Elections Bill

Debate between Lord Sikka and Lord Hodgson of Astley Abbotts

Lords Hansard - Part 2 & Committee stage
Monday 28th March 2022 Lords Chamber

[Lord Sikka (Lab)]

My Lords, I will speak to Amendment 212. It is a great pleasure to follow the noble Lord, Lord Wallace, and I also fully support the position taken by my noble friend Lady Hayman on this Bill. There are a number of amendments here which all have a common concern with preventing abuse and ensuring that there is a level playing field, and my amendment is a contribution to that. Amendment 212 seeks to end abuse of “permissible donors” and prevent the flow of foreign money into UK political parties.

The Political Parties, Elections and Referendums Act 2000 was really shaped by the Committee on Standards in Public Life’s fifth report, which was published in October 1998 under the chairmanship of Lord Neill of Bladen. In developing its recommendations, the committee invited evidence and considered the issue of foreign donations at some considerable length—chapter 5 of the report covers that. In its evidence to the committee, the Conversative Party stated:

“in the future we will not accept foreign donations.”

That appears on page 69 of the report. There was concern about abuse, and on page 74 the Neill committee report said:

“It is possible to imagine that a foreign corporation wishing to evade the underlying purpose of the provisions which we advocate might cause to be brought into being a UK subsidiary, the sole function of which would be to receive money from the foreign corporation and then channel it to the political party of its choice. This would clearly be an abuse of the system”.


That is a very powerful statement. The committee recommended that the legislation should consider:

“making it a criminal offence to attempt to evade or to render nugatory the statutory provisions limiting donations to those coming from ‘permissible sources’. It would, for example, be a crime for an individual in the United Kingdom, who did not, himself or herself, have the resources to make a large donation, to become a mere conduit pipe through which foreign money was channeled to a particular party.”

The legislation has been grossly circumvented and exploited. I will give a couple of examples of this—that is all I will have time for, although I am sure that the Ministers may be able to add more examples, given their experience and knowledge of the party. The first example relates to Lord Ashcroft, who was once upon a time a treasurer of the party. Around 2008 and 2009, I was asked by a number of media outlets to investigate his donations to the Conservative Party, which added up to £5,137,785. These donations were made by a company called Bearwood Corporate Services, a limited company registered in the UK. However, it never had sufficient profits to be able to pay the donations. My investigations uncovered a complex network of corporations behind it, and the aim of this network was to obfuscate the money trail.

The trail of money began with a company called Stargate Holdings Ltd, which was based in Belize and controlled by Lord Ashcroft. The moneys went in various packages from there to a UK-based company called Astraporta (UK) Ltd. From there, the moneys went to another company called Bearwood Holdings Ltd, and then from there to Bearwood Corporate Services Ltd, and then from there to the Conservative Party. The attempt was to disguise the origins. None of the companies disclosed the payment of political donations. They were all carefully constructed to ensure that they met the definition of a small company, because small companies do not need to disclose political donations. The UK companies involved in this chain either did not trade at all or had insufficient profits to enable them to make the donations. For all practical purposes, the moneys came from Belize and were finally handed over to the Conversative Party. I am sure that a lot of legal advice would have been taken in order to complete that particular route. Clearly, the moneys originated from abroad.

I reported the matter to the Electoral Commission. I told the commission that I was investigating it and what I had initially found. At the minutes of a meeting, the commission noted that it had heard from me. However, in the end, no action was taken by the Electoral Commission.

The second example, which has already been cited, relates to the company called Aquind. This company was incorporated in the UK in 2008, and over many years it remained dormant, but it has paid large sums of money to the Conservative Party. As recently as 2019-20—I have looked at its accounts—the company had no turnover. Indeed, it had no turnover at all at any time in its life. It never made any profit. So, the donations made by the company to the Conservative Party did not originate from any trade or profit in the UK; they obviously came from abroad. The company says that it is ultimately controlled from Luxembourg. I have not looked into who controls the Luxembourg entity, because there is not sufficient time, but I would be happy to take that assignment for the Conservative Party if it wished.

These two examples show how determined donors have been able to play our legal system and bypass it by carefully constructing transactions, and that is not helpful. My suggestion is that companies that make political donations should be able to make them only if they have sufficient realised profits. The term “realised profits” is well understood in the Companies Act. It is nothing new, so I am connecting to it. It generally means the company must generate profits that must result in cash or cash equivalent. If it is not trading, it cannot generate realised profits. This is a way of ensuring our legal system is not abused.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I put my name to Amendment 200 of the noble Lord, Lord Wallace, and I have Amendment 210 of my own. The noble Lord, Lord Wallace, has done most of the heavy lifting on Amendment 200, as he explained. I joined with him because I thought that, where we dealt with donations and national security risk, an additional power for the Electoral Commission—the fit and proper test—might be helpful. I tabled the amendment separately, and then, as the noble Lord explained, we wound them together so they are now one amendment.

The concept of a fit and proper test is well developed. Importantly, it lies at the heart of the powers of the Financial Conduct Authority and other financial regulators. It is important because it can put under the microscope the behaviour of individuals, not just a company itself. It has been found that, when people find that they themselves are going to go under the microscope as opposed to the company they work for, that tends to concentrate the mind rather wonderfully. The fit and proper test has a number of aspects to it that might usefully form part of the Electoral Commission’s armoury: honesty, integrity, reputation, competence and capability and financial soundness, all of which would be helpful for the Electoral Commission to have.

What I was seeking to do with the amendments here was propose a similar arrangement in respect of donations from overseas where there was a security risk. This amendment is not going to try and lay down what the fit and proper test should be in respect of this area, because that will need to be done specifically. I just gave the examples from the financial regulator to show the sorts of areas I think the Electoral Commission could usefully focus its activities on. This amendment, along with the broader amendment that the noble Lord, Lord Wallace, tabled, will give the Electoral Commission a full set of tools to police this important part of our national life.

I briefly turn to Amendment 210, which is also in this group. It is a probing amendment—it is not in a final form by any manner of means—but it would prohibit individuals or companies donating to registered political parties where they have been awarded government contracts of more than £100,000. The broad purposes would be to prevent conflicts of interest, to mitigate any appearance of impropriety relating to the awarding of an individual contract, and to contribute towards maintaining public trust and confidence after a number of scandals—Greensill springs to mind.

Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No. 2) Regulations 2021

Debate between Lord Sikka and Lord Hodgson of Astley Abbotts

Monday 6th September 2021 Grand Committee

[Lord Sikka (Lab)]

My Lords, there are many industries that are still not fully on a path to recovery, good examples being hospitality and events management. If we are thinking about terminating this legislation at some stage, surely before we do that the Government will have to present us with some evidence of what the impact of the cliff edge will be on those and other industries.

Clearly a cliff edge is looming, although the can continues to be kicked down the road. What will happen when suddenly, as has been said, you let the market forces rip? What will be the effect of this legislation upon creditors who would perhaps have expected to have some recovery but who now must wait to recover? Clearly there is a knock-on effect, but the Government have not really presented any estimate of that. When the cliff edge comes, what restraints will be exercised by banks, private equity, hedge funds and other secured creditors, or will they all simply be rushing to collect their resources, collect their money, and put businesses into liquidation? That will clearly have a huge negative effect.

The Government need to present us with a plan. What exactly is the value of the debts that are affected? How many businesses? How many creditors? We have heard absolutely no information from the Government. When market forces are allowed to rip, what exactly would be the constraints on the insolvency practitioners who charge mega sums for insolvency fees that actually worsen the crisis? The BHS liquidation began in 2016 and is still not finished. Carillion began in 2018 and is still going. Thomas Cook is still going. Maplin is still going. Monarch Airlines and many others have been going for decades and decades. There seems to be absolutely no check. If the Government are really planning ahead, they need to present a plan about how they are going to constrain the insolvency industry. We have not really heard anything about that. I have asked in PQs for information about the values that unsecured creditors may lose. I am told that the Government have no figures. Again, I ask: what is the Government’s plan to deal with the cliff edge ahead?

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I declare an interest. I am chairman of the Secondary Legislation Scrutiny Committee, which has reviewed these regulations, but I speak this afternoon not as its chairman, nor indeed for the committee at all; I speak entirely in a personal capacity.

My noble friend the Minister will be aware of my interest in these matters, and it would be right for me to begin by thanking him and his officials, led by Paul Bannister, for the time they have given me and other interested Members of your Lordships’ House over the past few months to look at aspects of the particular problem we are dealing with this afternoon. Indeed, they have given us not just time but action in the sense that we have had some really sensible regulations about pre-packs, which have become a feature of choice and often with connected persons. The regulations which the Government have produced have done much to block that loophole and, judging by my postbag, they seem to be working well so far, although, as the noble Lord, Lord Sikka, has pointed out, the point of maximum strain will of course come when we reach the end of the subsidies, whenever that may be.

I have a couple of points to make this afternoon. The first is about how we judge when “can’t pay, won’t pay” moves to “can pay, won’t pay”. My noble friend the Minister will say that paragraph 7.3 of the Explanatory Memorandum says that that is when the court is satisfied that the company’s inability to pay is not due to coronavirus. That may a possibility for a large and well-resourced company, but it is certainly beyond the resources of a small or medium-sized enterprise to go to court to try to prove this issue, which is pretty hard to prove anyway. I do not think that the Government should think that this offers anything other than the largest companies a proper balance in the argument about “can’t pay” and “can pay, but not bothering to pay”.

Of course, one understands, and has an instructive and instinctive view, that one should be helping people whose lives, efforts and companies have been set back by the pandemic, an issue over which they have no control. Of course you feel sympathy for them. However, we always have to balance that sympathy with the knowledge that this is a zero-sum game. One person’s gain is another person’s loss. I may be a supplier and may therefore be caught up in this; I may be unable to get paid and my business may be affected. It is always tempting to think that one should be trying to help those who are in difficulties and forgetting those who are strong. We need to avoid, or at least to minimise, situations where businesses that are already weak—perhaps for reasons beyond coronavirus, although that has created an additional strain—are kept afloat at the expense of suppliers and landlords.

In summary, we need to avoid taking policy decisions that benefit the weak and weaken the strong. When my noble friend winds up, it would be helpful if he could give us a stream of consciousness that will guide us as to how the Government judge all this. I understand the magic references to constant review in the Explanatory Memorandum; viable but cash poor is in there as well.