Sir George initiates debate on Party Funding
8 Nov 2005
Criticising the Government for avoiding a debate on Party Funding, Sir George set out his own views.
Hansard extract below.

9.30 am
Sir George Young (North-West Hampshire) (Con): I welcome the opportunity to debate the Electoral Commission's report entitled "The Funding of Political Parties", which was published last December. I commend the authors for a thorough and well-researched report, which they submitted along with their recommendations to the Department for Constitutional Affairs. Nearly a year has passed without it being debated in the House and without any response from the Government. I therefore welcome the opportunity to take the matter forward.

I am glad to see my hon. Friend the Member for Chichester (Mr. Tyrie) in the Chamber. He has written extensively and with insight on the subject. I am pleased that my hon. Friend the Member for Wealden (Charles Hendry) is here and I welcome the Minister. She has her plate full, with the Electoral Administration Bill being discussed in the House later today. I am also pleased to see the spokesman for the Liberal Democrat party here.

At business questions on 16 December shortly after the report was published, I asked for a debate on the report. In response, the then Leader of the House said:

"I am very sympathetic to the idea of a debate on that".

He also showed a bit of ankle by saying,

"It might be possible, on an all-party basis, to move towards extending—not introducing for the first time, but extending—public funding for parties in designated areas",

and said specifically:

"In that respect, it is interesting that the Electoral Commission has recommended tax relief on donations of up to £200. We can consider the proposals in due course".

Due course, by any reasonable interpretation has come and gone, but there has been no consideration.

During the exchange, another hon. Member referred to "maverick millionaires", and said that such matters were

"not doing any good to the battered reputation of Parliament".

The person who said that was the then Liberal Democrat spokesman, now Lord Tyler, speaking before Mr. Michael Brown—a maverick, if ever there were one—appeared on the scene with his cheque book. In response to Paul Tyler, the Leader of the House said:

"We can move forward on a consensual basis on this and the Electoral Commission provides an interesting way of doing so.—[Official Report, 16 December 2004; Vol. 428, c. 1822.]

I followed up such matters on 14 July by asking the current Leader of the House for a debate. He played a straight bat and said:

"These matters are important and the House should discuss them."—[Official Report, 14 July 2005; Vol. 436, c. 968.]

He was supporting the end, but not providing the means.

Hon. Members may wish to focus on many recommendations in the report, such as spending limits—national and local—political donations, policy development grants and the extension of freepost to local elections. I shall focus on the recommendations that would improve the viability of our political parties and put matters into context. It is common ground that all is not well with our parliamentary democracy. Turnout has fallen in general elections—an important barometer of political engagement. If turnout continues to decline, it could undermine the legitimacy of our Parliament. Our main parties have declining membership. The Labour party is down from more than 400,000 in 1997 to about half that number now. In 1977, we had a membership of about 400,000 and it is now down to about 300,000, most of whom are opening their envelopes as I speak.

Collectively, politicians are held in low esteem, somewhere near that of journalists and estate agents, although I note that local Members of Parliament, as individuals, are more highly regarded. There is widespread cynicism and apathy about the political process with young people, in particular, disengaging. Abstention from elections is something that they boast about rather than apologise for, and there are signs that their disengagement is becoming permanent as they grow older.

There is no off-the-shelf remedy that will restore the health of our political system. We need a variety of solutions. The Putman report, commissioned by the Hansard Society, has some radical proposals for improving the interface between the House of Commons and the world outside. We need to continue examining how we conduct our business within the House. We must make it more relevant and accessible to those whom we represent. We need to reform Prime Minister's questions. Parliament needs to be more representative of society as a whole. We need to do more of the work that my hon. Friend the Member for Wealden has been doing at universities and with young people. Ministerial conduct needs to be beyond reproach. We must make intelligent use of technology to interact better with our electorate.

However, part of the solution is healthier, more broadly based, more representative and more active political parties. Political parties are much maligned, but they are essential to the democratic health of the country. They recruit, motivate and train the people who stand for public office; none of us would be in Westminster Hall this morning were it not for our parties. Parties provide policy platforms that give voters a choice of administration at every level, and then seek to deliver that programme in office. They provide a legitimate means of expression for the political, economic and social interests in our society. They are the channels for political and intellectual discourse and debate, and for refining new ideas into practical policies. They promote interest and turnout in elections and engage with the electorate both locally and nationally.

Our main parties have long histories and proud achievements. They have nurtured the great leaders of our country—one of whom needed succour from two parties—and then given them a platform from which to conduct the affairs of state. However, parties need
infrastructure to ensure that they can discharge the demands of the political system. Our parties are hollowing out and dying on their feet. They are heavily in debt. Paragraph 3.34 of the Electoral Commission report says:

"it is clear that most parties are having difficulties raising sufficient funds to meet their day-to-day costs let alone the burden of funding major election campaigns. Borrowing appears to be used to meet the shortfalls."

The report goes on to say that

"It is . . . no exaggeration to say that if political parties were businesses some could be regarded as trading while insolvent."

Parties have never been less popular. Fewer people identify with them, vote for them or join them. There are many reasons for that, but the way in which they are funded is partly responsible for that disengagement and disenchantment. All parties have been hit by bad coverage deriving from the current regime, which obliges parties to seek large donations from individuals and their companies. Enron, Mittal, PowderJect and Ecclestone have hit this Government; ours was hit by Asil Nadir and others. The Liberal Democrats were hit by Michael Brown. The consequent adverse publicity surrounding funding leads to a vicious spiral; there is then less incentive to join and support the parties that have become so tainted, and that leads in turn to more dependence on large donations. Some 58 per cent. of the donation income received by parties between 2001 and 2003 was obtained from donations in excess of £100,000. Such rows hit not just the party concerned, but the political process. Because of the transparency of the donations on the one hand, and the complexity of the decision-making process and political networks on the other, it is difficult to allay accusations that no one gives that sort of money for nothing.

Page 15 of the Electoral Commission report includes the proposition that

"Funding parties by voluntary donations is unfair because there is a risk that wealthy individuals, businesses and trade unions can buy parties."

That proposition was supported by 70 per cent. of those surveyed. More recently, trade unions have been asking what they get for their money. If a new super-union emerges it, together with Unison, would account for almost half the Labour party's income; that is an almost unprecedented concentration of power.

Paragraph 1.6 of the Electoral Commission report summed up the problem as follows:

"Despite enhanced levels of public scrutiny of party finances since the introduction of PPERA, there is continuing public unease about the possible influence of large donations on the political process."

I believe that we need to encourage broad-based political parties with a wide membership if we are to reduce dependence on those donations. The measure that I support is not a pretext to put up one's feet; on the contrary, it is an incentive to get out there and recruit more members.

There is a way forward; it was outlined by the Neill committee in 1998, and repeated in a modified form by the Electoral Commission in 2004. The Neill committee recommended tax relief, limited to the basic rate, on donations of up to £500 to eligible registered political parties. The committee noted that in several countries, including the United States, Canada and Italy, personal donations to political parties qualified for income tax relief, and it suggested that a similar tax relief should be introduced in the UK to encourage an activity that the committee regarded as both

"meritorious and . . . a contribution to the democratic process."

In the committee's view, the principal advantage to such a scheme was that it would encourage a different pattern to political donations, so that parties would not rely for their funding needs on a relatively small number of donors, each making large donations. The committee said:

"We have found very widespread support for the view that it is more democratic, and therefore in the public interest, that political parties should be funded by a large number of small donations rather than by a small number of large donations."

Mr. Andrew Tyrie (Chichester) (Con): In that case, does my right hon. Friend favour a ban on large donations?

Sir George Young : I shall come to the question of whether the introduction of tax relief should be accompanied by a cap on large donations. I think that there has to be a trade-off, and I shall touch on that in a moment.

The quotation concludes:

"A system of tax relief which increases the value to political parties of smaller donations is likely to encourage the parties to make greater efforts to obtain them".

In addition, the committee noted that one further advantage to this method of party funding over the direct payment of state funds was that

"the allocation of the relief is in the hands of individual taxpayers and requires a contribution from them."

I believe that tax relief would give the right signal that engagement with a political party is a civic activity to be encouraged. A citizen should be proud to be a paid-up member of a political party, not regarded as someone from a Bateman cartoon.

I remember the married couple's allowance, and I do not think that anyone got married to claim that allowance. However, the existence of the allowance was a statement by Parliament that the institution of marriage deserved support and gave stability to society. Likewise, I believe that tax relief would have a symbolic importance; it would be a statement that joining a political party was a worthwhile civic activity. Such a regime, as I have said, would be taxpayer-led, not Government-led. It would encourage a democratic response and begin to redress the danger of large institutions or individuals gaining disproportionate influence.

The Government voted this recommendation down when we debated Neill. Indeed, I think that it was the only Neill recommendation that they did not implement. These were their reasons:

"the Committee proposed that donations to political parties, below a certain level, should be eligible for income tax relief at the basic rate. The Government is not persuaded by this recommendation. Tax relief would amount to general state aid by another route. A tax-relief scheme would be expensive for the Inland Revenue and political parties to administer relative to the likely level of take-up. Furthermore, the Government has to balance the loss of revenue (likely to be upwards of £4 or £5 million a year) against other spending priorities."

Of course we have to keep an eye on public expenditure, but any hon. Member worth his salt could find £5 million out of the Government's budget in half a day. The Neill committee rightly rejected the Government's arguments. It said:

"We are disappointed that you have decided against our proposals in relation to a tax relief system on the ground, amongst others, that it 'would be expensive for the Inland Revenue and political parties to administer relative to the likely level of take-up' . . . Bearing in mind that tax relief is given to thousands of charities, we thought it unlikely that the administrative costs would be prohibitive. In a recent Written Answer . . . Lord Bassam of Brighton . . . has stated that the administrative costs of a tax relief scheme have not been estimated. We invite you to make such an estimate, and we strongly urge you to reconsider our proposals on tax relief on political donations in the light of your conclusions as to the administrative cost of their implementation."

To date, it appears that the Government have not responded to that request.

I understand the Conservative party's aversion to increases in public expenditure and I would not force any party to accept the money if its scruples prevented it from so doing. However, I remind my hon. Friend the Member for Wealden, who may be clutching a hostile brief, that we all voted for the Neill recommendations at the time.

However, I accept a related argument that, if we want more public support, we must put our house in order. There is excessive expenditure at election time—what economists call "conspicuous consumption"—and I have no objection to the national cap on expenditure coming down, not that we see much of that in my constituency of North-West Hampshire. There are campaigning styles that irritate and switch off the voter, and I would like to see a less media-intensive campaign that cost a lot and more locally based campaigns using volunteers.

Since Neill reported, the position has got worse. We had the slump in turnout in 2001. Indeed, the Neill Committee recognised that

"it was likely that some of our recommendations would inhibit the parties' ability to raise funds and result in additional pressures on the finances of political parties which were already under strain."

The committee was right to be so worried.

The Electoral Commission took over the baton from the Neill committee and made a similar recommendation in the report that is the subject of this morning's debate. Its scheme is built on the gift aid scheme, under which, again, individual donors, not the Government, decide. The purpose is to reduce the dependency on large donations and to broaden the membership base. After reviewing how such schemes and match-funding schemes had operated in other spheres, the commission recommended:

"A system of income tax relief on small donations to political parties should be introduced. The scheme should be limited to relatively small donations, up to a value of £200 (or the first £200 of larger donations) in any tax year, the value being up-rated in line with inflation. We recommend that tax relief should be given on membership subscriptions and cash donations, but not on benefits-in-kind or on payments which involve a potential benefit to the donor.

The system should be open only to those registered parties that can demonstrate representation or a significant level of electoral activity at the Westminster, European, devolved or local level."

The commission further recommended that donations from non-taxpayers should attract an additional sum to the party, equivalent to the level of tax relief.

That concept of support for political parties is not new; we have policy development grants, Short money—Margaret Thatcher was the first Prime Minister to be elected using state funding—party political broadcasts, freepost and the free hire of public buildings. The Electoral Commission is advocating a logical and necessary extension of a system that is already in existence.

On the intervention by my hon. Friend the Member for Chichester, I also favour a cap on donations, so that the public can see that money cannot buy influence or leave politicians beholden to funders. I recognise that the Electoral Commission is not pressing for that at the moment, and my hon. Friend might develop his point if he catches your eye, Mr. Taylor.

The public seem to want an end to large donations, with all the problems that they involve. However, people need educating about the fact that, if that source of income is cut off, and parties are to continue doing what is expected of them, the shortfall will somehow have to be made good. The proposals that I advocate will not replace such donations, and that is perhaps one reason why we should not ban them at once. If we want to phase them out, however, we need to begin to phase the alternative regime in.

I understand that a Government who are perhaps not popular might not want to risk further unpopularity by going down that route. A survey commissioned by the Electoral Commission showed initial hostility to the proposition of taxpayer subsidy. However 70 per cent. also said that funding parties by means of voluntary donations is unfair, because there is a risk that wealthy individuals, businesses and trade unions could buy influence over parties. Cragg Ross Dawson, which conducted research for the commission, found that the public, after deliberation, were broadly in favour of increased, or total, public funding of political parties, even if it would necessarily be funded through the tax system. The reasons given included less sleaze, the low cost to taxpayers and a fairer system.

The Labour party was the only party to comment on party funding in its manifesto for the general election. It said:

"Having been the first government to take action to clean up the funding of political parties, we will continue to work with the independent Electoral Commission to explore how best to support the vital democratic role of political parties while recognizing that campaigning activity must always be funded by parties from their own resources."

Just two months ago, in September, Lord Levy—his appetite for raising funds apparently beginning to be exhausted—announced that he would retire from his position as a Labour party fundraiser when the Prime Minister retired. He said:

"I think it is important that an overall review takes place on the issue of party funding. In that framework the issue of state funding should be explored."

He prompted a brief exchange of letters in The Times and received support from Vernon Bogdanor, a constitutional expert, who supported limits to individual donations and match funding. I believe that that would be the right move and I am sure that the Prime Minister would welcome it, as indeed would the Minister, if it meant more evenings at home, instead of sitting in a ball gown in Grosvenor house next to some boring but rich potential donor discussing the taxation of offshore oil exploration. The beginning of a new Parliament is the right time to make such a move.

I rest my case. Two independent bodies have given their verdict, one at the specific request of this Government. The other was a new body that was set up by them and is charged with examining our electoral system. The Government have so far rejected the common recommendation and they have made the problem worse by some of the other actions that they have taken. The right time to take the matter forward is at the beginning of a Parliament, with some political cover from some members of the Opposition. I look forward to a positive and encouraging reply from the Minister.

9.50 am
Mr. Andrew Tyrie (Chichester) (Con): I have spoken and written about this subject quite a bit, but I will not rehearse what I said, standing where I am now, when I succeeded in securing a debate on this issue three years ago.

I want to pick up on a number of points. My right hon. Friend the Member for North-West Hampshire (Sir George Young) has done a superb job in setting out the field. I agree with almost everything that he said and I hope that the Labour Government are listening carefully.

There is a huge gap between the public image of us and the reality. The reality is that the vast majority of MPs are uncorrupt and the vast majority of British politics is conducted in an uncorrupt fashion. It is probably more uncorrupt than any other major democracy. We have a huge number of people dedicated to public service in this institution. The tragedy is that this is completely swamped and swept aside by the image created as a consequence of a relatively small number of problems which derive from the way in which we run our constitutional and parliamentary affairs. One of them is donations to political parties, which is why we need to address it.

In that regard, there is a stench of political corruption in the nostrils of the electorate. Frankly, it is not all a stench of their imagining: there has been the Ecclestone £1 million; the PowderJect donation; Mr. Mittal's donation in exchange, it appears, for the letter that went to the Prime Minister of Romania about its steel industry; the Hinduja £1 million donation to the dome, which was alleged to be in exchange for a passport application; and the blind trust, which we still have. How blind can a blind trust be when the key person running it is the doorkeeper to the Prime Minister and his key assistant for the first half of Labour's term was the hon. Member for Coventry, North-West (Mr. Robinson)? That does not build and sustain the electorate's confidence in party donations.

There have also been honours sales on a massive scale: Messrs Bragg, Gavron, Haskins and Sainsbury. The front page of The Times today leads on the story, lest the public are beginning to think that the stench in the nostrils is diminishing. The headline states: "Sleaze

8 Nov 2005 : Column 8WH

row as election donors get peerages". So, there have been some more honours sales. Of course, both sides are involved.

The unions have been at this for many years. They have demanded changes in employment policy. For example, the National Union of Rail, Maritime and Transport Workers demanded such changes and said that if it did not get them, it would withdraw constituency support from a number of Labour MPs. The Liberals have had a scandal of their own.

At this point, a number of hon. Members must feel that I have decided to ignore my party. I am completely devoid of an answer to the good piece of research by the Institute for Public Policy Research into the allocation of peerages prior to the 1997 election, which showed that 50 per cent. of knighthoods and peerages went to companies that made donations to the Conservative party, whereas only 6 per cent. of them went to other companies. I have not been able to think how that extraordinary imbalance could have come about other than its perhaps involving just a whiff of the stench of political corruption in our own nostrils as well.

The truth is that there is a conspiracy of near silence—a shuffling of the feet on behalf of all parties, including the Liberal party and, in particular, the major parties. We need to bring it to an end, and the only way to do that is to ban large donations. It is such donations, whether from unions, rich individuals or companies, that create a bad impression. I would favour setting a cap as low as £1,000, but I have been persuaded that it should perhaps be £5,000.

If we were to introduce such a low cap, parties would be short of cash—but how short? One of the illusions that we have allowed to develop in the minds of the electorate is that parties are somehow self-funding and that state funding scarcely exists. My right hon. Friend mentioned some of the state funding that exists. If he had turned that into numbers, he would have found that there is a reasonable case for saying—an orthodox view—that, taking into account total state funding in cash or kind, including free access to television and radio for party political broadcasting, and other forms of support such as the free drop during general elections, roughly half of all party political activity in Britain is funded by the state in one way or another. Therefore, we are talking about the other half.

How much of the other half consists of large donations? It is probably 50 or 60 per cent.—between a quarter and a third of the total cost of party politics. Either we will have to plug that gap or parties will have to operate on rather less cash. British democracy would not collapse if parties had less funding with which to fight elections. Indeed, another of the Electoral Commission's proposals to which my right hon. Friend alluded was the possibility of reducing the limits on party funding during elections.

My right hon. Friend has supported strongly the proposal that there should be tax relief on political donations. I am sympathetic to that view, but I do not think that it is the best way forward. However, I would not allow the best to be the enemy of the good. A matching funding scheme is the most sensible way forward, for several reasons. One is that it is easy to adjust the amount that ends up in the hands of parties because it does not have to be a 50 per cent. match; it

8 Nov 2005 : Column 9WH

could be a 60:40 or 30:70 match, which would ensure some continuity of funding to political parties. It is also very direct. I could turn up in my constituency and say, "If each of you will raise x, I can get y back." That is clearer and more direct than saying that people should fill in a form to enable them to get tax relief, so that is the scheme that I favour.

The Government's arguments against those proposals scarcely stand up. They say that it is state funding by another route. But we already have huge state funding in cash and in kind. They also claim that it would be too expensive, and my right hon. Friend correctly swept that argument aside with a wave of the hand, saying that they could find a few million very quickly. It is also worth bearing it in mind that we already spend a huge amount—far more than the £5 million or £8 million that might be required—trying to bolster the public's confidence in the electoral system in other ways. For example, increased funding has gone to the Electoral Commission, which probably costs three times as much to run as it cost to administer the task in the Home Office, which ran the system prior to the creation of the Electoral Commission.

The seismic change has to be the complete banning of large donations. If we do that, we have a good chance of restoring some of the electorate's faith in political parties and we will certainly make it much more difficult for people to claim—I am afraid with some justification—that honours can buy power and influence and have been bought by party donations. Such party donations are listed on the front page of The Times today.

I have raised the matter on numerous occasions, and I get the standard replies from the Government that have obviously been prepared carefully in the Department. I have also raised it with Sam Younger. I thought that he produced an excellent report, but unfortunately it funked this key issue. Only last week, in the Constitutional Affairs Committee, I said to him that

"you shied away from the key recommendation which might have addressed it, did you not?"

He replied:

"Yes . . . it is fair to say that we did".

He then explained why, and I think that this is quite interesting. He said that the trouble is that on the one hand, the electorate said:

"We do not like the idea of big money being able, as we see it, potentially to buy influence",

and that, on the other hand, people said,

"'Is it right that public money should go to political parties', the answer is 'no'."

Of course, that is a problem for us. It is a problem for Sam Younger. But is that not what we politicians should be about: convincing the electorate that they already put money into political parties, that it is right that they should and that a modest increase—which is all we are talking about—in return for getting rid of large donations must be a sensible way forward. Is it not important that the Electoral Commission, rather than engaging in "followship", should try a bit of leadership? Is it not the job of Sam Younger and the Electoral Commission to take a view? Would it not be helpful if, as a result of this debate, the Electoral Commission had a clear sense that it needs to come back to the issue and give us a stronger steer on that key recommendation?

8 Nov 2005 : Column 10WH

I rest my case. If we succeed in getting a ban on large donations, I am confident that we can restore a good deal of the trust in political parties that the electorate appears to have shed. If we do not, articles such as that on the front page of The Times will continue, as will the haemorrhaging of public confidence in party activity.

10.2 am
Mr. David Heath (Somerton and Frome) (LD): First, I congratulate the right hon. Member for North-West Hampshire (Sir George Young) on initiating a particularly timely, as it turns out from today's headlines, debate on an important subject. I also congratulate him on the content of his speech and the way in which he set out the issue. He was ably followed by the hon. Member for Chichester (Mr. Tyrie), who added value to the debate and made it plain that the issue should be addressed. I am a little surprised that all parties are not represented in the Chamber this morning, because the matter quintessentially affects us all and we ought to hear a range of opinions on it.

I agree entirely with the right hon. Member for North-West Hampshire. There is no excuse for the delay in responding to the Electoral Commission's proposals. It is an extraordinary lacuna in the Government's response, particularly in the context of the Bill we will be dealing with this afternoon, which, it might be thought, could have been an appropriate vehicle for some of the necessary reforms.

I also agree that it would be wonderful if we could reach consensus. It would make all our lives, including those of Ministers, easier if we had a common view. I fear that that may be a counsel of perfection. It may be that self-interest will get in the way of the interests of the country in providing a proper and effective system that inspires the confidence of the electorate and, at the same time, ensures a vibrant democratic system. There is inevitably a bias in favour of maintaining the huge disparities in funding. If we went before the Competition Commission, the clear view would be that some parties hold monopolistic positions in this country. They do so because they can attract funding, and good luck to them, but that reduces genuine democratic competition in this country significantly.

Both hon. Members who spoke made significant points about large donations. I shall address those points,
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Copyright Sir George Young Bt. 2015