Earl Howe (Con)
I will come to the subject of caps on donations in a moment.
On Amendment 212E, the noble Lord, Lord Rennard, recently tabled a Question for Written Answer about the uncommenced provision in the 2009 Act. This provision, Section 10, refers to residence and domicile for income tax purposes as a criterion for permissible political donations. Although a response was issued to him by my noble friend Lord Greenhalgh on 14 March, I hope that it will be helpful if I repeat it briefly for the benefit of the Committee.
The Government have no current plans to bring into force the uncommenced provision, Section 10 of the Political Parties and Elections Act 2009, regarding donations from non-resident donors. There is a very good reason for this: the provision is not workable given that an individual’s tax status is subject to confidentiality. It may therefore be difficult or even impossible for the Electoral Commission, political parties and other campaigners to accurately determine whether a donor meets the test set out in Section 10.
Furthermore, as a matter of principle, taxation is not connected to enfranchisement in the UK. If a British citizen is able to vote in an election for a political party, they should be able to donate to that political party subject to the requirements for transparency on donations. There is clear precedent here. Full-time students are legally exempt from paying council tax but still have the right to vote. Likewise, those who do not pay income tax rightly remain entitled to vote. For these reasons, the Government cannot support these amendments.
The other key theme that this debate has focused on is that of donations made by companies or other entities such as unincorporated associations. I will address Amendments 197, 198, 200, 210, 212 and 212G in the remarks that follow. As I have said before, only those with a legitimate interest in UK elections can make political donations, such as UK-registered companies which are carrying out business in the UK, trade unions and other UK-based entities. There is only a very limited exception to this, whereby, as I indicated earlier, for political parties registered in Northern Ireland permissible donors are a wider category.
The law is already clear that, if a company wants to donate to a party or fund a campaign, it must be a permissible donor. The recipient of a donation is responsible for checking that the donor is eligible; that is to say that it is registered in the UK and carrying out business in the UK. The recipient must also report the relevant donations to the Electoral Commission quarterly, and weekly during election periods. To ensure transparency about party funding, donation reports are published by the Electoral Commission on its online database.
Unincorporated associations are permissible donors only where they carry on business or other activities wholly or mainly in the United Kingdom and where their main office is in the UK. Further to this, any unincorporated associations making political contributions of more than £25,000 in a calendar year must notify the Electoral Commission and are subsequently subject to various reporting requirements relating to their own funding. Members’ associations, many of which are unincorporated associations, are separately regulated as regulated donees and must report on donations and loans that they receive.
Amendment 197 would introduce a new obligation on unincorporated associations to take all reasonable steps to check whether donations they receive intended for political purposes come from a permissible donor. At first glance, “all reasonable steps” appears perfectly reasonable. However, this would represent a significant change for unincorporated associations which, as I outlined previously, are already subject to significant reporting requirements. It singles them out from other types of donors and puts them instead closer to the level of political parties in their due diligence obligations. This could mean many voluntary groups and local sports clubs and societies all facing a significant extra due diligence cost simply because they fall into an unlucky category. That does not strike me as fair, and I would be concerned about the possible chilling effect on democratic participation of those groups.
Amendment 198 is an attempt to restrict donations from organisations. As drafted, it would exclude UK-based companies with fewer than five employees from making donations. Furthermore, it is unclear how one would determine who has “significant control” of an unincorporated association, as their governance structures are not regulated in the same way as other legal entities. Although I am sure this was not the intention, it demonstrates quite well the risk of serious unintended consequences if amendments which place restrictions on who can participate in our democracy are made with haste and without consultation. Furthermore, Amendment 198 would make it an offence for an ineligible company to even offer a donation, regardless of whether it is accepted and regardless of whether it was aware the donation it was offering is impermissible. This is unnecessary.
Donations from impermissible donors are already illegal, and it is the political parties and campaign groups receiving the money, the ones which better know and understand this area of law, which are accountable and responsible for checking, returning and reporting impermissible donations. In addition—this point has been highlighted previously—it is an offence for a donor knowingly to facilitate the making of an impermissible donation.
I am grateful to my noble friend Lord Hodgson for his Amendment 210, which would prohibit donations from individuals or companies that hold public contracts with a value equal to or exceeding £100,000. The complexities of procurement frameworks are slightly beyond the scope of this debate, but let me say that, while well-intentioned, it is not clear how this amendment would operate in practice. Seemingly, there is no limitation on a person making a donation to a party prior to entering into a contract with a public body, and it is unclear whether the prohibition extends beyond the lifetime of the contract and, if so, for how long. It is important to note that the existing legislation already provides for publication of donations to political parties, regulated donees and recognised third-party campaigners, therefore enabling any discerning citizen and our free press to scrutinise any large donations.
I also thank the noble Lord, Lord Sikka, for his Amendment 212. As he explained, the intention of this amendment is to prevent shell companies being used to make large donations. Similar concerns on source of donations underpin Amendment 200 and the substantial Amendment 212G from the noble Lords, Lord Rooker and Lord Butler, which would introduce requirements for registered parties to carry out risk assessments and due diligence checks on donations.
However, as I have already outlined, there are strict rules requiring companies making donations to be incorporated and carrying out business in the UK. Existing rules also prohibit circumventing the rules through proxy donors. That is on top of a legal requirement for political parties and other recipients to conduct permissibility checks and report to the Electoral Commission.
The principle of strengthening the system to provide greater levels of assurance on the sources of donations to ensure they are permissible and legitimate is important. We take seriously the risk of donors seeking to evade the rules. Indeed, the Government recently set out their final position on the reforms to the corporate registration framework, ahead of introducing legislation, in the Corporate Transparency and Register Reform White Paper.
The introduction of mandatory identity verification for those incorporating and filing with Companies House will be essential for making information on the companies register more reliable. It will mean that those with the intention of fraudulently misusing the UK corporate registration framework will have their activities traced and challenged. For example, all directors of UK limited companies will be required to verify their identity in order to be registered, and overseas companies will be required to verify the identity of all their directors. This, in combination with a new power for the Companies House registrar to proactively pass on relevant information to law enforcement and other public and regulatory bodies, including the Electoral Commission, will help ensure that any company making political donations is properly trading in the United Kingdom.
However, we do not want to impose disproportionate legal obligations that hinder the ability of parties and other campaigners to generate funds against the cost of carrying out checks on donations to ensure that they come from permissible sources. To do so would risk it not being cost effective for parties to accept smaller donations and therefore exclude some people from being able to participate in our democracy in this way. The current rules are proportionate and achieve this balance.