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I come now to the final point in the Phillips recommendations. The summary firmly said this:

“I believe there is an emerging consensus that: the status quo, in which there are no caps on donations, is unsustainable and therefore donations to parties should be limited; and restrictions on donations should be buttressed by measures to prevent breaches of the new regulations”.

I agree wholeheartedly with that. I hope your Lordships’ House will as well.

I turn briefly to Amendment 39, which concerns the treatment of contributions from trade union political funds. Here again, there was very considerable consensus and agreement in the Hayden Phillips talks. I draw attention to the first part of our amendment, which sets out very clearly the intention of our special treatment of the trade unions. It says:

“The limit on donations established by”,

the section referring to the £50,000 cap on donations,

“shall apply to all expenditure out of trade union political funds unless—

I repeat: unless—

“all the conditions of this section have been fulfilled with regard to the expenditure in question”.

There follow very careful safeguards to ensure that the democratic will of members of trade unions is fulfilled but that, in those terms, the trade union has every right effectively to act as a collecting agent for a political party, or indeed for several political parties.

The proposals that the Hayden Phillips team looked at—again, I emphasise the cross-party agreement—were very carefully thought through so that they would not penalise a trade union for taking a sensible active role in British politics but would ensure that everything

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was as transparent and democratic as it could be. Again, I draw attention in the amendment to the final point made by the Hayden Phillips team:

“Due to the increased transparency and choice for trade union members the ten-year review ballot on the existence of the political fund is no longer necessary and should be removed”.

In other words, the quid pro quo, if I may put it like that, was that trade unions, by being more transparent and more careful in relation to their own members, and by giving them more transparency and democratic rights, would not have to suffer as much bureaucracy as they do at the moment.

I hope that with that fairly brief canter around this issue—because it has been discussed at considerable length in the other place, in the Hayden Phillips discussions and in Grand Committee—noble Lords will recognise that there is a quid pro quo in this group. By restricting the millionaires and the very big donors to political parties but, under the terms of my noble friend’s amendments, with a tax concession for small donations, we have a deliberate switch from the big boys to the general public, and that must be in the best interests of British democracy. I beg to move.

3.45 pm

Lord Goodhart: My Lords, Amendments 64, 65 and 66 would provide tax relief for small donations. Amendments 64 and 66 are in my name, and Amendment 65, which is an amendment to Amendment 64, is in the name of the noble Lord, Lord Campbell-Savours.

These amendments have been grouped with Amendments 38 and 39, which, for reasons explained by my noble friend Lord Tyler, would impose a cap on large donations. However, these two sub-groups, if I may call them that, are not dependent on each other. Tax relief on small donations can be given whether or not there is a cap on large ones, and a cap on large donations can be imposed whether or not tax relief is given for small donations. However, there is an interaction between these two sub-groups because a cap on large donations is likely to reduce party funds and, if that happens, parties will have to do more fundraising from ordinary members and supporters, as in the outstanding example of the fundraising by President Barack Obama during his campaign last autumn. Tax relief on small donations will also help to achieve more fundraising from ordinary members.

The idea of giving tax relief on small or moderate donations has had considerable support in the United Kingdom and has been adopted in a number of foreign countries. Tax relief on modest donations was recommended by the Committee on Standards in Public Life, of which I was then a member, in its report on party-political funding published in 1998. In that report, the committee proposed an upper limit for tax relief of £500. I have kept to that figure in this amendment, in spite of the time that has passed. I am glad to say that two other members of that committee are present: the noble Lord, Lord MacGregor, who was then a member and certainly, with me, was an active supporter of the proposal to allow tax relief, and the noble Lord, Lord Neill of Bladen, who was the chairman of the committee at that time.

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Giving tax relief on modest donations has many advantages. It is highly undesirable that all funds should come from the Government, as that greatly reduces the need to recruit members and discourages greater contact with voters. However, it is even worse if party funding comes mainly from a small number of rich donors making large donations. That is a travesty of democracy and enables rich donors to have far too much control over party policy. It is important to encourage parties by giving tax relief for small or moderate donations, including membership subscriptions. We recognise that giving to charities should be encouraged by tax relief to donors. We believe that tax relief could be extended to donations to political parties, as those donations are also very much in the public interest and deserve tax relief.

Tax relief has been given on inheritance tax in this context since the Inheritance Tax Act 1984—25 years ago—which exempted donations by will for the political parties that won at least two seats at the previous general election or one seat and at least 150,000 votes in total. Relief from inheritance tax should surely be extended to income tax. The obvious method would be to use a version of the Gift Aid system.

I suggest, first, that the eligibility of a party to claim benefit of tax relief should be the same as that now for inheritance tax; that is, two seats at the last general election or one seat and at least 150,000 votes. Secondly, tax relief should be limited to the first £500 of donations made in any one tax year by any one donor. Thirdly, whereas a charity donor can rightly reclaim a higher rate of tax relief on the amount of Gift Aid donations, donors to political parties should not be able to do so, to avoid putting the relatively well-to-do donors in a better position. Fourthly, tax relief should be given only for gifts by individuals.

All those conditions are set out in Amendment 64. They produce a simple and workable system, which in Grand Committee was supported by Members from all three parties. The Electoral Commission has said in its briefing for this Report stage:

“In principle the Commission welcomes measures that incentivise public engagement in politics and help parties to campaign effectively. Proposals for fiscal incentives are for Parliament to consider in the light of other priorities”.

The “other priorities” are the rub now. I recognise that we are in a difficult tax situation. I was asked in Grand Committee for an estimate of the amount of money that would need to be returned by the Government every year under the scheme. It is impossible to tell, but my guess put an upper limit at £5 million. Since the original version had cut off at £1,000 rather than £500 and, more importantly perhaps, since recent events must have decreased the willingness of members of the public to contribute to political parties, the present prospective upper limit is probably something less than £4 million.

I understand the problem, but if the Government are not willing to pay that small sum in the near future, I suggest two alternatives. The first would be to accept Amendments 64 and 66 but to withhold the commencement order for that new clause and schedule until the financial situation makes this easier. The other would be to accept Amendment 65 from the noble Lord, Lord Campbell-Savours, which is an

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amendment to my Amendment 64 and would reduce the cut-off point from £500 to £15 a year. I do not in principle welcome Amendment 65, because it would produce too little money, but if the Government were prepared to accept it, but not to accept the unamended format of my Amendment 64, I would say that a quarter of a loaf is better than no bread. In those circumstances, although not in others, I would accept the amendment proposed by the noble Lord, Lord Campbell-Savours.

Amendments 64 and 66 provide a simple system for the waiver of taxation on modest donations by individuals to recognised political parties. That is a good thing in its own right, and even more so if supplies of money to political parties are cut back by the capping of large donations. I invite your Lordships’ House to support Amendments 64 and 66.

Lord Neill of Bladen: My Lords, I speak in support of Amendment 64. As the noble Lord, Lord Goodhart, pointed out, I was chairman of the committee that recommended to Parliament that tax relief should be allowed on donations up to the sum of £500. In reply to something that I said on Monday, the noble Lord, Lord Bach, said that in nearly every case the Government of the day accepted the committee’s recommendations. On Monday, there was one example when they did not do so; here is a second example where they did not accept the recommendation in the 2000 Act. Further thought should be given to it today. One proposal that is occasionally raised but is now impossible is that funding should come directly from the state to the political parties. As a saleable proposition to the general public, that is now impossible, although it was always very unattractive.

The proposal in Amendment 64 is a way to encourage people to perform what is a useful function of supporting political parties with their money. It does not go very far and will not cost very much and is something which, in the present climate, ought to be welcomed.

I say one final word. If the amendments are pressed to a Division, I hope that we will be able to find a way to divorce that proposal from the cap. That would be desirable. I see the noble Lord, Lord Goodhart, nodding his head. Perhaps we could, when we get to that point, have a Division on the question of whether tax relief should be allowed on either the £500 figure or the £15 limit proposed by the noble Lord, Lord Campbell-Savours, and not have it confused with what is in principle a wholly different issue: the capping at £50,000.

Lord Goodhart: My Lords, perhaps I could explain. Amendment 38 will be voted on separately and then there will be a vote on Amendment 64 and the amendment to it. From the point of view of voting, they will be completely separate.

Earl Ferrers: My Lords, I have not taken part in the debates on this Bill before, but I hope that your Lordships will permit a small intervention. I listened to the speech of the noble Lord, Lord Tyler, which he described as a brief canter round the course. Having listened to all 13 minutes of it, I was stung into taking part by something that he said right at the beginning, which was that the £50,000 cap is agreed by all of us. I do not know whether that means the Labour Party,

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the Liberal party and the Front Bench of the Conservative Party, but it is certainly not agreed by me—not that that makes a great deal of difference.

I can never understand why there is such a fuss about having a cap. It seems to me that either we have parties funded by the state—as the noble Lord, Lord Neill, said, that is now, fortunately, impossible—or we have them funded by people who support them. If people support their party, I cannot see why there should be limits on the amount by which they support it. It would therefore be a great mistake if we tried to cut down the support given, whether to the Labour Party or to the Conservative Party—or even if the Liberals can find a bit here or there. It would be a pity to cut the limit, because all that means is that everyone has to go chasing around finding more money elsewhere or, alternatively, running into deficit.

4 pm

Lord Campbell-Savours: My Lords, I hesitate to dissent from a view expressed by the noble Lord, Lord Neill of Bladen, but I would say the following to him on the question of state funding. If you put state funding directly to the British people, as against a system that in part almost invites corruption, I know on which side the public would come down. The problem with the argument about state funding is that we have never really set out the reasons why those of us who support it so passionately do so. We believe that it is a far more honest way of funding political parties and that it avoids all the difficulties that we have had over not just this recent period but the last 10 years.

My Amendment 65 is a probing amendment and I can assure my noble friends that I do not intend to push it to a vote. However, I would like to say this: Amendment 29 dovetails very neatly with this amendment. That is because the truth is, and we all know it, that political parties will be affected by what has happened over Amendment 29. Political parties will inevitably have to find different ways of raising revenue. The principle behind these amendments is that a covenanting tax-relief system would provide an alternative.

My problem with the amendments moved from the Liberal Democrat Benches is the cost. That was the concern that I expressed in Committee. If I remember rightly, the noble Lord, Lord MacGregor, had, throughout the period of the Thatcher Administration, an important position in government—certainly in the Treasury in the years when I was in the Commons. In Committee, he said:

“I will be arguing that every proposal for tax relief or for further state funding should be looked at extraordinarily carefully and be very well justified. Given the state of the public finances today, I would not put forward such a case ... I hope that, in more propitious times, we can address this again in preference to further state funding. It is the right way to proceed”.—[Official Report, 5/5/09; col. GC 222.]

I agree with that sentiment. It is the way forward, but the problem is that we are in difficult financial conditions and I have great reservations about an amendment that would oblige the Treasury to stump up a substantial amount of cash.

The reason why I tabled my amendment is that it would cost the Treasury almost nothing but would put in place a framework on which we could build in the

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future. I imagine a system—in the more propitious times to which the noble Lord, Lord MacGregor, referred—where, annually, either some inflationary measure is applied to it or the threshold is raised. I think that we should be impressing on the Treasury, and on my friend Jack Straw in the other place, the importance of accepting an amendment of this nature in legislation.

I do not know whether the Liberal Democrat Benches intend to push this to a vote today. However, if the amendment were to be carried, it would be possible during Commons consideration of Lords amendments for the Government to introduce a more appropriate sum—a sum that could be afforded. I simply wonder whether that might be in the mind of Ministers if they have to reject this amendment today. If it is rejected today, I can say to my noble friends that I will be lobbying fairly extensively over the next few days, prior to Third Reading, for perhaps some concession to be made by the Government. I hope that we do not simply say no out of hand and reject this for all time; I hope that we can perhaps see a little flexibility in the response from the Dispatch Box by my noble friend.

Viscount Tenby: My Lords, I rise with some diffidence—and, perhaps the noble Earl, Lord Ferrers, will be pleased to hear, briefly—to support Amendment 38.

A great deal of money is thrown about at elections, as I experienced in my misspent youth when I was involved in the marketing and advertising professions, with all the profligacy of Russian oligarchs. No one disputes the need for realistic budgets, but the siren voices of advertising and marketing men should be firmly resisted. Nothing disconnects the electorate from the electoral process more than huge sums of money, hitherto camouflaged in some cases, being dispensed in this way, together with the unwillingness of politicians of every party to embrace the idea that the electors themselves should be asked to make very modest contributions to the electoral process.

I do not wish to seem cynical, but it often seems that the more the amount of money spent in election campaigns rises, the more the number of people voting in elections falls. Surely this is a very unhealthy state of affairs, which I suggest we can put right today.

Lord MacGregor of Pulham Market: My Lords, I shall speak to Amendments 64 and 66, and to some extent to Amendment 65. As the noble Lord, Lord Goodhart, said, I was a member of the Committee on Standards in Public Life, which first put forward this recommendation. I was very disappointed that this was one of the very few of our recommendations that the Government rejected in their response. Indeed, they never really gave any reasons against it, so I am very pleased that we are having this debate again today to talk about the principle and to see whether we can find some way forward.

I should say to the noble Lord, Lord Campbell-Savours, that I fully appreciate as an ex-Chief Secretary—I think this was what he was referring to—that we must be very careful in the current circumstances about the

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extent to which we encourage increased tax relief or extra expenditure. What I think we are really trying to do today is take advantage of the Bill, which gives us the opportunity to establish the principle. My one difficulty with his amendment is that he refers to £15 as the limit in 2010-11. Frankly, no one will take it up at that level. The administration would be very high, and if it seemed not to work it might be regarded as a policy that was not worth while. That is my difficulty with the figure. However, if we agree on the principle in the House today, there is still an opportunity to try to get it into legislation and to work out the timetable for it.

The noble Lord, Lord Goodhart, in his usual exemplary fashion, gave all the reasons for accepting this proposal, so I shall emphasise just two points. The first relates to party funding. In my earlier years in politics, very many people in our constituencies spent a great deal of time not only actively campaigning but actively raising funds for party political work. That was hugely to the benefit of the democratic process. So much came from these small donations and fundraising activities, and it was entirely healthy. It spread interest in the democratic process, and spread political engagement much more widely.

Equally, it is unhealthy to be too reliant on large personal donations; on substantial corporate funding, although that is largely diminished now if not defunct altogether; trade union support; and, above all, on state funding, which requires no activity beyond winning votes to get it. The principle here is therefore highly desirable and is a way of re-encouraging small donations. The emphasis is on small donations, which cannot be abused by large donors getting tax relief for them. We recommended the limit of £500 in 1998, so in principle I would be in favour of indexing beyond the £500 limit. The point that has been made about President Obama’s success in the American presidential elections is very clearly correct, too. This is an important way of encouraging wider participation in the political process.

I shall put my second point, which goes much wider, very concisely. When I first entered public life and got involved in politics almost 50 years ago, and entered Parliament 35 years ago, it was a profession held in high regard. MPs were regarded with great respect in their constituencies and more widely, and it was a high aspiration to become an MP. Many in other careers entered Parliament half way through their active life because they felt that it was very worth while and were prepared to make sacrifices, including family life and financially, to do so. It is a matter of profound distress to me that parliamentary activity and the role of an MP are regarded in the way that they are today.

I believe that nothing is more important than working for your constituents in the most important institution in the land. Above all, it is important to remember that Ministers are largely drawn from this pool. They make bigger and more profound decisions than others in leading positions in most walks of life. Yet those who aspire to these roles are being demeaned in public and, in my view, are seriously underpaid compared to those in leading positions in business, the professions and most other activities. My concern is not only for

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the good people in public life who are currently being so derided, but, above all, given the current environment, for the good people from other professions who would have a real role to play and could enter politics. That is one of the most serious things facing our nation. It will be easy enough perhaps to get people to stand, but it will be extremely difficult to get people of the quality we want in Parliament.

I believe that this proposal plays some small part in dealing with that problem. Charitable activities are regarded as worth while and therefore attract relief. As the noble Lord, Lord Goodhart, said, there is an interesting analogy with inheritance tax where this concept is accepted; yet we are not prepared to extend it to income tax. Therefore, I also take the point made by, I think, the noble Lord, Lord Tyler, in Committee. Many charities are engaged almost in political activity for which they get tax relief, but those who are primarily involved in the activity and want to support it get no tax relief at all. Taking this principle today, if not the immediate implementation, sends a message of profound importance, which is why I so strongly support it.

Baroness Turner of Camden: My Lords, I am sorry that I have not been able for various reasons to participate earlier in discussion of this legislation. I should like to make one or two points on Amendment 39, and I speak as someone who has been a trade union official for most of my life. I understand the desire to ensure that there is proper democratic accountability for the use of funds and so on. However, there is already in place a fair amount of legislation designed to ensure just that. There are arrangements under which members can contract out of the obligation to pay the political levy at any time they wish to do so. The political funds are normally quite separate. The executive have to be accountable to the membership for their use of them. In my union and, I believe, in all unions, there is a section in the rule book which governs the way in which political funds are collected and administered. People can also complain to the registration officer.

Under this amendment, there would seem to be a lot of extra bureaucracy, and I query whether it is necessary. If the present laws are operated—I have no evidence that they are not properly operated—I do not think that there is any necessity to have any further provision in legislation. I should be interested to know whether my noble friends on the Front Bench have a different view, but that is my view at present.

4.15 pm

Lord Hodgson of Astley Abbotts: My Lords, my name is down in support of Amendment 38 covering the proposal to insert a £50,000 cap on donations. I wish my name had also gone down on Amendment 39, because I think they are paired, but owing to a gremlin somewhere, unfortunately that has not happened.

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