, in view of his great skill in debate, to the whole House.

Noble Lords: Hear, hear!

Lord Goodhart: My Lords, everybody agrees that it would be preferable for political parties to have a large number of small donors rather than a small number of large donors. That is the direction that we all want to take. The requirement of disclosure of donations over £5,000, or, in some circumstances, over £1,000, may diminish the number of large donations. Probably within a few months, we shall see whether or not that is so. That requirement can be regarded as a stick but, in order to encourage smaller donations, we need also to provide a carrot. I agree with the Neill committee that the appropriate carrot is tax relief.

We were impressed in particular by the example of Canada, where by coincidence a general election is being held today. It has an excellent system of public support for political parties through both tax relief and the partial funding of campaign expenditure. In Canada, a gift to a federal party qualifies for up to 500 dollars' tax credit on a donation of 1,150 dollars. There are similar reliefs on donations to parties at the provincial level. Those seem to work well and are popular.

Our proposal would achieve the same result but by a different route. The Neill committee proposed a simple system similar to the well known gift aid system for charities, except that no credit would have been available to a taxpayer against the higher rate tax. The use of the gift aid method would have meant that the donation would have had no effect on PAYE and there would have been no need to inform employers or in any way publicise the fact that a gift had been made.

A number of arguments have been made against tax relief. One made at an earlier stage of the Bill was that the money would be better spent on schools and hospitals. That argument was never strong, given that the estimated cost was about £4 million against government expenditure in the region of £400 billion. The tax relief would have been equivalent to £1 in every £100,000 of government spending.

Other arguments put forward the view that it is unfair to those who, by making a donation to their party, cannot pass on the benefit of tax relief because their income is not high enough to bring them into the

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tax-paying bracket. There will be a few donors in that category; for instance, some students and some non-working partners of people in work. However, I believe that the number of people in those categories who would make donations would be small. In any event, I do not understand why it is a serious argument against tax relief. If people give the same amount to a party and that amount is worth a little less to the party sometimes, that is bad luck for the party but no handicap to the donor.

A more serious argument is that there is an imbalance between parties because some have more supporters who will be willing to give £500. However, there would undoubtedly be a substantial benefit to all parties. The Labour Party, in its evidence to the Neill committee, indicated that it had approximately 400,000 donors who gave an average of £20 each. That would enable it to recover about £2 million by way of tax relief.

The arguments in favour seem to be stronger. I have already spoken about the carrot issue: the proposal is an important incentive to parties to go out and raise more money from smaller donors rather than to concentrate on the large donors. However, there is an argument which goes well beyond that. I believe that it sends an important signal to members of the public that donations to political parties are good. That is already clearly recognised in the case of charities. Tax relief has always been given on charitable donations through the covenant system. In recent years, it has become more widespread because tax relief used to be available on gift-aid gifts of £250 or more and is now available on gift-aid gifts of any amount. That tax relief is given in order to recognise that the state regards the making of charitable donations as good and in the public interest.

Obviously, many people will not think it right to give their own money to political parties because they do not support any particular party. However, the proposal sends a necessary signal to the public that political parties are an essential part of the democratic system--that is clear and everyone agrees with it--and that people who make small donations to political parties in amounts which cannot influence anyone are serving the public interest and strengthening democracy in our country. That is why I believe that giving tax relief on donations of up to £500 is very much in the public interest.

Lord Neill of Bladen: My Lords, I support the amendment. I declare an interest as chairman of the Committee on Standards in Public Life, which produced the report underlying this legislation. At Second Reading I made the point I am now about to make. Apart from one other intervention, I have kept out of the debate on the Bill because I believe it to be a matter for your Lordships. The views of the committee have been made plain. However, I feel strongly about this issue.

Allowing tax relief to donors of small sums not exceeding £500 is a signal that public support is encouraged and invited for political parties. We have

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seen lamentable election turn-outs. In the past week's by-elections we saw turn-outs of between 27 and 29 per cent. Turn-out at elections to the European Parliament has been as low as 15 per cent.

The move, which is modest and will cost the Treasury little, will encourage people of relatively small means to contribute. The proposal is not one in favour of fat cats because the tax relief is on only £500. The arguments against it have appeared to me to be nothing other than arguments of expediency and convenience. The proposal is disliked by the Treasury which does not want to give up the sum. Under the old phrase, "Where there's a will, there's a way", there would not be the slightest difficulty about introducing the exemption and allowing it to operate when the Bill comes into force. I strongly support the amendment.

Baroness Fookes: My Lords, I rise strongly to support the amendment and the arguments adduced by the noble Lord and others. I want to make only one additional point. A school of thought suggests that parties might be the recipients of straight subsidies from the state. I do not favour that argument; I believe that such a course should be avoided as far as possible. I therefore believe that if we encourage ordinary voters by giving a tax relief, we shall avoid going down that road. I strongly support the amendment on that ground, in addition to the others which have been put forward.

Baroness Gould of Potternewton: My Lords, I want to examine the contradictory arguments which have been put forward in relation to the recommendation and the proposal for state funding. There is a clear distinction between the current funding to political parties--for example, the Short money, the Cranborne money or a freepost, which relate to identified, specific purposes--and the proposal before us which is for general state funding and state aid. I believe that that is where the contradiction lies.

The Select Committee on Home Affairs of another place identified the proposal for tax relief for donations as genuine state aid, and I believe that that is what we should debate. If the views of the Select Committee are taken as read--I shall be corrected if I am wrong, but I have not heard anybody yet deny it--the case for state aid must be made out. Such a case was made out by the Liberal Democrats, who have always been open and honest about their support for state aid, only at the very early stages of the debate. That matter has not been addressed by the Conservative Benches; rather, it has been studiously avoided, presumably because it contradicts their view held consistently that direct state funding should be opposed. One of their arguments is that such funding would reduce the dependence of parties on their own activities and the distinction between them and the electorate.

If the case for state funding is not made, I believe that the argument for this amendment has been inaccurately expressed. I look forward to hearing the noble Lord, Lord Mackay of Ardbrecknish, put forward a good argument, which we have not yet heard, in favour of direct state funding. If one is

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opposed to state funding, one has no option but to oppose the amendment. In making these observations, it is not that I do not believe that we should look for ways to enable smaller donations to be made and give a signal to the public that political parties are respectable and should be viewed as a very important part of our democratic society. That is not the issue. The issue before us is the amendment, the basis of which is state aid in its true form.

Lord Campbell of Alloway: My Lords, I had not intended to speak in this debate, but I strongly support the amendment. In view of the speech of the noble Baroness, surely there is a world of distinction between state funding which I have always understood meant subvention by the state to the parties, and what is called "state funding", which is this amendment, which, as I understand the term, is not. I am totally opposed to what I have always understood was state funding--I hope that it will never be introduced--and I entirely support this amendment which, to me, is not state funding at all.

4.45 p.m.

Lord Peyton of Yeovil: My Lords, I support the amendment, although somewhat half-heartedly. During the many years--some may believe too many--that I have been in one or other House of Parliament I have lost affection and admiration for political party machines which have grown in size and power and have gone a long way towards forfeiture of public respect. I have said publicly that I regard political parties as rather sombre examples of nasty things of which there must be more than one.

Having said that, I regard the amendment as a preferable alternative to anything in the way of state subsidies for political parties. If there were subventions I would be very worried that they would become so substantial that it would be very difficult to give a hearing to small and respectable voices in the community. One of the most regrettable features of post-war Parliaments has been the disappearance, save in your Lordships' House, of the independent Cross-Bencher. One of my fears is that reform of your Lordships' House may well have the effect of "ironing out" the Cross Benches. I do not know anyone who is wiser or better when he or she wears a party hat than when the individual is bareheaded.

I regard with suspicion and fear any move to help political parties out of difficulties which are very much of their own making. The amendment that we are now debating at least has the merit that the support is influenced primarily by an individual. It is astonishing that over the years the power and influence of party machines through patronage and the Whips has been allowed to grow to the extent that it has. We should be very careful before we encourage that growth in any way.

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