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Political Parties and Elections Bill

20th November 2008

Read Jonathan's speech during the Committee stage of the Political Parties and Elections Bill.

Moving on to the stand part debate, the clause is poorly drafted, poorly researched and almost entirely negative. To our mind, it stands out in the legislation like a sore pimple. I am afraid that if the Minister thinks that he can table a few amendments and then get away with the clause, he will have to think again. That is why I now wish to discuss the more substantive stand part issues.

The impact of the clause will still be widespread and costly-even if not as much as beforehand, following the introduction of the Government amendments-in time and money for parties at the local level, where such burdens are most heavily felt. Political parties need sufficient funds to fulfil their democratic functions. There is, however, a paradox at the heart of party politics in the UK: while on the one hand there is recognition that political parties are key in mobilising local political activity and are a central vehicle in promoting civic engagement, on the other, membership of political parties, election turnout, and trust and confidence in politicians are at an all-time low. That has major implications for the financial management of political parties.

Modern centralised campaigns have resulted in escalating campaign costs, while at the same time the financial impact of the decline in party membership has resulted in increasing reliance on large donations and loans to fund political parties-a situation that appears to have eroded public confidence still further.

The 2006 Constitutional Affairs Committee report on party funding states:

"The New Policy Network warned that without an accepted system of adequate funding for political parties 'we risk the health of our democratic system'".

The traditional practice of secrecy surrounding the source and amount of donations received has been one of the causes of increasing disquiet about party funding. On the back of that, the Labour party 1987 election manifesto included a commitment to require parties to declare the sources of their donations and to ban foreign donations. That commitment manifested itself in the Committee on Standards in Public Life inquiry entitled "The Funding of Political Parties in the United Kingdom", under the chairmanship of Lord Neill. The Neill report was published in October 1998 and it suggested a greater transparency of donations, among several other things.In the Home Office submission to the committee dated 6 March 1998, the Government had sought the committee's advice on specific topics, including:

"What should be the mechanics for disclosure of donations? Should there be a separate threshold for the acceptance or rejection of anonymous donations? What should be the timing of disclosure?"

There were already statutory requirements on trade unions and companies with regard to the disclosure of information on political donations, although some had argued that those rules did not go far enough. Despite all the evidence of submissions made to it, the Neill committee did not uncover any wrongdoing. It did, however, acknowledge the potential for speculation and rumour about improper motives and tacit obligations where details of donors are unknown.

The advantages of greater transparency are summarised by the Neill committee and apply as much to this debate as they did eight years ago. The main drive of these arguments is that greater transparency provides the opportunity for public and media scrutiny, which makes the system less opaque and means that not only do rumour and suspicion wither, but public confidence in the system is increased. Further, there was no evidence that donations have been used to influence Ministers or policy, where such sums would be recorded on a publicly accessible register.

On the reverse, the principal arguments against disclosure and transparency centre around an individual's right to privacy. The Neill committee report cited various issues in this context. Its conclusions, while recognising the strength of the arguments in favour of privacy, advocated a disclosure regime on the grounds that there was a public interest in knowing when a donation is made to a political party,

"which is significant enough to prompt questions or to raise suspicion about its purpose".On the back of this, the committee made two recommendations, which formed much of the basis for the disclosure requirements in PPERA. First, it said that opinion will differ on what constitutes a significant donation, but it recommended disclosure of donations to national party organisations of £5,000 or more per annum from one source, as supported by the two main parties and others. Secondly, it recommended that donations to constituency associations or regional organisations from one source, which total £1,000 or more per annum, should also be publicly disclosed.

Of course this is important in the context of this debate because these figures were issued in 1998 and yet even the Government, in their revised position in their amendments, use the figures from 10 years ago. However, despite this emphasis on disclosure when it came to the subject of where responsibility for making the disclosure should lie, the Neill committee felt that it was "wholly unreasonable" to place the obligation on the donor. A decade later, here we are doing exactly that. The Minister has yet to make the case for this change of approach. I hope that he will do so in his later remarks.

The Neill committee concluded that the obligation should rest with the political party's central office not only to report on donations received by the national party, but to ensure that the party's organisational structure was adequately set up to deal with all disclosable donations received by sub-units of the party. It would be up to each party to ensure that each sub-unit supplied the required information to a designated officer at the central office. Only donations to candidates or election agents would be an individual's responsibility.

The Government agreed with the general approach of the Neill committee and enshrined the main elements of the proposed reporting regime in part IV, chapter III of PPERA. Under this, the treasurer of a registered political party is required to make a quarterly donations report to the Electoral Commission, recording any donations of £5,000 or more to the national party, or £1,000 or more to local associations or regional organisations, which are called accounting units of a national party. To ensure that multiple donations from the same source are properly accounted for, the party must also record any further donations of £1,000 or more from a source already recorded during the same reporting year.

In PPERA, all donations must be from named permissible donors who are defined as an individual on the electoral register, or a company that is registered under the Companies Act 1985 or incorporated in the UK. All such companies must carry on business in the UK. Other legitimate donors, with various caveats, are trade unions, building societies, limited liability partnerships, friendly societies and various other unincorporated associations. PPERA requires registered political parties to submit an annual statement of accounts to the Electoral Commission, by a particular date and in a specified format.Furthermore, under PPERA, donations to parties in excess of £5,000 nationally or £1,000 locally must be publicly declared with the details of the donor and the amount. That includes donations in kind as well as cash donations. Contributions may only be from permissible donors; foreign donations are banned and anonymous gifts in excess of £200 are also prohibited.

Part IV of PPERA is concerned with the control of donations to registered parties. It imposes restrictions on the sources of donations, so as to prohibit foreign and anonymous donations to political parties and make registered parties subject to reporting requirements in respect of donations above a certain value. Section 50 of PPERA defines a "donation" as

"any gift...any sponsorship provided in relation to the party...any subscription or other fee paid for affiliation to, or membership of, the party"-


"any money spent...in paying expenses incurred directly or indirectly by the party".

Section 52 goes on to specify certain payments that are not to be regarded as donations, while section 53 sets out how the value of donations in kind, such as property, is to be calculated. Further, section 54 specifies who or what is to be considered a permissible donor and the list is comprehensive, sections 55 and 56 deal with the acceptance or return of donations that fall foul of those sections, and section 61 specifies offences regarding evasion of restrictions on donations.

The provisions relating to the reporting requirements placed on political parties are no less extensive. Section 62 and schedule 6 require the treasurer of a registered party to make quarterly donation reports to the Electoral Commission and the details to be included in such reports. Sections 65 and 66 give further details on the process to be followed when submitting a report to the commission and the details to be set out in each submission, including the need for a declaration by the treasurer that he has recorded all known donations.

That scene setting gives some idea of the provenance of the clause. In its short history, it has not been without its problems. The Constitutional Affairs Committee, in its 2006-07 report, expressed significant concerns about the disclosure system under PPERA. It said:

"We believe that there are problems, both actual and perceived, with the current arrangements for party funding in the UK...While the PPERA 2000 introduced closer regulation and some improved transparency, it has not finally resolved problems with the system; if anything increased transparency, by revealing the extent of and dependency on donations from a few rich individuals, corporations and trade unions, has increased the negative impact on public confidence."

We must be careful that we do not paint ourselves into a corner with this new provision and rather than increasing public confidence, engineer the reverse effect. That point was picked up on by the Constitutional Affairs Committee, which said:

"While we endorse a transparent system, transparency does not solve problems, but draws attention to them. It also invites 'sniping' between opponents. It must be based on readily identifiable risks so that audit functions have a clear overall purpose."

At an evidence session, the Secretary of State said:

"By way of background, there is a consensus that there has to be greater transparency; that was the whole purpose of the 2000 Act. As far as I can see, no one is arguing on the issue of transparency."--[Official Report, Political Parties and Elections Public Bill Committee, 4 November 2008; c. 14, Q27.]

That is true, but, that statement implies that the clause is about transparency, which, given its non-public procedures, is simply not the case. More specifically, I cannot see how it will deal with identifiable risks that would give it the clear purpose demanded by the Constitutional Affairs Committee. Perhaps too, we should be mindful of the comments in the evidence session last week of the Conservative party's Mr. McIsaac, who said:

"I have noticed that innocent mistakes have a habit of being magnified in the press, on the blogs and the rest of it, as if they were some sort of scandal. People make mistakes, even in the best regulated organisations. To open up the possibility of mistakes, and thereby the whiff of scandal, could be very counter-productive."--[Official Report, Political Parties and Elections Public Bill Committee, 6 November 2008; c. 91, Q47.]

What then do we have in clause 8? How does it attempt to remedy the problems faced by political parties in raising finances in an open and transparent manner, against a background of growing public scepticism at donations to parties? The clause amends section 54 of PPERA-the clause dealing with who is considered as a permissible donor. It inserts a new subsection that requires a party to have a declaration from a donor where the party wishes to accept any donation. We have been debating what the level of that donation should be. It creates a new responsibility for donors-not political parties-to clarify the source of donations.


Overall, the Government have started to make some sense of the clause with the amendments that they have tabled, which do away with the provisions requiring parties to take all reasonable steps to verify those declarations. Bodies such as companies and associations that make donations under the threshold will be expected to identify the responsible person who will make a declaration. The Bill will insert a subsection, as set out in proposed section 54A(5), making it a criminal offence for a person knowingly or recklessly to make a false statement about a donation, with a maximum penalty of one year's imprisonment or a fine on indictment. I appreciate that certain hon. Members will move an amendment on that aspect, so I shall not talk about that here.

On Second Reading, the Secretary of State summarised the effect of clause 8. In his remarks, he noted:

"Those provisions supplement the existing requirements of the 2000 Act by making it clear that the identities of the true donor, on whose behalf the donation is made, must be given to the recipient of the donation. If a donor declares that those sections of the 2000 Act do not apply, they must explain why."-[Official Report, 20 October 2008; Vol. 481, c. 51.]

We fear, though, that in practice, it would be far from that simple for the receiving party official or the donor. Under the clause, political parties and regulated donees will be required to confirm that they have received these declarations and retain them for the future review by the commission. We remain concerned about the potential impact of this if the clause were to come into force. We would like to see the thresholds increased much further to ensure that these new reporting burdens do not weigh too heavily on those concerned. We hope that the Government will be reviewing these thresholds again.The assertion of Mark Sweeney of the Ministry of Justice, in the first evidence session before this Committee, has done little to soothe our concerns. He said:

"Clause 8 is not intended to add any additional requirements, in terms of who may or may not donate, or the way in which they may do so."--[Official Report, Political Parties and Elections Public Bill Committee, 4 November 2008; c. 14, Q27.]

That simply turns the situation on its head by saying, "Because there is no substantive change to the law, there is no problem." There, to us, speaks the bureaucrat who has not given thought to the difficulty of the process in real life. We have concerns about the practical applications in real life and we think that the Electoral Commission is on our side. In its October briefing, it said:

"We believe that the benefits of these changes will be quite limited, since all they do is place additional procedural requirements on donors and recipients. They will not extend the current restrictions on concealing donations, nor will they add materially to the transparency of party funding as the new declarations will not be sent to the Commission or made public. However, they will impose potentially substantial new regulatory burdens on parties and donors. It is not presently clear whether the benefits of these provisions will be sufficient to justify those new burdens."

The Conservative party is concerned that this is a disproportionate and excessive regulatory burden. Rather than helping parties broaden their fundraising, clause 8 could put off donors and discourage volunteerism.

Sections 54 and 61 of PPERA already prohibit donors from concealing the source of donations by channelling money through others. The use of proxy donations is also illegal. Moreover, if an unincorporated association is used as an agency to channel a donation from a particular donor, that original donor must be declared. I shall not speak further on that aspect as I appreciate that we shall be debating it on later amendments.The commission, through its chief executive, Peter Wardle, has also backed these concerns. As mentioned in the evidence session to the Committee, his memorandum states:

"On the other hand, the changes will impose potentially substantial new administrative burdens on parties and donors. Political parties have expressed reservations to us about the impact of these compliance requirements, particularly on their volunteer officers."Furthermore, when pushed by the Minister some time later on the benefits of the Bill, Peter Wardle responded:

"In terms of what is in the Bill, we are concerned that the potential disbenefits in practical terms may outweigh the benefits; we are not saying that the whole idea is completely unworkable, but that it is not desirable as it currently stands."--[Official Report, Political Parties and Elections Public Bill Committee, 6 November 2008; c. 57-58, Q147, Q151.]

Given such a damning assessment by the commission, have the Government reviewed this clause in light of what he said? If not, why not? Further, will the Minister give the Committee some idea of the consultation process that was gone through to end up with what we see as a pretty dreadful clause?

To reiterate the concerns raised by my right hon. Friend the Member for Horsham on Second Reading, and which remain despite the Government's amendments, the compliance burden on a central party and the registered treasurer will be considerable given the number of transactions and accounting units involved, the lack of professional staff in most accounting units, the small number of compliance staff employed by the central party and the threat of the new regulatory sanctions available to the Electoral Commission. On 29 October, my hon. Friend the Member for Chichester tabled a question for the Secretary of State. In reference to the Bill, he asked

"what the evidential basis was for the estimate of five minutes processing time per donation for the processing of a donation declaration; and what estimate his Department has made of the average time taken to verify the source of a donation."

On 6 November, the Minister replied:

"The estimates in the impact assessment-both for processing declarations and carrying out further verification checks in exceptional cases-were based on an assumption that the additional requirements on the parties to process declarations would be embedded to a degree within checks that they already carry out to ensure that the donations they accept are permissible under the Political Parties Elections and Referendums Act 2000.

The Government accept that a number of political parties are concerned that the impact assessment underestimates the compliance burden that the requirements of clause 8 might impose on political parties, and that the impact assessment understates the potential burden. As my right hon. Friend the Secretary of State and Lord Chancellor (Jack Straw) indicated before the Public Bill Committee on 4 November, while we are clear that greater transparency is essential, it should not be achieved at the cost of overburdening political parties, and I am ready to consider raising the thresholds at which declarations are required."-[Official Report, 6 November 2008; Vol. 482, c. 753W.]

Perhaps the Minister can clarify that answer, or tell hon. Members what the rationale was behind the Government's sudden change of heart. It hardly points to proper preparation and research on the Bill by his Department. The impact assessment's estimated costs of the rules to all political parties are between £7,000 to £10,500 per year. In our view, that grossly underestimates the volume of small donations from £200 to £5,000 and wrongly assumes that it will take only five minutes for parties to verify each donation.

Given the recent amendments, can the Minister revise the impact assessment and the costs that parties will be forced to accept? How will that change once the Government have reviewed the thresholds? We are concerned about the thresholds and believe that a higher figure would do away with any potential confusion and would be more proportionate and risk-based when the provisions commence.

The Government must review the thresholds again and increase the limit so as not to place burdensome obligations on donors and volunteers. Given the difficulties, it is essential that the Electoral Commission issues guidance-hopefully light-touch guidance-on the operation of the new rules.

The money laundering-style language and the high tests proposed, in which all reasonable steps had to be taken forthwith by or on behalf of the party for verification, have thankfully now been removed. However, the Government were in danger of imposing anti-money laundering-style regulations on parties and donors. The consequential regulatory burden that would have been imposed could have been devastating, and for what purpose?

The requirement for declarations and the need to retain them on file could place a significant burden on the party-financing system. For instance, what format must they be stored in? How long must they be stored and what notice will be given of the commission's desire to review them? How frequently does the commission expect to review them-as a matter of course or in exceptional circumstances? Those are a few of the questions that remain with the provisions.

Mr. McIsaac, the Conservative party treasurer, gave some idea of the scale of the potential problem in his responses to the Committee during the evidence taking session:

"Think about a party such as ours. We have 600 and something constituency associations, of which about 350 put in financial statements, which means that they have income in excess of £25,000 a year. Only a very small number of them have professional staff, and the rest are run by volunteers."

He went on to note the acute problem of requiring party officials to make judgment calls as required by clause 8 and said:

"Once you start getting into areas of judgment it gets more difficult...All these things are highly judgmental and very difficult. You can imagine yourself, or your parents, being asked to become chairman of the local constituency association... and then being told, 'By the way, there is a bit of a snag. There is the compliance manual. And, by the way, you ought to be aware that if you make a mistake, albeit an innocent one, it could be looked at through the eyes of someone who is very suspicious. Also, be aware that the Electoral Commission has all sorts of powers to gain access to your home and to look at your records. By the way, you do want to be the chairman of the association, don't you?'"That typifies the sort of problem that will face every local party office across the country in the wake of the Bill. As the system stands, the registered party treasurer takes responsibility for the compliance of all associations. With the insertion of a test of objectivity and reasonableness, as proposed in amendment No. 179 and those following, we could do away with the need to rely so heavily on such subjective opinions.I also note that Hilary Stephenson, who holds the equivalent position in the Liberal Democrat party, in reply to Mr. McIsaac's contribution said:

"I wholeheartedly endorse a great deal of that."---[Official Report, Political Parties and Elections Public Bill Committee, 6 November 2008; c. 79-80, Q20, Q21.]

The removal of the verification process is a step in the right direction, but the Government must consider what they are trying to achieve with clause 8. The cost of the clause as it stands might be a high price to pay as volunteers and donors turn their backs on political parties for fear of incurring liability for breaching complex rules. That was the point made by Roy Kennedy, director of finance and compliance for the Labour party, in his reference to the "volunteer armies". Anything that imposes complicated and misunderstood rules on those people by way of regulatory sanction could stifle their desire to become involved. At a local level, such volunteers are the lifeblood of our parties. Often more senior in age, they give their time from a sense of civic or national pride. At a time when more and more people are turning their backs on the political process and large sections of the electorate feel disfranchised, we must be careful not to discourage involvement by imposing heavy-handed regulations that are difficult to understand and comply with, and which could lead to financial or criminal penalties if breached.

We would very much like the position of volunteers to be protected in the Bill. We must ensure that we do not push away those already involved or likely to become involved in the political system with the fear of regulatory penalty. The Minister may come back with something more acceptable in due course. In the meantime, I shall certainly recommend to my hon. Friends that we vote against the clause.

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