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If carried and enacted, there is a riskI choose my words carefullythat the amendments would interfere with Article 10, Article 11 or Article 3 of Protocol 1 of the European Convention on Human Rights.
Lord Goodhart: My Lords, will all respect to the Minister, that seems to be a highly improbable interpretation of Articles 10 and 11 and Article 3 of the Protocol. Is there any authority that binds the Government not to accept legislation of the kind covered by this amendment?
Lord Bach: My Lords, will the noble Lord just hear my argument on this, which I hope will deal with the point that he raises? Those articles are the right to freedom of expression, the right to freedom of assembly and association and the right to free elections. The articles might be engaged by limitations on the making of donations and any steps taken in this area would need careful legal considerationI do not go further than thatin order to ensure that the proposal was compatible with the relevant convention rights. We do not say that it would breach them; we say that, if we do not consider imposing the restriction alongside the other restrictionsthose on voting or being able to stand for Parliamentthe risk of breach is, we believe, on advice, greater, because of the anomaly that it creates, for which there would be no obvious justification. This strengthens the argument for wider consideration of the whole matter, as we propose. I concede that the legal position is difficult and needs very careful consideration. If we are going to do something like this, we need to get it right. Without wider consideration, we genuinely risk not getting it correct.
Lord Maclennan of Rogart: My Lords, is it seriously the Governments intention to suggest that the European Convention on Human Rights would restrict the prevention of an election from being bought by people who are not even resident in the European Union? The Minister has not answered in one respect my noble friends inquiry as to whether there is any legal justification or legal precedent for the astonishing assertions that he has made.
Lord Bach: My Lords, the advice that the Government have received on this issue is, I repeat, that there is a risk that we would be held in breach. I cannot do more than that; the noble Lord can make up his own mind.
Lord Bach: My Lords, noble Lords laugh, but that is a little unfair. The advice that we have received from our officials and that I mention to the House in as moderate and as cautious a way as I can is that there is a risk. If I was advised that there was no risk, I would not say that there was a risk. If we are told that there is a risk, I think that I am duty-bound to tell the House that, even if I have to do it through the laughter of noble Lords.
If we are to focus only on donations, as the amendments propose, rather than on the full range of democratic participation, we think that concern would be heightened because, for a restriction of this type to be lawful, it has to be justified and proportionate in the interests of a democratic society. Focusing only on donations, as this amendment does, begs a question when assessing the compatibility of the proposal with ECHR rights. Why place a restriction on donations in this way now, but not on other forms of participation, on the grounds of tax status? There may be no easy answer to that question, especially if we have not considered, at the same time, whether it would be justified and proportionate to impose similar restrictions on other rights as well as this one, or, indeed, instead of it. We see that a wider review of the range of possible restrictions is essential in order to ensure that the approach taken here is lawful and proper. Without it, the risk of a finding that the proposal is incompatible with the ECHR is increased. This sort of review is exactly what we propose and the position of the lawfulness of this sort of restriction will be much clearer for it. A review such as this, however, is a major piece of work and is not possible within the timescale to which this Bill is working.
Finally, we must not forget that the effects of these amendments would, in some cases, be to restrict the rights of UK citizens to participate in the democratic system. This will add extra difficulty. Any proposal that seeks to link an individuals taxation status to their ability to donate would require clear information on the taxation status of all potential donors to be readily available. That information would need to be accessible to political parties and the Electoral Commission for the purposes of checking whether a donation was permitted. There are obvious and serious concerns about data protection.
Her Majestys Revenue and Customs is the body that can establish whether an individual is resident and domiciled in the UK for tax purposes. However, as this information is relevant only to the tax liabilities of certain people with non-UK income, it does not routinely hold this information for all taxpayers. Even for those individuals who self-assess their residency or domicile status, this information is not in an easily accessible, retrievable or list-based form.
Of course, HMRC can, where necessary, undertake an investigation to establish the residence and domicile status of any particular individual. Such investigations can involve considerable time and expense and are made on the basis of a risk assessment. To conduct an investigation into every individual who makes a political donation would require an investigation into an individuals status at a given point. This would be a very significant undertaking and would need to be
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An individuals domicile status is separate from his residence status. Domicile is a common-law concept relating to the country that a person thinks of as home. This is composed of a number of factors, such as the birth country of the father and the country with which a person feels that they have the most ties. It is not always straightforward for an individual to determine their domicile status. Many individuals are unlikely even to be aware of their domicile status, since it is irrelevant to their tax affairs, and they could therefore unwittingly commit an offence by making a donation that would be impermissible under these amendments.
It is quite possible for someone to live in the UK for a number of years without acquiring UK domicile. For example, an Australian might live in the UK for 20 or more years but have family in Australia and intend returning to Australia on retirement. Despite the fact that this person was paying full UK tax on all earnings, their domicile could still be in Australia, meaning that, under these amendments, it would be an offence for them to give a political donation. I would be grateful if my noble friend would deal with that example in his reply and explain to the House why the amendments in his name would not lead to that completely unfair result for that individual.
Even if Her Majestys Revenue and Customs were able easily to establish the taxation status of all donors, questions would remain as to how the requirement in the amendments could be enforced. Recipients of donations and the Electoral Commission would face great difficulty in verifying whether what a donor told them about their taxation status was accurate. As the House will know, the 2000 Act requires a donee to verify that a donation is permissible before accepting it. Requiring donees to be certain that a donation is from an individual who is both resident and domiciled in the UK for tax purposes would be a significant obligation that the House should be careful about imposing. The obligation could result in a reduction in the income of political parties.
Realistically, the obligation could be satisfied only if parties and the commission were granted access to the information held by HMRC, either routinely or on a more limited basis. HMRC has a statutory duty under Section 18 of the Commissioners for Revenue and Customs Act 2005 to maintain taxpayer confidentiality. I hardly need say that the data-sharing and confidentiality implications of granting an exception in the case of all donors are, whether we like it or not, significant and would need to be thought through very carefully.
I note once again that the Electoral Commission has expressed concerns about the workability of these proposals and their impact on political parties and other regulated entities in its briefing notes in advance of Committee and Report. On workability, the commission noted:
In many cases it may be difficult for the recipient of a donation to verify whether the donor is a resident in the UK for taxation purposes and not a non-domiciled UK resident. Further, Parliament may wish to consider the administrative implications for HMRC should the amendment be agreed. Commission data suggests that more than 1,000 individual donations would need verification annually.
In order to assess whether any donation from an individual is permissible, the recipient would need access to authoritative information about that individuals tax status. The Commission would also need access to that information to confirm compliance. We think it highly unlikely that this will be achievable in practice, or (if so) that the resulting burden on regulated entities and on HM Revenue and Customs would be proportionate.
When we considered this point in Grand Committee and, of course, tonight, my noble friend Lord Campbell-Savours and others suggested a number of ways in which they thought that this problem might be addressed. My noble friend suggested that tax returns could include a tick-box for donors to indicate their taxation status and that the Electoral Commission could then certify with HMRC that a ticked return had been received.
I have to advise noble Lords that tax returns already allow for people to declare whether they are resident and/or domiciled. However, most people are not required to complete a tax return at all. About 9 million people complete a return each year out of a UK population of 60 millionthat is about 15 per cent. I remind the House that you have to make a return only if, first, Her Majestys Revenue and Customs sends you one or, secondly, if you have tax to pay and it has not sent you one. A vast majority of people pay the right amount of tax under PAYE or because tax is deducted at source, as with bank interest, so there is no tax to pay and no return needed. Fifty-one million people in the UK do not make a return each year; 9 million people do. Thus, for my noble friends suggested solution to work and to ensure that all donors had declared their residence status via a tax return, Her Majestys Revenue and Customs would have to issue many more tax returns for non-tax reasons. That would involve significant additional public expenditure, including potentially, we have been advised, the need to overhaul IT systems to enable them to cope with the routine of tax returns.
Lord Bach: My Lords, I am explaining that a very large number of people do not fill in tax returns, but there may well be people who, as in the Australian example that I gave to the noble Lord, are not domiciled in the country but pay UK tax through PAYE and have done for many years. That would mean that HMRC would have to change the way in which it did things at large public expense and with new IT if the amendments were to be carried and became law.
Requiring donors to tick a box on their return would not overcome the retrospection objection to which I have referred. People are required to complete a return 10 months after the end of a tax year. If an individual makes a donation in the middle of one tax year, it might not be reasonable to expect them to know at that point what their residence status would be by the end of the year. Even if this information were collected, it would, as things stand, be illegal for HMRC to share it with the Electoral Commission.
The noble Lord, Lord Tyler, noted tonight as well as in Grand Committee that the House of Lords Appointments Commission announced recently that it would strengthen the existing criteria requiring that nominees should be resident in the UK for taxation purposes. He argued that this process sets a precedent that could be used to confirm the permissibility of donors. However, the number of people seeking membership of your Lordships House is far smaller than the number who make donations to political parties. As we have heard, Electoral Commission data suggest that more than 1,000 individual donations would need verification annually. By contrast, fewer than 10 people are appointed to this House annually on the recommendations of the Appointments Commission.
Indeed, the relationship between the Appointments Commission and HMRC is not a formal gateway for sharing information. HMRC simply informs the commission whether an individual meets all the criteria. These criteria include residence, but also whether there is an indication of any tax irregularities such as an investigation being under way. It is important to note that HMRCs response does not go into detail other than to give a yes or no response to the query as to whether there are any issues of concern in an individuals tax records.
Lord Lea of Crondall: My Lords, I must have misunderstood what the Minister said, and I would be grateful if he would clarify it. The Appointments Commission, as we all know, is not yet subject to the Bill of the noble Lord, Lord Steel, which stipulates a statutory appointments commission, and deals in effect only with Cross-Benchers. Am I right that these Cross-Benchers are the people we are talking about?
Lord Bach: My Lords, indeed not. It was suggested that the House of Lords Appointments Commissions method of proceeding was a way that Her Majestys Revenue and Customs could proceed. However, the numbers are vastly differentthat is the point at issue. There are very few people each year who apply to join the House of Lords compared to the large number of people who make donations to political parties, so it would not be an easy job for Her Majestys Revenue and Customs to supply answers, whereas it is comparatively easy for it to do so for those who apply to join the House.
Lord Bach: My Lords, in principle almost anything is perfectly possible. Those of us here whose job it is to pass legislation that will work in the real world have to look beyond that to see whether what we are suggesting
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Lord Bach: Well, it is important that the Government case is put, my Lords, particularly as this is a matter of some controversy in the House. I am sorry if noble Lords are becoming slightly impatient. As I have said, we understand completely the argument that my noble friend makes so well in raising the issue again through these amendments. I hope that he and other noble Lords have no doubt that the Government take the concerns seriously. We are continuing to reflect on how the issue might be taken forward. As I have said, the new democratic renewal council will have the issue on its agendabut as a whole, not in part. These are complex issuesI do not think that any noble Lord would disagreethat must be considered in detail before any change in this area can be made. Failure to do so would leave us with flawed and unworkable law. It is all very well for us to talk about our scrutiny role, but that is to make sure that laws are not flawed or unworkable. Our strong view is that if we pass the amendment, we would be left in that position.
Noble Lords will be aware that the issues of constitutional change and renewal are at the top of our political agenda. Many options for reform are being considered and discussed. The amendments before us, and the debate that we have had today, which I have praised already, are an important part of that discussion. However, the Governments point is that it would be wrong to make change in only one small area now, as the amendment seeks to do, without considering the whole picture. It would be wrong to pass legislation that would not achieve its objective. It would be particularly wrong to do so before the logistics and data-sharing issues around such a proposal have been fully worked through. That is a major project, and realistically not one that can be completed between now and the Summer Recess, which we hope is the deadline for the Bill to obtain Royal Assent.
Lord Campbell-Savours: My Lords, my noble friend had very little to say about the position of the House of Commonsmany of us will wonder why. The hour is late, everyone is waiting to vote and there are many things that I would like to say in response to my noble friends contribution. What I will recall from this debate is his likening of the casting of a single vote to the contribution of millions of pounds to a political party. They cannot be the same, yet the Governments case seems to rest on that proposition, along with all the administrative difficulties that they say will arise in the event that the amendment is carried.
I simply dispute their case. We took widely available advice on the question of what the impact would be on the department. The arguments that my noble friend has used this evening are new in that area alone. All the other arguments that he used are in response to questions, and are arguments that I used in my own contribution and answered quite comprehensively. I am indebted to the noble Lords, Lord Tyler, Lord Borrie, Lord Williamson, Lord Anderson, Lord Lea of Crondall, Lord Oakeshott, Lord Rooker and Lord Warner, and to the noble Baroness, Lady Gould of Potternewton, for their contributions. In particular, I would like us to reflect on the words of the noble Lord, Lord Neill. He questioned what the publicthe man in the streetwould say if asked what he expected of Parliament. In his view, my view and, I believe, the view of the great British public, this should be sorted out now. This is our only opportunity and I call upon my noble friends to join me in the Division Lobby to test the view of the House.
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