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The noble Lord, Lord Tyler, has outlined the case for the cap extensively and I do not propose to plough that field again. Suffice it to say that, for me, more supporters, more members and more donors in all political parties are good for our democracy because that achieves a broader base of support and involvement. Fewer, larger donors carry dangers for our democracy. I say “carry” dangers rather than necessarily have

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them. The obvious question is the influence of wealthy donors on the policies of a party, and here I touch on the point made by my noble friend Lord Ferrers: it is not just whether they do or they do not have an influence, but whether there is a public suspicion that they might. Public suspicion is highly corrosive, because it carries the seeds of destruction of belief in the system and the way it operates. That is why the argument that the liberty of a person to give any amount to a party, which underlay his comments earlier, does not hold water in this sensitive area.

This idea poses challenges for the two major parties. Historically, my party has benefited from large donors, although in recent years the Labour Party has largely caught up; whether that has been to its advantage is not for me to say. The Labour Party also benefits from the automatic nature of the political levy of the trades unions. I say to the noble Baroness that I am afraid there is too much anecdotal evidence of the way in which the donations are shuffled through without individual trades union members having a real say, and that knocks on the head the idea that the safeguards proposed by the noble Lord, Lord Tyler, are not required.

I do not underestimate the challenges that these issues represent and the controversy that they will arouse, but surely, in the present circumstances, we need to face them. As has been said in the debate today, as was said on Monday, and as was said in Committee, there is a crisis of loss of faith in our democratic system. It is no good us wringing our hands and saying that it is all too difficult. That is the response of people who live inside the Westminster bubble, and I believe that our fellow citizens demand more of us today.

Lord Bates: In speaking to these amendments, perhaps I may preface my remarks by apologising to the noble Lord, Lord Tyler, because I was not precisely in my place when he spoke. I was finding my way through the crowd as he rose to move the amendment. There was a degree of cross-party harmony on the previous piece of legislation that may not continue into this Bill, but we will see.

The series of amendments we are discussing fall into two principal areas. One is the argument about donations. We discussed this at length in Committee and it was quite widely recognised that there is an anomaly in party political contributions, which do contribute towards the democratic health of our country. Indeed, the point was just made that if one is concerned about the environment and chooses to make a donation to a political party, that money is not eligible for tax relief. If someone chooses to make a donation to Greenpeace or another organisation, it is. That is a clear anomaly which needs to be addressed at some stage, although I stress the point that it should be considered at some stage. The noble Lord, Lord Goodhart, said that the cost of such a measure to the Exchequer would be around £4 million. I have no way of knowing whether the figure should be higher or lower, but my sense of the public mood at this time suggests that it would be difficult to argue in favour of an additional £4 million or £5 million of public funding being made available for political parties. While certainly we on

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these Benches are happy to put on the record the fact that this is something we need to move towards in principle, timing is everything in these matters, and now is probably not the time to do this.

Whether we should act on the suggestion in the probing amendment tabled by the noble Lord, Lord Campbell-Savours, that it should be bumped into another fiscal year would depend on the circumstances at the time. However, in this case the position of these Benches—certainly of the Front Bench—is to support it in principle but to question the timing.

This leads me to the wider issue of the donations cap. The noble Lord, Lord Tyler, was generous in his citations of my remarks on the first day of Report when I referred to the importance of taking big money and the significant influence that it has out of politics. I take the points that have been presented with such clarity by my noble friend Lord Hodgson in this regard. However, whether we are talking about perceived or actual influence, it is how the public perceive the political process that is important.

The Liberal Democrats, of course, have their own problems with major donors. Michael Brown, who donated £2.5 million, has turned out to be a convicted fraudster and yet they refuse to repay that money. It is important in debates of this nature to recognise that this is a problem for party politics which needs to be sorted out. It is not only a problem for the two main political parties; it affects all political parties.

This was touched upon by Sir Hayden Phillips in his first report, Strengthening Democracy: Fair and Sustainable Funding of Political Parties—The Review of the Funding of Political Parties—March 2007, which was in many ways the forerunner of the Hayden Phillips process. He set out a principle which is worth repeating at this stage. He said that his principle would be that nothing should be agreed until everything is agreed. It is an interesting point. He recognised the complexity of the number of different moving parts necessary to restore confidence in public life. Whether it refers to major donations or to some of the other issues touched on in another place concerning constitutional reform, there is something holistic about the need to tackle the whole issue in the round.

Lord Goodhart: My Lords, to say that nothing can be done until everything can be done is, surely, a wholly absurd position to take. A series of steps have been taken, including the 2000 Act, which followed the report of the committee, being amended in the Electoral Administration Act 2006. This is a piecemeal operation.

Lord Tyler: A very Conservative one, my Lords.

Lord Bates: My Lords, the noble Lord’s concern is not necessarily with me but with Sir Hayden Phillips’s principle number one. If he dissents from that, he is entitled to make the point. I happen to disagree with him. There is an argument that piecemeal reform sometimes lacks overarching principles. However, good legislation has overarching principles that should be followed through in the process of getting everyone to the table in order to reach some agreement.

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That leads me to a key point on the donations cap. There is a certain unstated element—I shall say no more than that—on which I hope the noble Lord, Lord Tyler, might comment. I should be grateful for some clarity lest I inadvertently cast some aspersion on the motives here. There is an implication of a donations cap, as envisaged by the Hayden Phillips review. To plug the gap, there would be an introduction of public funding. The noble Lord is shaking his head, so I will be happy to take that away. However, the White Paper, Party Finance and Expenditure in the United Kingdom, says:

“The public funding schemes he proposed”—

that is, Sir Hayden Phillips—

Four million pounds here, £20 million to £25 million there—we are beginning to build up to some significant sums of money. That comes on top of a concern that some people may be seeking tactical advantage, rather than a principled point of seeing a decline in income or a concern over future income streams, and hoping to replace it with public funding as a whole.

When we talk about party funding, in many ways the arms race has been triggered by a dramatic increase in the amount of funding that is available to Members of Parliament in their constituencies—the incumbency factor. When I was serving in the other place, the office cost allowance, as it was called then, was in the region of £30,000. It was effectively enough to have an assistant, perhaps a part-time caseworker in the constituency, and then to pay for your printing, postage and telephones. Now that figure is up to £90,000 just for staff, and there is an additional element, the incidental expenses provision, which is another £21,000.

Lord Campbell-Savours: Communications.

Lord Bates: I am coming to that, my Lords. As the noble Lord points out, there is also a communications allowance of £10,000 per year. Over the lifetime of a Parliament, that builds up to £50,000 spent in a particular constituency on promoting the case of the incumbent Member. It is therefore not surprising that the non-governing party, the non-incumbent, would seek to raise funds to try to match the firepower that has been ranged against it in a democratic process.

I wish only to put that point on the record. I am not saying that I have an answer for it, nor am I saying what we ought to do about those allowances. That needs to be addressed as part of the Kelly review that is taking place, along with the questions of whether they are inadvertently funding big money donations and encouraging reliance on those big donations.

The interparty talks were an important part of the process and all parties have engaged in them. The argument was that if we were going to have meaningful reform, all the political parties needed to get around the table, have their heads metaphorically banged together and sort this out, realising that there is a problem. The trade unions are perceived to have an influence on the Government. It causes concern from time to time when you see questions in debates about public sector funding cuts, and then you have a party

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in government faced with the prospect of a union that represents members in the public sector threatening to withhold a £1 million donation, which was announced this week, unless it gets some movement. The fact that three out of every four pounds that the Labour Party receives is from the trade unions has a disproportionate influence on the process.

4.30 pm

I listened carefully to the expertise in the House regarding how trade union membership works. One of our principal disagreements about the proposed amendment on the donation cap, apart from the implications for public funding, is that it says that a member should be afforded an opportunity during the 12 months following the relevant expenditure to be exempted from contributing to the political fund of the union. Our party believes that it needs to go further. There ought to be an opportunity for an individual member to indicate whether they consent to having their fund given to a political party. In most cases such funding goes to the Labour Party, but I believe that the Liberal Democrats also get funding from UNISON. If this is a political levy, individual members of the union should have the right to express their preference regarding which political party it ought to go to. They should be able to do so by opting in to the political fund, rather than having it assumed and having to go through the process of contracting out.

The last meeting of the inter-party talks on the funding of political parties, chaired by Sir Hayden Phillips, took place on 31 October 2007. It was suggested that these had somehow broken down and been brought to an undue end because of the Conservative Party’s attitude to funding. That is not the case, as the minutes show. On the second of the three pages of the minutes of the final meeting held on 31 October 2007, Sir Hayden Phillips said:

“As far as trade union affiliation fees the Conservative Party argued that the changes on affiliation fees contained in the draft agreement would only take people to where they believed the situation was at the current time regarding individual choice. Their view was that individual trade unionists should be able to make clearly voluntary donations to any party of the individual’s choice. They hoped the Labour Party would be willing to continue the Talks on the basis of further proposals which could be developed”

on this point. He continued:

“The Conservative Party saw no necessity for further controls on party spending, but would continue to discuss them as part of a package”

of reforms. This is Sir Hayden’s concluding point in the final meeting. It is worth getting on the record because the point of breakdown in the inter-party talks is something that has been discussed quite often. On page 3 of the minutes of the same meeting, Sir Hayden said that,

That is the final entry in the minutes because talks were suspended. It shows that there was clearly a breakdown in the inter-party talks on this central issue. I return to that principle to say that a holistic

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approach was absolutely necessary on this. I do not think that the public have the stomach for the significant increases that would be the consequence of the amendment being agreed. On the public funding of political parties, the need is very much for the inter-party talks to be reconvened to reintroduce and put everything on the table, including the developments that occurred before that time.

This is a wide-ranging group of amendments and I apologise for taking so long to speak to them. However, they are very significant in terms of people’s future confidence in democracy. The amendment before us does not go nearly far enough; we need to go further. The cross-party talks need to be in place and there needs to be a holistic approach which embraces all these issues and recognises public attitudes and timing as regards current economic conditions.

Lord Tunnicliffe: My Lords, this has been a very interesting debate in which many noble Lords have taken part. I hope that they will forgive me if I do not respond in detail to each point, but I shall touch on all the fundamental points that have been raised. However, there will be a couple of exceptions. I shall not respond to the very interesting speech of the noble Lord, Lord MacGregor, about our political life apart from commenting on what he said about donations. I am sure that part of his speech will resonate in many quarters. I hope that that debate continues and reaches a proper conclusion in the interests of the health of our democracy. I hope that the noble Lord, Lord Bates, will forgive me as I cannot possibly touch on all the detail of his speech as I am cognisant of our objective to complete Report stage today.

This group of amendments relates to the establishment of a cap on donations, treatment of contributions under that cap and a system of tax relief for donations. Amendment 38 would establish a cap of £50,000 per year on the amount that an individual or organisation could donate to a registered political party. Contributions from trade union political funds would be subject to this cap unless they adhered to the conditions set out in Amendment 39. These conditions seek to create a clear link between the amount paid in individual contributions to a union’s political fund, by way of affiliation fees, and the amount of any subsequent donation made by the union.

The Bill is the result of a painstaking search for consensus between the parties. The Government’s overriding priority throughout has been to ensure broad cross-party agreement to the changes that the Bill will make. It simply would not be acceptable to make far-reaching changes to legislation in this area without such agreement. The amendments before us today are identical to amendments that have already been debated both in Grand Committee and the other place. On each occasion they have failed to command support across the House.

When Amendment 38 was put to a vote in the other place it did not receive support from either the Conservative Party or the Labour Party. When Amendments 38 and 39 were debated in Grand Committee, they again failed to find cross-party support. And, as we have heard in the debate today,

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the proposals contained in the amendments are simply not broadly supported in your Lordships’ House. I shall briefly set out again why they are not supported by the Government.

The idea of a cap on donations is not a new one. Two recent major reports on party funding—the Constitutional Affairs Select Committee report of 2006 and the Sir Hayden Phillips review of 2007—both recommended that a cap should be instituted. The noble Lord may claim, as he did in Grand Committee and has again today, that his amendments “absolutely follow” what was put to the parties by Sir Hayden in the cross-party talks that followed the publication of his report. In fact, Sir Hayden proposed that a cap should be phased in gradually, beginning initially at a level of £500,000 and reaching the level of £50,000 only after a period of four years.

The noble Lord must also be aware that both the Constitutional Affairs Select Committee and Sir Hayden were explicit that a donation cap could be introduced only alongside an increase in state funding. In considering the effects of the package of measures he proposed, Sir Hayden said they,

Sir Hayden was also quite clear that his recommendations on party funding needed to be considered as a whole package. So if the noble Lord wishes to pray in aid Sir Hayden’s review for his amendments, he must acknowledge that he is also arguing for an increase in the level of state funding of politics. The increase would be significant. The Government’s White Paper, Party Finance and Expenditure in the United Kingdom, calculated that a cap of £50,000 would result in a reduction of income of £5 million to £6 million each year for the two largest parties.

The Government’s view on this matter is clear. We do not consider that an increase in the level of public funding, particularly of the magnitude that would be required to offset the imposition of a donation cap, is acceptable to either the political parties or the public. Public support for politicians and political parties could scarcely be lower than it is currently. It would defy all logic to test taxpayers’ patience even further by asking them to contribute more money to the parties. Noble Lords may argue that any increase in state funding should be made only as a result of reductions in government spending in other areas; however, we still think it highly unlikely that the public would support the general principle of an increase in the state funding of politics.

Amendment 39 relates to how union contributions would be treated under the donation cap. It could not be agreed unless amendment 38 was accepted. The funding activities of trade unions are already very tightly regulated as a result of successive Acts passed during the 1980s and 1990s. In its 1998 report, the Committee on Standards in Public Life considered trade union political funds. It concluded:

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“We have received no evidence to suggest that the legislation is not working satisfactorily, and no case has been made out for any reform. We do not propose any change in the law in this respect”.

The Government agree with that conclusion. However, the noble Lord, Lord Tyler, and other noble Lords have today again raised concerns about the funding activities of unions. Perhaps I may put on the record, once again, the words of my right honourable friend the Minister of State in the debate on Second Reading in the other place. He noted that affiliated unions recently wrote to the Labour Party general secretary,

The Government consider that transparency in party finance is the key requirement. A cap on donations could increase the incentive to divert donations through other routes and could therefore have the ultimate effect of decreasing transparency. As I have set out, it would require a significant and unjustifiable increase in the state funding of politics. For those reasons, we are not minded to support its introduction and I hope the noble Lord will agree not to press the amendment.

I turn now to Amendments 64 to 66. Amendments 64 and 66 would introduce a system of tax relief on donations to political parties. This would be along similar lines to the system of gift aid already in place for contributions to charities, albeit with certain key differences. They would perhaps be intended to compensate parties for the shortfall of income that might result from the imposition of the cap proposed in Amendment 38. The amount available to political parties under the system proposed in Amendment 64 would be capped at £500 per donor per year and would be limited only to basic rate income tax. In order to qualify to receive relief, a political party would have to have at least two MPs elected to the House of Commons at the preceding general election.

These amendments were considered in Grand Committee and were well supported by noble Lords from all three main parties, although I note that of the main parties’ Front Benches only the Liberal Democrats spoke in favour of the amendments. My noble friend Lord Campbell-Savours spoke in favour of the amendments but suggested that the amount of relief available should, initially at least, be capped at £15 per donor per year, with the Government able to increase that amount by order in subsequent years. This is formally proposed in Amendment 65.

As the noble Lord, Lord Goodhart, set out, a system of tax relief for political donations was first recommended by the Committee on Standards in Public Life in its landmark 1998 report on the funding of political parties in the United Kingdom, often referred to as the Neill report after the committee’s chairman at the time, the noble Lord, Lord Neill of Bladen. The Government at the time accepted the vast majority of the Neill report’s recommendations in

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the Bill that went on to become the Political Parties,Elections and Referendums Act 2000. However, we did not accept the recommendation to introduce tax relief and continue to oppose its introduction now.

4.45 pm

The Neill report set out a number of arguments in favour of introducing tax relief, some of which were repeated in Grand Committee and again today. The chief argument of principle advanced in the report is that it is more democratic and in the public interest for political parties to be funded by a large number of small donations than a small number of large donations. The report considered that, by introducing tax relief, parties would be encouraged to make greater efforts to obtain smaller donations.

The Government entirely support the principle that it is preferable for parties to develop a broad base of support. However, that does not necessarily mean that the public purse should be employed to support that end. Parties are free to conduct their fundraising activities within the legislative framework. There are many steps that they could take to encourage a wider base of donors which would not require what effectively amounts to an increase in state funding of politics.

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