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In the report of the noble Lord, Lord Neill of Bladen, which gave rise to the present Act, he suggested that a party should have been able to accept a donation from someone who was on the electoral roll, or who was known to be eligible to be on the roll. A Conservative amendment to include the latter category was lost in your Lordships’ House after the Government argued that:

“It would be no easy matter for a registered party to establish whether a donor whose name did not appear on an electoral register was nevertheless entitled to register”.—[Official Report, 21/11/00; col. 695.]

That might be so, or it might not. People may not want to be on the electoral roll for a perfectly respectable reason, such as not wanting to reveal their address for security reasons, but a party might be satisfied that they were bona fide resident taxpayers in this country. If so, I suggest that the party should be able to accept a donation, perhaps while informing the commission in each case. There will not be many such cases.

I appreciate that the present rule gives certainty and clarity, but the Bill does allow in Clause 17 for candidates to withhold their addresses from general scrutiny, and therefore moves in the direction that I suggest, although I appreciate that the clause is somewhat controversial for some of your Lordships. The object of the exercise is to prevent foreign and anonymous donations; if we can achieve that without penalising even a small number of people, perhaps we should try to do so. I look forward to the Government’s views on my two suggestions.

6.49 pm

Lord Rennard: My Lords, the quality of today’s debate has been assisted by the high proportion of us who have felt the need to declare an interest. Perhaps none of us should be here if we did not have an interest in this subject. I declare my interest formally, as chief executive of the Liberal Democrats and a salaried employee of the party.

Nine years ago, a number of us, including the Minister, the noble Lord, Lord Bach, participated in many debates during the passage of the Political Parties, Elections and Referendums Act 2000. All those of us here today who took part in the debates nine years ago would agree that the Bill we are examining aims to put right some of the things that were not right in the Act. I welcome in particular both a reduced burden on

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local party treasurers—people who need appreciation and respect for their voluntary work—and the strengthening of the investigatory powers of the Electoral Commission. I am sure that both principles are right.

The noble Baroness, Lady Jones of Whitchurch, and the noble Lord, Lord Hodgson of Astley Abbotts, both spoke with feeling and experience on the need to reduce the burden of bureaucracy on voluntary local party treasurers. The noble Lord, Lord Neill of Bladen, on the other hand, asked how raising the donation threshold so significantly would reduce the level of bureaucracy. It seems clear that, by raising the threshold in this way, many local party treasurers will no longer have to make any returns, which will reduce their paperwork and the stress put upon them. It is not donations of up to £500 that we should be worrying about when considering the Bill.

The noble Lord, Lord Clinton-Davis, and my noble friend Lord Goodhart asked why such large increases were needed. I point out that these are the first increases since 2000, nine years ago, and that we may not have further increases for a significant period of time. I have no doubt that the Minister will refer to the fact that the Electoral Commission, while initially expressing reservations about the large increase, decided that it would not oppose higher thresholds. Above all, we must consider that the burden of bureaucracy on volunteers would be wholly disproportionate to the benefit of any transparency over donations at a level below £500.

Sadly, the debate has reflected the fact that the Bill still fails to address fundamental problems affecting the health of our democracy. My noble friend Lord Tyler drew attention to the failure of the Bill to address the problem that our system allows millions of pounds to count for more than millions of votes. He made the democratic case that the ballot box should be more important than the bank balance. Figures supplied by the Electoral Commission show that almost half of the Conservative Party’s income from donations in 2008—some £10 million out of the £22 million raised—came from donations in excess of £100,000. More than two-thirds of the Labour Party’s income from donations—some £16.5 million out of £23 million—came from donations in excess of £100,000; and half the party’s total income—around £12 million—came from trade unions. For the record, around a fifth of the Liberal Democrats’ income from donations in 2008—just over £600,000 out of £3.2million—came from such large donations.

The donation patterns show three things. First, there continues to be an unhealthy arms race in relation to party spending, which the legislation in 2000 failed to halt. Secondly, those making the largest donations can be seen to have a significant, and possibly even corrupting, influence on the parties, if their proportion of the overall donation level is very high. Thirdly, all the parties have concluded, despite public protestations, that cash counts for a lot in politics, and can have a decisive influence in the outcome of elections. All the parties feel that they need money to compete, otherwise they would not seek these large sums. The case for a cap on very large donations, as was proposed and nearly agreed in the discussions with Sir Hayden Phillips,

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will be made again. I was delighted this afternoon to hear both noble Lords, Lord Hodgson of Astley Abbotts and Lord Marland, supporting this principle.

There have been a number of references in our debate to the proposed changes to the composition of the Electoral Commission. It is fair to say that the commission had reservations about these changes, but has now accepted the principle of having a minority of commission members with hands-on political experience. Some of us with such experience, including the noble Baroness, Lady Gould of Potternewton, argued in 2000 that the Government were wrong and that the political parties panel was an inadequate way of enabling the commission to have the necessary insight into electoral processes. We feel vindicated now. We would reassure others that the political members of the commission will be in a minority, but will be able to assist fellow commissioners on the basis of being poachers-turned-gamekeepers.

I turn to the issue of the trigger and constituency limits. I expect that in future debates we will return to the controversy surrounding the “trigger mechanisms” for starting the period for which candidates and agents must limit their expenditure. My noble friend Lord Tyler explained the absurdity of making an arrangement in legislation that would apply only to a small number of Parliaments; two out of the past 12.

The old trigger mechanism for starting a candidate’s election expenses was inadvertently abolished during the passage of the Political Parties, Elections and Referendums Act 2000. Suggestions have been made to reintroduce such a mechanism for a period of four months prior to polling day. The proposals, initially from the Electoral Commission, were rejected during the passage of the Electoral Administration Act 2006, when everybody agreed that a four-month rule for counting expenses was impractical, because in the absence of fixed-term Parliaments, no one knows when it is four months before polling day. A cap on expenditure, at national and local level and over the course of a Parliament, would make much more sense than a cap over the period from the 55th month of the Parliament through to polling day. A cap on expenditure should apply every year, not just on national spending in the last 12 months of a Parliament, as at present, nor just on local spending in what looks likely to be the last four months of this Parliament.

The noble Baroness, Lady Gould, agreed that there was a problem. Perhaps I have an answer. Spending caps should apply every year and should start to be applied from the day after each general election, when we all know that the campaign begins for the subsequent general election. A major problem with the current proposals is that they still fail to address the unintended consequence of the change nine years ago that permits any amount of what is deemed to be “national expenditure” to be targeted at particular constituencies. This has exacerbated the potential for multimillionaires to buy influence over the electoral process, by allowing them to concentrate expenditure on marginal seats.

The noble Lord, Lord Ashcroft, is not here today to defend the way in which he could boast of giving well in excess of £10 million to the Conservative Party before the last election and his claim that his money influenced the outcome in 25 of the 33 seats that the

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Conservatives gained in 2005. I should still like to persuade the Government to cap such donations nationally. However, to have any effect on what is sometimes called “the Ashcroft problem”, we must bring back an effective cap on constituency spending by properly defining what is local and what is national expenditure in particular constituencies during an election campaign.

Having failed to bring back the old trigger, the problem now is that many tens of thousands of pounds—perhaps hundreds of thousands of pounds—can be spent legally in particular constituencies in the immediate run-up to polling day if the expenditure is deemed to be part of a party's national rather than local campaign. This sort of expenditure will not be capped by the proposals in the Bill, and the Bill as drafted completely fails to deal with the problem. It means that millionaire funding allows parties to place advertisements targeted on local newspapers in certain constituencies; it allows them to pay for huge billboard advertising sites that appear only in their targeted seats; and it allows them to bombard target voters in those seats with dozens of national mailshots from the party leader. At the same time, an MP or a candidate from a party without such wealthy backing finds that any personal promotion is subject to a very strict and small local limit. That cannot be right; it is not democratic and must be changed before our next election, which could be corrupted in a way that has not been the case in this country since the era of rotten boroughs in the 19th century.

Finally, I turn briefly to the subject of individual voter registration, which has been raised by many other speakers. Among the mistakes that I believe we made in 2000 was allowing postal voting on demand without proper safeguards being in place. We have made some progress since then, particularly in the Electoral Administration Act a couple of years ago, but more must be done if we are to have proper safeguards against fraud.

At the same time, I recognise that we need to ensure that the electoral register is as accurate and complete as possible, and the belated moves towards individual voter registration are very welcome to many of us. However, I think that the Government’s approach to this whole subject has been reminiscent of the old phrase, “Lord, make me holy but not yet”. Postal voting came in in 2000 but the necessary safeguards produced by individual voter registration may not appear until perhaps 17 years after that or even later, when four general elections may have taken place, along with numerous other elections to other bodies. It is simply not good enough to say that we will have to wait until then.

I look forward to the further stages of the Bill and to the opportunity that it presents for a further attempt to halt the arms race on spending, clean up the reputation of politics and ensure that power lies where it belongs—with the voter and not with the funder.

7.02 pm

Lord Henley: My Lords, I join other noble Lords in thanking the Minister for his clear exposition of what is in the Bill and I look forward to the Committee and

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Report stages with the noble Lord answering all the questions that will be put to him in due course. I also look forward to him bringing forward the other parts of the Bill that he has promised. As he will be aware, this Bill is already very different from what was originally introduced in the Commons and it will differ further, we hope, following the Committee stage. As the noble Lord, Lord Neill, put it, it is unfortunate to have Second Reading of the Bill when a rather large part of it is not there. However, I shall come later to the subject of individual voter registration.

I start by declaring an interest, albeit a very small one compared with what my noble friends and others have declared, but I think that it is important. For many years, I have been active, like many others, in the local constituency association where I live and I am a former chairman of that association. Like the noble Baroness, Lady Jones of Whitchurch, and my noble friend Lord Hodgson, I think that the state of our parties is a matter of considerable importance and that we should all do all that we can to encourage greater participation in the voluntary side. In particular, I should like to encourage greater participation in the voluntary side of my own party, but I would hope that the other parties might benefit as well.

That should be borne in mind in all our discussions on the Bill because it is important that, as many noble Lords have put it, we do not impose burdens on individual members of associations—we all think particularly of treasurers—that discourage people from becoming actively involved in those associations. I mention treasurers in particular because I remember that when I was chairman of my own local association, we brought in a new constitution, one of the sensible rules being that no officer should remain in office in the association for longer than three years. However, we suspended that almost immediately when we realised that we were not going to be able to find a new treasurer. I think that many people who have been involved in their local associations will have come across that problem. That needs to be borne in mind, particularly when we come to the question of the levels at which to set the various sums that need to be disclosed.

As I said, the Bill is rather different from what was originally introduced and it will change further. I want to discuss a few points before I hand over to the Minister and allow him to answer properly for the Government. The first relates to Clause 13, which concerns the thresholds and limits for donations. These have not been changed since 2000. For that reason, we think it right that they should go up and we will certainly put forward amendments to allow us to discuss whether they have gone up by the right amount or whether they should go up further. That will be an opportunity to debate these matters nine years on from 2000.

It is also important that we should look at the mechanism for increasing those sums in the future. I can see that simply bringing in a power to increase them in line with the RPI each year would, again, make things very difficult for people on the voluntary side of the parties. The thresholds would go up by odd sums and it would be very difficult to remember them.

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Therefore, a better approach might be to have some mechanism by which the thresholds could be increased once each Parliament by an appropriate amount that could be looked at by all those concerned. The increase could be broadly in line with inflation or, if necessary, the thresholds could be changed by a greater amount. That could be done by order or it could be included in the Bill. I should certainly welcome the noble Lord’s views on that and on the whole question of what the thresholds in Clause 13 should be.

I move on to Clause 14 and the whole question of triggering. I should like to hear from the noble Lord exactly what the point is of having this triggering mechanism at 55 months. As the noble Lord, Lord Rennard, said, it would have applied in only two of the past 12 Parliaments. It seems a rather pointless thing to have included in the Bill, but the Minister will no doubt give his justification for it in due course and I shall welcome hearing what he has to say.

I turn to the question of penalties—or civil penalties, as I think they were described. The noble Lord, Lord Neill of Bladen, rightly made the point that they might be called civil penalties but they look more like criminal penalties than anything else. That was dealt with by the noble Lord, Lord Goodhart. I underline that these will be very difficult for individual members of an association—again, I think particularly of the treasurer—who might, inadvertently, make mistakes. We are all told that ignorance is no defence in criminal law. However, we are told that these are not criminal but civil penalties, although to me they look like criminal penalties. The point is that it does not make the whole job of compliance very easy for the individual member of an association. Would the Government be prepared to consider whether there might be a defence of inadvertently not knowing what was going on? Again, we will bring forward amendments on that in due course.

I now come to the part of the Bill which is not there and which we are debating without having seen it—that is, the part concerning individual voter registration. We were told—I think in the Minister’s response to a question from his noble friend Lord Campbell-Savours—that an amendment will be tabled before the Committee stage. It would have been more helpful to see something now. I appreciate that the Minister could not amend the Bill before Committee, but even a draft of what was coming might have assisted us in this Second Reading debate. Although we have agreed that the Bill will go into the Moses Room for Grand Committee, I have some questions on that in the light of this new and big subject coming in. I make that point simply for the assistance of the usual channels, who can discuss it and tell us their conclusions; we will no doubt do what they say.

We are told that amendments will be tabled on individual voter registration but that, for some peculiar reason, they cannot be brought into effect for at least eight or nine years from now—2017. That is a suspiciously long time and we wonder why the Government are so keen to ensure that individual voter registration is not operable for at least the next two general elections. We know that there may be an election some time later this year or, at worst, in June of next year and that

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there will be another in about 2014. I appreciate that it is too early to get anything going for the coming general election, but surely the Government could manage something a little sooner than 2017. After all, this system has been tried and tested in Northern Ireland for some years. We shall be tabling amendments to that effect and I imagine that others will want to question why the Government are being so slow on individual voter registration, which is of considerable importance if we are to stamp out the fairly high degree of postal vote fraud in the past few years.

As is frequently said at the end of the Queen’s Speech, “Other amendments will be put before the House”. Certainly my noble friends and I will make sure that others are brought forward. For example, as suggested by the noble Lords, Lord Neill of Bladen and Lord Rennard, further constraints could be put on postal voting. We will want to give serious consideration to those matters. I wish the Minister well. As I said, we broadly support the Bill as it now looks and we very much support the idea of individual voter registration and what the Minister will introduce, but we will want it a little sooner than he suggested.

7.14 pm

Lord Bach: My Lords, I think that I should declare an interest—perhaps I should have done so sooner. I am currently chairman of the constituency Labour Party and was for many years treasurer of a constituency Labour Party, but I am glad to say that I gave that up well before 2000.

This has been a lively, interesting and well informed debate. There is fantastic expertise in this House on these subjects and the Government are grateful to noble Lords for their contributions. However, I feel that the Bill is in a rather unusual and unfair position as it has been attacked for not being something that it has never pretended to be. It is not the final answer to what has been described as the democratic deficit in this country. That is not this Bill at all. It has a more modest intention; it represents a significant attempt to make important improvements where we can, by agreement. My noble friend Lord Clinton-Davis said that to him it represents an advance. That is what it is supposed to be. It is not the final answer to all these issues. It is particularly an advance, we hope, towards a system of party funding that is, first, more transparent and, secondly, better regulated.

It is in the interests of all parties for the regulations governing party finance and expenditure to be strengthened and for the public to have faith in the democratic process. We have heard interesting comments on all sides about what noble Lords consider to be the democratic state of the nation. We believe that all this can happen only through a consensual approach. These are not matters that can best be decided by partisan politics. The Government’s commitment to move forward on the basis of broad consensus is reflected in the Bill. That does not mean agreeing about everything but is about not doing something that is so out of tune that it is fundamentally opposed. I repeat that the Government are in listening mode to representations as the Bill proceeds, and I suspect that there will be broad support for many of its aspects.

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Noble Lords have raised important matters and I look forward to debating them in Grand Committee. In advance, I shall try to deal with some of them now, but I am setting myself a strict time limit because I know that my noble friend beside me will do it if I do not. I start with the issue of donation caps, which is very attractive to noble Lords on all sides of the Chamber, and I can understand why. It is important to go back to Sir Hayden Phillips on this point. To implement a cap without introducing greater state funding would result in major financial instability for political parties. He is right about that because it would impose significant restrictions on parties’ freedoms to raise their own funds, and an increase in public funding would be needed to offset the effect of a cap on donations. In other words, his view was that without increased state funding, it was not necessarily right to impose a donation cap. As we have made clear, such fundamental reform of the current party funding regime would need to command cross-party consensus and the confidence of the public. Frankly these conditions do not currently exist.

The noble Lord, Lord Rennard, made an interesting point—all his points are very interesting—about spending limits starting each year. We do not believe that it is possible to reach consensus on any more fundamental reforms at present. In its limited way, the Bill represents quite a step forward and has broad cross-party consensus. On raising recordable thresholds, as has been referred to from the start of this Second Reading debate, there are differences of opinion. Some believe that we should not raise the threshold at all; others that we should raise it by a little; one or two may even agree with the Government that moving from £200 to £500 is right; but others think that it should be more than that. Let us see how our debates go. The Government’s view is that we have it right.

The interesting point is what we should do in the future. The noble Lord, Lord Henley, had an interesting idea, which may find some support. It would require the Government to review these thresholds once during the life of each Parliament. We want to consider that proposal and perhaps come back to it at a later stage.

Lord Clinton-Davis: My Lords, would it not be preferable to have a situation where this issue could be looked at in the light of events and proceed by regulation?

Lord Bach: My Lords, that may be so. Let us see what comes forward in Committee on this matter.

Lord Pearson of Rannoch: My Lords, do the Government have anything to say about the Electoral Commission’s fear that raising the threshold from £200 to £500 may increase the temptation for cumulative donations under £500?

Lord Bach: My Lords, we of course take note of what the Electoral Commission says and have great respect for its opinion on that matter, but it does not necessarily decide what we want to do in this field. We will come back to these issues in Committee. I have a lot of ground to cover and, for various reasons, I do not want to hold the House up longer than I have to tonight.

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