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Lord Goodhart: My Lords, I seek clarification on this. I quite understand that it is impossible to predict the value of a capitalisation requirement, but will loans with a capitalisation clause have to be disclosed once the combined value of the original loan plus the capitalisation add up to more than £5,000? That would seem to be the logical conclusion but I am not sure from the wording that that would be the result. That causes me some concern because, if that is the case, there would be a serious loophole here.
Baroness Ashton of Upholland: My Lords, the answer to the question is no, it would not. The basis of our amendment—I shall put this into my own words as I had to learn all this; capitalisation is a reasonably new concept to me—is that a loan of, say, £4,000 might have a capitalisation provision that never comes into effect. Alternatively, the provision might come into effect at some point in the lifetime of a loan that could be quite lengthy—it could be 10 years, for all we know—only when someone perhaps fails to pay the interest on time, or whatever. We think that it is unrealistic to require a local treasurer or anyone else to be completely clear about the moment at which it might stray into £5,001, if it ever did. Where it is very clear that a loan of £5,000 to a national party must be reported anyway and that it has a capitalisation provision, you should report the fact that you have that provision. If you add the provision in later, you should report the fact that you have added it in, because you are required to continue your reporting. I can see why the noble Lord thinks it would be attractive to try to work out something of that nature, but we really do not think that it is practical and we have to draw the line somewhere in what we ask people to do.
Lord Goodhart: My Lords, I have to say that that causes me some concern, because if someone makes a loan of £4,900 on terms that enable the donee political party simply to delay paying interest so that the interest piles up year by year, that could add up to a very substantial sum over a few years. That does seem to be a potential loophole.
Lord Kingsland: My Lords, I entirely understand the concern of the noble Lord, Lord Goodhart. On the other hand, I say respectfully to the Minister that the Government have got this matter absolutely right, particularly when one considers that the obligation on a treasurer is such that he will be criminally liable if he is negligent. This government amendment was prompted by a series of amendments we tabled in Committee to achieve greater clarity in an area that was more than somewhat befogged. The Minister's
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amendment and the statement with it have gone a long way to appease our concerns and we are happy to support it.
Baroness Ashton of Upholland: My Lords, I am grateful to the noble Lord, Lord Kingsland, for his support. All I can say to the noble Lord, Lord Goodhart, is that in the end we want a regime that people can operate, although I take absolutely his point about treasurers. We thought about this very carefully but decided that it had to be a practical proposition for those who have a lot to do. We think we have it about right.
On Question amendment agreed to.
[Amendments Nos. 21 to 26 not moved.]
6 pm
Lord Kingsland moved Amendment No. 27:
Page 65, line 39, leave out "ought reasonably to have known" and insert "was reckless as to whether or not he knew"
The noble Lord said: My Lords, having raised the question of negligent treasurers during my intervention to express my support for the Government on the previous amendment, I now seek to expunge the word "negligence" from the obligations of treasurers. In doing so, I hope that I shall not be accused of hypocrisy by the noble Baroness.
Amendments Nos. 27 and 28 relate to Section 71L entitled:
I wish to draw your Lordships' attention to Clause 71L(1)(b) which reads:
"A registered party commits an offence if . . . an officer of the party knew or ought reasonably to have known of the matters mentioned in paragraph (a)".
Our amendment would replace the words,
The reasons for pressing the amendment are twofold. First, as a general proposition the criminal law is extremely reluctant to incorporate, in any statute, negligence as part of the mens rea of a crime. Indeed, in a letter written to me by the noble Baroness, which I have just seen, she says herself at the beginning of the fourth paragraph:
The noble Baroness goes on to say:
"However, the criminal offences set out in new section 71L operate within a regulatory framework and we consider this to be an appropriate standard in such an environment".
I would be most grateful if the noble Baroness would explain in her response exactly what that means. In my submission, it is neither here nor there if negligence is used as part of the mens rea in a regulatory context. In whatever context negligence is used in a criminal offence, in principle, it is something that is contrary to the great constitutional principles of this country, which have informed the drafting of our criminal law throughout the ages.
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I have a second reason for proposing the amendment. People who run the finances of local constituency parties, the honorary treasurers, often do so out of a sense of public duty, are frequently not experts in financial matters, and are usually retired and spend most of their time doing things other than looking after constituency finances. Quite often there might be considerations about whether a particular financial transaction falls within or outside the regulatory framework. How on earth can a treasurer in that position know for certain what is the situation? In my view, this provision will be a serious deterrent to individuals coming forward to be honorary treasurers of their local constituency parties. I believe the Government have the balance wrong here. Voluntary work of this sort is to be encouraged; and they will be doing completely the opposite with the drafting approach they have taken in new Section 71L.
A further matter puzzles me. Turning to the part of the Bill dealing with loans, we reach Section 71T, which is headed:
"A person commits an offence if he knowingly or recklessly makes a false declaration under this section".
There is a clear conflict between the approach taken by the Bill for declarations by treasurers in transaction reports under new Section 71T and for what is to be recorded in quarterly reports under new Section 71M. What on earth is the logic of this? There may be a simple answer, but it is not one that occurs to me.
For those reasons, I shall seek to press the amendment. I beg to move.
Lord Goodhart: My Lords, Members on these Benches support the amendment moved by the noble Lord, Lord Kingsland, on the same grounds as he has outlined: first, the undesirability of making negligence a criminal offence; and secondly, what in practice will be more important, the fact that this imposes an excessive burden on constituency treasurers. As the noble Lord pointed out, they are always volunteers and usually people who have a number of things to do. We have to be careful to avoid making scapegoats of them and thus making it more difficult, if not impossible, for political parties to find people willing to take on these jobs. The amendment is very sensible. I recognise that it may lead to a discrepancy between the treatment of negligence relating to loans and negligence relating to donations, but surely two wrongs do not make a right. It is then simply a matter of applying the same principle to donations.
Baroness Ashton of Upholland: My Lords, I am sorry to find myself in a different place from that of both noble Lords, although I should say to the noble Lord, Lord Goodhart, that I have discussed this issue with his colleague in another place, who gave me a slightly different view.
I accept completely what the noble Lords, Lord Kingsland and Lord Goodhart, have said about the need to ensure that the valuable work done by
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party treasurers, along with so many others in our community, is made possible. I accept too that those who act as honorary treasurers of one organisation may take on the same role in others. I certainly found myself in that position so that eventually I became the honorary treasurer of lots of different groups. I pay tribute to all those who help our democratic process by taking on these responsibilities at the local level.
I understand the reasoning behind the noble Lord's amendment in that he is seeking to ensure what he considers to be a greater degree of protection to treasurers and that they do not, through innocent oversight, fail to recognise their responsibilities. However, we have considered this issue carefully and we believe very firmly that the regime set out in new Section 71L provides sufficient safeguards. A registered treasurer will not commit an offence unless he knew or ought reasonably to have known as a fact that the party had entered into a transaction with an unauthorised participant. Where a registered treasurer can show that he took all reasonable steps to ascertain such matters, he will not be in a position where he ought reasonably to have known of the transaction. All that is required is to do what is reasonable in the circumstances. When it comes to taking out loans, I think it is right to ask that people should act in a reasonable manner.
The noble Lord made the point that we avoid using negligence as a basis for a criminal offence, but where criminal offences are created to support the operation of regulatory offences that is not necessarily the case. Indeed, the approach we are taking mirrors the existing basis for criminal offences set out in the Political Parties, Elections and Referendums Act in respect of donations. Let me take one example. In the donations regime, where a treasurer submits a report that does not comply with the reporting requirements—for example, if he fails to report a transaction that is over the reporting threshold—an offence is committed. The treasurer has a defence if he can prove that he took all reasonable steps and exercised all due diligence. That clearly amounts to a negligence-based criminal offence and I am not persuaded that in the loans regime we should depart from the situation that we have in the donations regime.
In fact, I would argue that if treasurers have two systems that are close to each other, the better off they will be in understanding their responsibilities. In addressing this question in the way that we have done, we have stuck to the spirit and letter of what we said we would do—which is to make the two regimes as compatible as possible. On that basis, I will not accept the amendment. Raising awareness of the need to take reasonable steps is a responsible and straightforward act for political parties to undertake. In doing so, political parties will encourage minimum standards of care in those responsible for their financial affairs. Again, this mirrors precisely what happens within the Political Parties, Elections and Referendums Act.
There has been a heartening consensus in all that we have tried to do for greater openness, transparency and regulation, but we need to accept that there is an
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increased necessity for accurate and scrupulous reporting by all those involved and that we need to put in place a regime that is as straightforward to follow as possible. We believe that by mirroring what we already have in the donations regime we will fulfil that obligation. While we accept that we are placing an obligation on treasurers in terms of the necessity for compliance with the loans regime, we believe that by working with the political parties we can ensure that they will get the information so that they can comply.
On the basis that we think the best approach is to mirror what we already have, I hope the noble Lord will withdraw his amendment.
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