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Political Parties: Funding

5.50 pm

The Parliamentary Under-Secretary of State, Ministry of Justice (Lord Hunt of Kings Heath): My Lords, with the leave of the House, I will now repeat a Statement made in another place by my right honourable friend the Lord Chancellor and Secretary of State for Justice on the funding of political parties. The Statement is as follows:

“Mr Speaker, the Government are today publishing a White Paper on party finance and expenditure in the United Kingdom. Copies are available in the Vote Office and on my department’s website.

“How our politics is funded is vital for the health of any democratic system, ours included. Over the last decade important steps have been taken towards achieving this. In 1998, the Committee on Standards in Public Life, under its then chairman, the noble Lord, Lord Neill of Bladen, published a landmark report, which went on to form the basis of the Political Parties, Elections and Referendums Act 2000.

“It must also be fundamental to the health of our democracy that the regime for regulating political parties should never be used as a partisan tool by one party against others and, instead, that change should be by way of broad cross-party agreement and achieved in a manner which carries wider public support. It was that spirit which led to the passage of the 2000 Act by consensus, and which continues to be a guiding principle for this and, I hope, any Government’s approach.

“The 2000 Act represented the first major overhaul of the regulation of party funding and expenditure for over 100 years. It has greatly helped to improve transparency and standards. But it has not proved sufficient. In the intervening period there has been continuing public disquiet about many aspects of how parties and politicians are funded.

“In March 2006, Sir Hayden Phillips was therefore invited by the then Prime Minister Tony Blair to conduct a further review, including as to whether state funding should be enhanced in return for a cap on donations. Sir Hayden’s final report was published in this House on 15 March 2007. It made major recommendations for reform of the Electoral Commission, for tightening of controls on expenditure, for greater transparency and for a gradual move to enhanced state funding linked to a cap on donations.

“All parties explicitly welcomed Sir Hayden’s report and accepted its main recommendations, including those for cross-party talks chaired by him to take forward the report’s recommendations.

“These talks proceeded satisfactorily until the Summer Recess. Sir Hayden then issued detailed proposals based on what he judged might form the basis for a consensus between the parties. It is a matter of great regret that in late October one of the parties decided to walk out of the talks, making agreement impossible.

“Against this background Her Majesty’s Government undertook in the Queen’s Speech to bring forward proposals on party finance and

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expenditure. This White Paper is the result. It proposes measures to improve the regulatory system. It sets out the Government’s aspiration for long-term comprehensive reform, building on the model proposed by Sir Hayden Phillips. In those areas where the Government believe broad consensus exists, it outlines plans to bring forward immediate legislation, including reform of the Electoral Commission and more effective controls on candidate spending.

“It is the excessive spending by parties and candidates which gives rise to the wider problems with party finance which we see today. Repeated independent reviews—including those from Sir Hayden Phillips, the Committee on Standards in Public Life and the Constitutional Affairs Committee—have called the problem one of a ‘spending arms race’, although some individuals still question its existence. A spending arms race is evident within each electoral cycle. As Sir Hayden’s report said, spending by the two largest parties was £90 million between them in the 12 months preceding the 2005 election, up from £65 million in the 12 months before the 2001 election. That was despite the fact that the campaign limit was set at £20 million for each party. Although parties did not act unlawfully, their ability to spend well above the campaign spending limit in the Act reveals a problem with the rules. In the interests of democracy, we need finally to achieve what all parties had sought to do through the 2000 Act, and stop this damaging arms race.

“The White Paper proposes some important steps for immediate action. Strengthening the Electoral Commission will send a clear signal that politics and politicians are effectively scrutinised—never above the law. The Electoral Commission will have robust civil sanctions to deploy, with criminal proceedings as an alternative. The commission will have more effective investigatory powers, enabling it to access information from anybody where it suspects a breach of the rules. Its governance arrangements will be overhauled better to ensure that there is greater practical experience available to it. The Committee on Standards in Public Life, the Constitutional Affairs Select Committee and Sir Hayden Phillips all recommended that the commission would benefit from the knowledge and judgment of individuals with political backgrounds. So we propose, as the Committee on Standards in Public Life recommended, the appointment of four commissioners with recent political experience and fewer restrictions on staff appointments. Far from politicising the commission, this will, in fact, enable the commission better to understand the people it is regulating and so help it to do a more effective job.

“There has been widespread concern that a loophole in the 2000 Act has allowed certain unincorporated associations to obscure the original source of donations to parties. As the Phillips review proposed, these will be better regulated, as will third-party campaigning organisations.

“Let me turn to spending by parties. In 2000, when I took through the Political Parties, Elections and Referendums Act, all believed that we were, in the words of the report of the noble Lord, Lord

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Neill, ‘buttressing’ the existing restrictions on spending including those contained in the Representation of the People Act 1983 and its predecessors. What we did not foresee at that time was the likelihood of significant increased and unregulated candidate spending as a result of the detailed drafting of the Bill; though from the Conservative Front Bench, the late Lord Mackay of Ardbrecknish sought to alert us to this problem by moving a clarifying amendment on behalf of his party. The White Paper therefore proposes a return to the system of ‘triggering’, which will regulate all candidates’ spending directed towards electoral success and which was a key feature of the previous Administration’s 1983 Act.

“A stronger, more focused Electoral Commission will help to ensure that the previous uncertainty about these rules will be avoided. In parallel with this, we propose to re-examine the list of activities which are defined as campaign spending.

“Let me turn to the question of introducing donation caps in return for enhanced state funding. To do this, we would have to have not only all the main parties with us, but the public—the taxpayer—as well. This is not the case at present. We are very ready to have that debate and, indeed, to discuss donation caps at a lower level than Sir Hayden recommended, but that will require us to come together to have the debate between the parties and the public.

“My intention is to introduce a Bill before this Summer Recess, but with its Second Reading in the early autumn and the other stages of the Bill carried over into the next Session. This will allow ample opportunity for scrutiny.

“By any international comparison the standards of our political system have long been high, and nothing infuriates most Members of Parliament, local councillors and especially the thousands of unpaid voluntary activists in all parties more than the fact that their work and good faith can be tainted by the failures of a very few. But perceptions matter hugely. So I hope the whole House recognises the imperative in this situation of strengthening the probity of British politics and of people’s faith in our democratic process as a whole. That is the principal aim of this White Paper and we hope that all parties will support us in this endeavour. I commend this Statement and the White Paper to the House”.

My Lords, that concludes the Statement.

5.59 pm

Lord Henley: My Lords, I am, as always, grateful to the noble Lord for repeating the Statement. It has been a pretty extraordinary day, with some three Statements brought before the House by the Government. First, we had the further tragic news coming from Afghanistan and we are shortly to hear from the Foreign Secretary or his delegate in this House, no doubt bringing a piece of white paper to wave before the House, having discussed the Irish referendum with his colleagues in Europe. In between those two Statements, the Government have squeezed in this small Statement on party funding. The noble Lord might think back to

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that special adviser of one of his former colleagues who talked about a good day for burying bad news. I repeat that.

That is what this Statement is about. We all know where the Labour Party’s support is in the polls. We all remember what happened in the recent local elections. We all remember the Crewe and Nantwich by-election. What happened before then to its fundraising? I do not recall any enthusiasm by the Labour Party, when it was doing so well, for bringing forward such proposals as this. We should not complain. This is a case of “the sinner repenteth”.

We all agree that the reform of party funding is part of a programme needed to restore trust in our politics—although I think that keeping promises on things such as the EU referendum are equally important. The noble Lord might consider that as well. There is a perception that large donations—whether by individuals, shadowy purpose-built partnerships incorporated on Fifth Avenue or organisations such as trade unions—can buy undue influence over policy or patronage. That is why we tabled radical proposals in early 2006, why we supported the subsequent appointment of Sir Hayden Phillips and took part constructively in those discussions. As evidence of our commitment, we accepted that as part of an overall settlement, there could be an increase in state funding for parties, even though we neither seek it nor think it desirable. Many people think it would be a sad day if parties became predominantly dependent on the state. Nor do we accept that there is an arms race in spending between the parties. I would like to see what evidence there is beside the assertions in the report from the Neill committee. However, we accepted that there could be overall caps on spending by parties even though all the evidence is that it is how money is raised that the public worry about, not how it is spent.

It was explicitly accepted by the then Prime Minister, Mr Tony Blair, that there would be no no-go areas in the discussions. In particular, union funding would not be exempt from any donation caps. Does the noble Lord accept that three things were always understood between the parties: first, that reform had to be comprehensive; secondly, that there should be no cherry-picking of proposals for legislation by the Government to serve their own party's partisan interests; and thirdly, that nothing would be agreed until everything was agreed?

There is much in the Statement that is neutral in its effects as between the parties, especially in terms of reform of the Electoral Commission, whose record has been disappointing and which has presided over a calamitous so-called modernisation of our voting systems, which has, as your Lordships' House repeatedly warned, enabled increased fraud and undermined trust in our electoral system. However, there is no cross-party consensus on the key areas of caps on donations and spending, and on additional state funding. The discussions came close to agreement, but will the Minister not accept that they foundered on the key issue of whether trade union donations should be subject to donation caps on the same basis as other donations? Why should they not be? Why did the Minister’s right honourable friend, Mr Straw, refuse to discuss giving

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union members the right to a real choice over whether to pay the political levy? Could it be anything to do with the state of finances of the Labour Party? Does the noble Lord acknowledge that when less than half of union members vote Labour, let alone want to support it financially—and yet unions declare that 100 per cent of their members are paying the political levy to Labour—the idea that these are voluntary donations carries little conviction?

Will the noble Lord also accept that it would be unthinkable for Government to force through caps on what parliamentary candidates can spend from money that they have raised privately, while sitting MPs can spend ever more of taxpayers' money, as they do, on promoting themselves? We came close to an overall comprehensive agreement that could genuinely have started to repair the public's trust in politics. As my right honourable friend Francis Maude said again today, we could still do so. But it would require the Government to accept that dependence on a small number of union bosses has to end. One party's dependence on union bosses must not prevent us getting the reform our politics so desperately needs. We are still ready to work for agreement on fair rules that affect everyone, but we cannot accept a one-sided partisan Bill that the Government intend to bring forward designed to protect the interests of the governing party at the expense of all other parties in the country.

6.05 pm

Lord Rennard: My Lords, the proposals outlined are a very modest step towards the further necessary reform of the system for controlling the funding and expenditure of political parties. Of course, they will be welcomed on these Benches, although I suspect that we and many others will wish that they had gone much further than is proposed. The appointment of some members of the Electoral Commission with hands-on party political experience will be very welcome and was argued for by these Benches and by others with relevant experience during the passage of the legislation in 2000.

We want the commission to be effective and realistic. We believe that these proposals will help. We want it to have greater investigatory powers and for it to flush out into the open the activities of unincorporated associations that try to hide behind a cloak of anonymity to fund certain political parties. The proposals for expenditure controls are very modest. We argued in 2000 for lower limits to what parties can spend during election campaigns. Reintroducing the trigger for the start of the period in which election expenses are limited and increasing the categories for expenditure that must be included within limits will help. But it would have been easier and better to have simply reduced the amounts that parties can legally spend. Reducing the disproportionate influence of a few rich men—a number of whom sit in this House or have aspired to do so—is a worthy aim. But these proposals do not substantially address the problem that our system allows millions of pounds to be worth more in real influence than millions of votes.

I hope that the Minister will confirm that this is not the Government's last word on party funding. He will understand that we seek to go further more rapidly.

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Furthermore, will he accept that while no one party should be able to secure partisan advantage by changing the system in its favour, no one party should be able to benefit disproportionately from the largesse of a few millionaires by vetoing further steps towards reform?

6.08 pm

Lord Hunt of Kings Heath: My Lords, I thank both noble Lords for their comments on the Statement. The noble Lord, Lord Henley referred, to this as the squeezed Statement in the middle. I rather thought that we were the generous filling in the middle. We will see where that gets us.

I agree that the whole question of party funding is important, as is public confidence. It is a matter of genuine regret that the noble Lord’s party has moved so far from where it appeared to be when the Hayden Phillips proposals were first announced. I remind the noble Lord that his noble friend Lord Strathclyde said on 15 March 2007:

What a great pity it is that his party chose to walk away at a moment when agreement seemed possible. I do not usually quote from members of the Liberal Democrat Party, but as Mr David Heath said on 30 October 2007:

Hear, hear, my Lords.

As I said in the Statement, the proposal about state funding, which came from the work of Hayden Phillips, helps to acknowledge that if there were a cap on donations, there would be a shortfall in funding. As the Statement makes clear, we believe that there would have to be political consensus on that matter and clear, public support. We do not think that we are in that position at the moment but we stand ready to discuss this further with the political parties.

On trade union funding, it is worth recalling that Hayden Phillips said in his work that affiliation fees may be regarded as individual donations, provided that there was transparency and the funds were traceable back to individual donations. I say to the noble Lord that donations to trade unions are already more regulated than donations from other organisations. The new committee’s report of 1998 said that no case for reform in relation to trade unions had been made. I remind the noble Lord that the evidence from his party in 1998 was that it was not illegitimate for the trade union movement to provide support for political parties. I also point out that in 2005, only 45 per cent of political funds from affiliated trade unions went to the Labour Party; that the 10-year ballots that trade unions have to have show continuous support for them to have political funds; and that between 2000 and 2006, only three complaints were received about this matter by the certification officer regarding political funds, two of which were withdrawn and one of which was not upheld. Around 10 per cent of trade union members opt out of making political funds. The trade union and Labour Party organisations have confirmed that they have agreed to respond positively to the Hayden

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Phillips proposals about transparency and traceability by including clear information about political funds on membership forms and moving over time to full affiliation of all levy-paying members.

The noble Lord, Lord Henley, referred to incumbent funds or the communications allowance. That is available to all MPs to enable them to do their constituency role. The communications allowance was unanimously approved by an all-party committee of senior MPs—the Members Estimate Committee—which included Members from his own party. He said that he does not believe that there is an arms race but the reports state that the estimated expenditure of his party and my party in 2005 was £90 million; that is up from £65 million in 2001. I would have thought that that was very clear evidence indeed of an arms race. Given that the talks had gone so well, it was a very great pity indeed that the noble Lord’s party chose to walk away at the last moment.

The noble Lord, Lord Rennard, said that the proposals were modest; none the less, they are important. As he said, changes to the Electoral Commission—greater focus on ensuring integrity of the system, greater sanctions, greater investigatory powers and the appointment of commissioners who have some experience of the political process—should enhance its role as an effective regulatory body. On the more fundamental issues, this is not, of course, the last word. I agree with the noble Lord that no one party should have a veto. However, it is in the public interest that we should try to achieve as much consensus as possible.

6.14 pm

Lord Campbell-Savours: My Lords, why do we need consensus on the question of a cap? What is so desperately important about that consensus?

Lord Hunt of Kings Heath: My Lords, in terms of the integrity of the political process and how the public regard the political parties and their finances, the arrangement is likely to command much more confidence if there is general agreement, as we had with the Hayden Phillips review and the cross-party discussions. It is sad that we are not there but that does not mean that we should not strive for that again.

Lord Hamilton of Epsom: My Lords, is the Minister entirely comfortable with incumbent funds and the communications allowance, which normally amounts to a glossy that comes out shortly before local elections telling us about all the wonderful things that the Member of Parliament has done? Under any of the old rules, the sitting Member always had an advantage over the candidates who stood against him because he communicated with his constituents. Is it really right that taxpayers’ money should be used to enhance the position of a sitting Member to the disadvantage of the candidates who oppose him in an election?

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