HC Deb 13 March 2000 vol 346 cc49-65

379AA.—(1) Tax relief shall be available to an individual (the donor) in accordance with this section on qualifying political donations made by him of up to £500 in any year of assessment.

(2) A donation is a qualifying political donation for the purposes of this section if it is made to an eligible political party and—

  1. (a) it takes the form of the payment of a sum of money,
  2. (b) it is not subject to a condition as to repayment,
  3. (c) it is not conditional on or associated with, or part of an arrangement involving, the acquisition of property by the political party, otherwise than by way of gift, from the donor or a person connected with him, and
  4. (d) the donor is resident in the United Kingdom at the time the donation is made.

(3) For the purposes of this section a political party is an eligible political party if, at the last general election preceding the donation in question—

  1. (a) two members of that party were elected to the House of Commons, or
  2. 50
  3. (b) one member of that party was elected to the House of Commons and not less than 150,000 votes were given to candidates who were members of that party.

(4) If an individual makes a qualifying donation he shall be entitled, on making the payment, to deduct and retain out of it a sum equal to basic rate tax thereon.

(5) Where a sum is deducted under subsection (4) above the sum deducted shall be treated as income tax paid by the person to whom the payment is made.

(6) Any person by whom a qualifying donation is received shall be entitled to recover from the Board, in accordance with regulations, an amount which by virtue of subsection (5) above is treated as income tax paid by him; and any amount so recovered shall he treated for the purposes of the Tax Acts in like manner as the qualifying political donation to which it relates.

(7) The following provisions of the Management Act, namely—

  1. (a) section 29(1)(c) (excessive relief) as it has effect apart from section 29(2) to (10) of that Act,
  2. (b) section 30 (tax repaid in error, etc) apart from subsection (1B),
  3. (c) section 86 (interest), and
  4. (d) section 95 (incorrect return or accounts),
shall apply in relation to an amount which is paid to any person by the Board as an amount recoverable in accordance with regulations made by virtue of subsection (6) above but to which that person is not entitled as if it were income tax which ought not to have been repaid and, where that amount was claimed by that person, as if it had been repaid as respects a chargeable period as a relief which was not due.

(8) In the application of section 86 of the Management Act by virtue of section (7) above in relation to sums due and payable by virtue of an assessment made for the whole or part of a year of assessment ('the relevant year of assessment') under section 29(1)(c) or 30 of that Act, as applied by that subsection, the relevant date—

  1. (a) is 1 January in the relevant year of assessment in a case where the person falling within subsection (5) above has made a relevant interim claim; and
  2. (b) in any other case is the later of the following dates, that is to say—
    1. (i) 1 January in the relevant year of assessment; or
    2. (ii) the date of the making of the payment by the Board which gives rise to the assessment.

(9) The Board may by regulations make provision—

  1. (a) for the purposes of any provision of this section which relates to any matter or thing to be specified by or done in accordance with regulations;
  2. (b) with respect to the furnishing of information by donors or recipients, including, in the case of recipients, the inspection of books, documents and other records on behalf of the Board; and
  3. (c) generally for giving effect to this section.

(10) In this section—

'financial year' in relation to any person means a financial year of that person for the purposes of the relevant regulations;

'interim claim' means an interim claim within the meaning of the relevant regulations;

'relevant interim claim' means, in relation to an assessment made for a period coterminous with, or falling wholly within, a person's financial year, an interim claim made for a period falling wholly or partly within that financial year; and

'the relevant regulations' means regulations made under subsection (9) above.

(11) Section 839 of this Act shall apply for the purposes of this section to determine whether one person is connected with another".'.—[Mr. Walter.]

Brought up, and read the First time.

Mr. Walter

I beg to move, That the clause be read a Second time.

We consider this proposal important, because it goes to the heart of our democratic process and the party system. It would introduce a tax relief at the basic rate of tax on political donations up to £500 a year. The wording is based on the mortgage interest relief at source—MIRAS—scheme and the charities gift aid schemes, so it has some tax precedents.

Opposition Members have never believed that we should cherry-pick the Neill recommendations. We think that, as far as possible, they should be implemented in full, and that is what the new clause would bring about. We must make what is, perhaps, a philosophical choice about whether we want our political parties to be directly funded by taxpayers—I know some hon. Members would sympathise with that view—or whether we want to implement a procedure to encourage more voluntary donations to political parties. The new clause would encourage voluntary donations.

In evidence to the Neill committee, the Conservative party said:

Rather than call for state funding we would welcome the Committee's views about how more individuals could be encouraged to donate. We note that in some countries individuals are offered tax relief for political donations, elsewhere tax credits or matching grants are provided. We believe that the Committee should give serious consideration to the practicalities of these approaches in the context of the United Kingdom's voluntary system. The Neill committee's recommendations are set out in our new clause. It is important, in the interests of democracy, for the funding of political parties to be as broadly based as possible. The Neill report cites evidence from Germany about a system of tax relief introduced in 1974, under which the pattern of donations to political parties has changed from significantly large donations to many small ones. That is in keeping with the spirit of the new clause and, we believe, with the Bill.

The new clause is identical to a proposal tabled by my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) on 22 June last year in the Standing Committee considering the Finance Bill. It would amend section 379 of the Income and Corporation Taxes Act 1988 by inserting a new section 379AA.

Lord Neill's recommendation 38 states: Tax relief by deduction at source should be introduced, limited to the basic rate, on donations of up to £500 a year to eligible registered political parties. Recommendation 39 states:

Political parties should be eligible to claim under the tax relief scheme if at the last general election two members of the party were elected to the House of Commons or one member was elected and the party won at least 150,000 votes. 5.15 pm

Why do we feel that it would be appropriate to include what seems to be a taxation measure in the Bill? The then Economic Secretary to the Treasury, the hon. Member for Leicester, West (Ms Hewitt) said in response to my hon. Friend's amendment to the Finance Bill being considered in Committee in June 1999: The Government do not believe that that is the appropriate way to respond to the Neill committee, which proposed a package of recommendations that should be considered together. That is why I shall ask the Committee to reject the new clause. The question of whether there should be tax relief for donations to political parties—and, if so, how it should operate—must be considered alongside all the proposed measures that we intend to publish in the draft Bill before the summer. That draft Bill has now become the Bill before us. The hon. Lady went on: We should not try to deal with this one aspect in isolation. She continued: It is also necessary to consider the issue of tax relief for donations to political parties alongside the review of tax relief for charitable donations—something that we are already working on with the charitable sector. It would be most unfortunate if the system appeared to be more generous in relation to smaller donations to political parties than in relation to smaller donations to charities. The new clause takes note of that. The then Economic Secetary concluded:

I urge hon. Members to await publication of our draft Bill on donations to political parties and campaign expenditure. I hope that, in the spirit of fraternity … the hon. Member for Bognor Regis and Littlehampton will agree to withdraw the new clause.—[Official Report, Standing Committee B, 22 June 1999; c.778.] It is therefore the Treasury's view that the new clause should be considered as part of this Bill, not in isolation and not as part of a Finance Bill. That is why, although the new clause was tabled in the Standing Committee considering the Finance Bill last year, it was felt that it should be considered alongside this Bill.

As the Minister will be aware, given arguments for and against tax relief, Lord Neill concludes in favour of a system of tax relief. In his evidence to the Neill committee, Lord Razzall, the treasurer of the Liberal Democrats, saw benefit in the tax relief system. He said: I think that as a weapon for the political parties to build up their membership base in particular … as part of that armoury as long as it was structured in a way that was designed to benefit the small donations, I wouldn't be against it. Lord Parkinson, giving evidence on behalf of the Conservative party, said:

I think that this is a very attractive idea. I think anything that encourages people to participate in a political process, to get involved in political parties, to broaden the base of their membership is to be welcomed because I think politics is a very honourable profession and supporting a political party is a very worthwhile way of spending one's time and money. It would be wrong to say that there were no arguments against the measure. In his evidence, the finance director of the Labour party, Mr. David Pitt-Watson, said: Tax relief is of value only to people who pay tax— That is true—

and where the donations given are of significant size. It would be of little value to the Labour Party, which has 400,000 members who are paying an average of £20 each to the Labour Party's coffers. It would be of enormous value to our opponents. As well as those who give the Labour party an average of £20, many donors give much more. I say with some sadness that I know for a fact that the Labour party has more donors giving more than £5,000 than the Conservative party. I imagine that some of those donors might value a small tax concession. We are aiming not at those who give £20, nor at those who donate £5,000, but at those who want to make a contribution that is significant in their terms. I refer to those on middle incomes who consider that making a substantial donation to a political party is a worthwhile way of spending their money.

I offer the example of my Conservative association in North Dorset, which has a successful patrons' club. Members donate £200 and are content to do so without the benefit of tax relief. We should be in a much healthier state, however, if tax relief applied, because more people might be inclined to make such a donation to the party. The Liberal Democrats would benefit, as would the Labour party.

The new clause would bring many small to medium-sized donors into the political process. It is not concerned with those who pay basic subscriptions, or with those who can write cheques for £5,000 or even £1 million. Those people will make their contributions anyway, and the tax relief on, say, £500 would be of minimal benefit to them. We want to aim for people who already make charitable donations of up to £500 using the gift aid scheme and who are encouraged to do so by the tax relief granted on their donations.

We could enable political parties to broaden the base of their finances so that they are less reliant on large donors of more than £5,000, not to mention those who can donate £1 million or more. We want the financing of political parties to become more broadly based, which was one of the major themes of the Neill report. Such a scheme would constitute a great fillip for democracy and would be of minimal cost to the Treasury. I say that advisedly, having examined the costs of other political parties and compared the figure with the cost of special advisers alone, which is a burden on the taxpayer.

This modest money measure would add an entirely appropriate new clause in the Bill, and I commend it.

Mr. John MacGregor (South Norfolk)

As I was a member of the Neill committee, which drew up the original recommendations, hon. Members will be unsurprised to know that I warmly support the new clause. We should understand from the outset the important difference between tax relief and public funding. Neill did not recommend public funding for general party political purposes, nor is there any stomach in the country for such a proposal. Tax relief, however, depends on individual donors deciding where they want their money to go and making a direct contribution accordingly.

The Neill committee took the unanimous view that tax relief should be included as part of the package. "Package" is the relevant word—the committee saw all its recommendations hanging together, and I regret that this is the major element of those recommendations so far left out of the Government's proposals.

My hon. Friend the Member for North Dorset (Mr. Walter) correctly explained the principle behind the Neill committee's proposal. We envisaged that donations from traditional sources to political parties would drop off as a result of our recommendations. We saw tax relief as a means of ensuring that sufficient funds to serve our democratic purposes were attracted to political parties. In particular, if corporate and trade union donations to political parties drop off, making the parties more reliant on donations from wealthy individuals, it would be important to move towards small donations from many people rather than large donations from a few. In an era in which we wish to encourage many more people to participate in our democratic political process—by and large, they must do so through political parties—we can do so by encouraging them to make financial contributions.

We have heard that the proposed tax reliefs are similar to those for charities. The House will recall that not long ago there was a leak—this time directly from the Chancellor—to the effect that the Budget would include a new charitable aid package. He gave as one of the reasons the need to encourage people to make that voluntary contribution to important parts of our national life. I believe that nothing in our national life is more important than the democratic process and the work done by political parties in that regard. If there is to be another major package of charitable aid in the Budget, this provision would be only a small addition to it.

My final point in favour of the new clause will be brief, because the matter has been debated on other occasions: the principle has already been accepted in the tax system. The Inheritance Tax Act 1984 accepted the principle of tax relief for political donations through inheritance taxes and it is now part of our fiscal law.

Several objections have been made to the new clause. The first is that it would help parties that were more likely to receive donations from richer individuals. There are three answers to that point. First, a cap of £500 is proposed. Secondly, the tax relief proposed would be at the basic rate, not at the higher rate or at the marginal rate of the individual; it would thus be the same for every donation.

The third answer relates to the argument that the new clause would favour parties that did not rely on large numbers of small donations from people on low incomes—the treasurer of the Labour party may have had that point in mind when he gave evidence to the Neill committee. However, if we consider the current donations to the Labour party, it seems unlikely that many donors are not paying tax. With personal allowances relief at a little more than £4,000, it is unlikely that many people could make a decent contribution to a political party on that amount of income. We all know—because of the frequent new Labour boast—that the Labour party now has a broad spread of membership and donors. There would be no difference between the parties as to the extent to which they benefited.

Mr. Martin Linton (Battersea)

I note the right hon. Gentleman's comments about the marginal rate and the limitation on the amount of tax relief. Does he agree that he and his colleagues on the Neill committee would have been better advised to recommend a tax credit, such as the system they observed in Canada? That would ensure not only that the marginal rate was the same, but that the amount of subsidy would be the same for everyone, regardless of their rate of tax or how much they paid.

Mr. MacGregor

That is similar to our proposal. There would be a difference for those who pay no tax at all. However, as I have pointed out, few people who pay no tax would be likely to make a contribution to a political party.

We did indeed examine tax credits and we carefully considered the Canadian system. We concluded that the British tax system is not appropriate for that system. The proposal that we recommended, and which is in the new clause, is much more relevant to the British system and has a precedent in charitable tax relief—that is why we came down on that side. We asked the Inland Revenue to consider the implications of a tax relief system and what would be most appropriate for the UK. We received a memorandum from the Revenue that made it clear that the proposed system was right for the UK. Furthermore, it would be easy to administer in the UK system. That is why we came down in favour of it.

A second objection to the new clause is that it would create a precedent for other forms of tax relief—for example, for certain lobby organisations that were allied to a political view. The answer to that objection is that the inheritance tax reliefs introduced in the 1984 Act have not been extended beyond political parties, so there is no reason why that should be regarded as a precedent for such an extension under the definition in the new clause. The definition in the new clause is the same as the one in inheritance tax legislation.

The third objection was the administrative cost of the proposal. In previous debates, the Government have tended to rely on that objection.

I believe that the administrative cost would be very light. If the scheme were operated in the way that the scheme for charitable contributions operates, it would be for the political parties to make the claim for tax relief. Therefore, from the Inland Revenue's viewpoint, very few organisations would submit applications for tax relief—far fewer than the number of charities that do so. There would be an administrative burden on political parties, and it would be for them to judge whether they wished to make applications and whether the benefits outweighed the costs, but the cost to the Inland Revenue would be much less than the cost of existing forms of charitable tax relief. Therefore, I do not believe that that objection is a strong argument against the proposal.

5.30 pm

Finally, there is the objection that there would be a small cost to pay in terms of the tax forgone—the tax relief allowed. By any calculation, that amount would be small. My hon. Friend the Member for North Dorset suggested that it would be less than the cost to taxpayers of special advisers. Certainly, it would not be very different from that cost. It would be entirely up to political parties to try to take the maximum advantage of the tax relief by encouraging an increasing number of people who do not currently subscribe to political parties to do so. As I have said, it is one of the main purposes of the proposal to encourage that wider participation in the political process.

I believe that the objections, which we did consider very carefully in the Neill committee, do not have sufficient force. That is why we came unanimously to the view that this proposal was a very important part of the overall package. I therefore hope that the Government, now that they have had time to consider all the arguments, will accept, either through this Bill or the Finance Bill, that this proposal is to the benefit of all political parties and does not unfairly benefit one as against another.

Mr. Stunell

I, too, support the new clause, although perhaps not with as much warmth and enthusiasm as others have expressed. I feel that it is an important step forward. I hope that the Government will feel able to accept the principle, which has been well outlined and has a pedigree that makes it worthy of support and careful consideration.

I do not want to focus my remarks on the direct advantages to political parties of this proposal. Instead, I want to discuss the overall effect that the legislation will have on the funding of political activity in this country. I shall ask the simple question, where will the money to fund political parties come from if the Bill becomes law in its present form?

Obviously, in future, overseas donations will not be made to political parties—and a good thing too, many of us believe. I and many observers believe that there will be a strong tendency for the level of commercial support for political parties to reduce. The requirements for transparency and disclosure and the need to get decisions past shareholders will tend to inhibit the inflow of money from that source. There will be a similar effect on private large donors, who may not want to be exposed to the full glare of publicity. All those changes may be beneficial—I believe that they will be—and it is quite proper for us to bring such matters out into the open and for them to be matters of public debate and public knowledge. Sponsors of party political conferences and so on will face similar inhibitions.

The Bill has one or two unintended side effects, which have been discussed in Committee elsewhere. In certain circumstances, bequests will not now be able to be fulfilled in the way that the testator wanted. There has been a limited relaxation today, which I welcome. However, in Committee I moved an amendment drawing attention to the fact that, especially in the last year or two of a person's life, it is commonplace for them to move—perhaps into residential care or to live with carers elsewhere—and no longer to appear on the register. Those people will be cut out of the situation.

Another unintended consequence of the Bill as it stands relates to the complexity of accounting for even quite small donations. It is quite proper and appropriate that the Bill should require such accounting, but I point out to the Minister that every one of the things that I have mentioned will result in less money coming into the province of voluntary support for political parties in this country.

Neill certainly believed that it was appropriate to give incentives to broaden the financial base on which political parties operate. I can probably speak from a fairly neutral viewpoint because, at the moment, the Liberal Democrats are supported almost exclusively by small donations. I regret that—I wish that we received large donations, but we do not seem able to attract them. I do not know whether my party would benefit from the proposal.

The proposal's value is not that it would necessarily create a broader base for a political party. I doubt that whole categories of people want to donate to a political party, but are just waiting for tax relief to become available so that they can do so. Providing tax relief is a means of enhancing income from what is probably a static base of donors. Nevertheless, tax relief would be welcome.

The proposal is not about encouraging participation, but about encouraging activity. What do the Government think would happen if, as a result of the Bill becoming law, political parties had less to spend on campaigning and on getting people elected? Would that be likely to increase the turnout and the level of political competition? Would that be likely to develop and extend democracy, or would it, on the whole, lead to more apathy and less interest, with politicians and political parties having less impact on the communities that they try to serve?

Although my support for the new clause is not as warm and enthusiastic as that of other hon. Members, I want to draw attention to the fact that the Bill—deliberately in some cases and accidentally in others—will result in less money being available to political parties. That means less political activity, which is not good for the body politic in this country. If that happens, surely the Government must consider a countervailing mechanism that would allow political parties, in a legitimate, fair and transparent way, to conduct the activity that we are all quite good at, which is campaigning and motivating electors to support us.

Mr. Martin Bell (Tatton)

I shall speak briefly on behalf of the Independents in the House. As we have just doubled our number, I think that we have a contribution to make.

I have a slightly questionable declaration of interest to make. My cousin is a prominent member of the constituency association of the right hon. Member for South Norfolk (Mr. MacGregor). I do not want her to bankrupt herself raising money for that association.

Small contributions, with tax relief, would be entirely appropriate. If there is a flaw in the Bill—and there is a flaw—it is the high ceiling of £19.77 million that the main parties will be allowed to raise and spend at the next election. They will spend more money than they can safely raise and, in their different ways, the Ecclestone and the Ashcroft cases have reminded us of that. It would be infinitely preferable if contributions were made to parties and, in exceptional cases, to non-parties, such as my own, with tax relief. That would encourage the little people to get involved in politics, which would help our democracy and make it much healthier.

Mr. Robert Syms (Poole)

I am pleased to support new clause 4, which was ably moved by my hon. Friend the Member for North Dorset (Mr. Walter).

The Neill committee report was a job well done. I was very surprised that the Government did not take up the proposals for tax relief. Everyone in the House realises that the days of large donors and, perhaps, of trade unions donating as much as they did in the past are over. If political parties want to thrive, they must get many more people donating reasonable sums of money. I am thinking in terms of hundreds of pounds rather than the £15 or £20 that they receive from ordinary party members. We all realise that that is the future.

The new clause would set a cultural environment in which people would think that it was a good thing to donate to political parties. Tax relief would provide a seal of public acceptance. In our current culture, it is fine to give £20, but if one gives a large donation, people think that there is something wrong or that one is in it for something. New clause 4 would change the culture of our political process.

The hon. Member for Tatton (Mr. Bell) made a good point: most of us regard £20 million as a lot of money. All political parties face a hard task in raising that amount. We all know of the pressure to spend in the run-up to elections and the campaign itself and to worry about raising the money another day, and all of us in politics will try to take a shortcut if we can, provided that it is legal. Tax relief would make a great difference.

My right hon. Friend the Member for South Norfolk (Mr. MacGregor) eloquently made the case for tax relief. A greater number of donors to all political parties would greatly improve our political process. The new clause is well drafted and contains safeguards, such as a political party having to have two Members and 150,000 votes. That would accommodate Independent Members if they formed, in effect, a political party.

Even if the Government reject the new clause today, I urge them to return to the issue in future legislation. We have heard the case for special advisers, and we could consider other services on which a lot of money is spent. As my right hon. Friend said, this is not public funding, although there would be some cost to the Exchequer. A man or woman will make a personal decision to give money to a political party, and the state will give that decision its seal of approval. That is a good, healthy and honourable action, and it would lead to a much better political process.

Mr. Mike O'Brien

The hon. Member for North Dorset (Mr. Walter), who opened the debate, said that the new clause is important to him, but is it a priority for the people of this country for us to give tax relief on support for political parties? I suspect that they would rather we spent the money that is available directly on health or education or on tax relief such as allowances for children or lone parents, individual allowances or business allowances.

We have calculated that the proposal would effectively cost the Exchequer about £5 billion. [HON. MEMBERS: "Billion?"] I apologise—I mean £5 million. That is £5 million of taxpayers' money that would go to political parties, but which could be spent in more desirable ways. The people of this country would not support that approach.

Mr. MacGregor

If that is the hon. Gentleman's argument, and he wants to rest it on the basis of putting the question to the people of this country, does he not think that they would feel exactly the same about the big increases in funding for special advisers?

Mr. O'Brien

Special advisers are a different issue. That is a question of whether Ministers should have advice from someone who is able to support them through contact with their local party and the people who elected them. A Minister making a decision therefore has not only the civil service view but an independent view from someone who has a different political perspective. That ensures good decision making and is effective expenditure of public money. It enables Ministers to hear more than one point of view and therefore to reach better judgments.

We are talking about entirely different matters. I would certainly have no qualms about supporting the need for at least some expenditure on political advisers to Secretaries of State. That is well worth while and pays dividends to the public in efficiency and good-quality decisions. It is entirely different to subsidise—as we are being asked to do—unelected officers and full-time officials of political parties. I do not accept that that is a good way in which to spend taxpayers' money.

5.45 pm

The Government have sought to implement the Neill committee's recommendations as a package, as the committee intended, but we are not persuaded of the case for tax relief on political donations, as the new clause proposes. Last week, the Conservatives sought aid for their candidates' leaflets; earlier, they were seeking further aid for that. This week, they want subsidies for the salaries of Conservative party officials. Public declarations by the Conservative party of opposition to state subsidies are being replaced by constant moves to secure more and more of them.

The Liberal Democrats have always been entirely consistent in favouring state funding of political parties. The Conservative party has always said that it is opposed to such funding, but time and again in recent weeks Conservative Members have demanded in the House that the taxpayer should subsidise their politics. We are not convinced that that would be good expenditure of public money, and there are several reasons why.

The Government acknowledge the desirability of broadening the base of contributors to political parties. In placing a ceiling on political parties' expenditure, the Bill will do much to reduce their need to seek large donations from wealthy individual donors. The Government have also increased the amount of public money made available to opposition parties in order to fulfil their role in Parliament. The Bill will also provide for the disbursement of up to £2 million in policy development grants to political parties. Now, the Conservative party says, "Give us another large amount"—whether it be £5 million or not.

Against that background, we remain unpersuaded of the case for tax relief on donations. As the Government stated in their White Paper, we believe that such a scheme would amount to state aid by another route. Indeed, loss of revenue has been estimated to be between £4 million and £5 million. That must be considered in the light of our other expenditure priorities. I am not convinced that political parties are, in the broader scheme of things, a spending priority. Nor would it be desirable for them to become increasingly dependent on, in effect, public funding of their activities outside Parliament.

I recognise that the new clause would give effect to one of the Neill committee's recommendations—the Government have sought wherever possible to adhere to its recommendations—but this is one issue on which the Government have concluded that we must depart from such recommendations. That is because we do not agree with it; we are unpersuaded of the need for it.

The hon. Member for Hazel Grove (Mr. Stunell) said that the Bill might result in fewer foreign donations, with which he would be pleased, and in fewer company donations, which to some extent he accepts. That might result in less of an arms race on funding. The new clause would fuel that arms race.

The views on these matters of the hon. Member for Tatton (Mr. Bell) carry a great deal of weight because they particularly concern him and were some of the reasons why he stood for Parliament. He wanted to ensure improvement in the funding of political parties and the integrity of the political process. However, such tax relief would simply fuel the funding race that he fears the Bill will not control sufficiently.

The hon. Member for Poole (Mr. Syms) said that he thought that the future lay in getting hundreds of political party members to make contributions of hundreds of pounds. There may be members of his political association who are able to contribute hundreds of pounds a year, but I can think of very few members of my political party who could contribute £100, never mind several hundred pounds, to the Labour party. The way in which—[Interruption.] The hon. Member for West Derbyshire (Mr. McLoughlin), from a sedentary position, is starting to bandy about the names of certain individuals. We could both do that. He should be a little careful about mixing it. We could both mix it, more toughly than he intends.

I shall deal with a more sensible comment from the hon. Member for Poole. There is a difference in wealth between individuals who might comprise particular political associations or parties. There would therefore be a disproportionate advantage to one political party compared with another or, I suspect, most of the others.

I understand why the Conservatives have proposed the measure—they would benefit from it. They would get more public subsidy and probably more donations. However, I fail to see the public interest; indeed, I am not satisfied that there is a public interest. I am not satisfied that this is a purpose for which taxpayers in my constituency would want reliefs to be granted. Neither I nor the Government are prepared to recommend the new clause.

Mr. Walter

Until we heard the Minister's contribution, I thought that a considerable consensus on our new clause was building up in the House.

I am grateful for the valuable contribution of my right hon. Friend the Member for South Norfolk (Mr. MacGregor), who was a member of the Neill committee, as he pointed out. Like hon. Members in all parts of the House, I regret that my right hon. Friend is not standing at the next election, and that we will not benefit from his contribution after that.

My right hon. Friend summed up exceedingly well the basis of the Neill recommendations. As he said, the new clause is not a charter for those who write out large cheques. It states clearly that donations would be capped at £500 and relief would be granted at the basic rate of income tax. It would answer what my right hon. Friend considered spurious objections from the Labour party. Few donors to any political party are below the tax threshold, so donors to all parties are taxpayers. My right hon. Friend stated that Labour would benefit from the measure.

As my right hon. Friend pointed out, because of the way in which our new clause is phrased, the administrative burden would fall on the political parties. It would not be a requirement on each taxpayer to reclaim the tax. Claims for tax relief would be made by the small number of political parties when they made their returns to the Inland Revenue. The administrative burden would fall not on the various inspectors of taxes, but on the party treasurers. In any case, the amount of tax forgone by the Treasury would be quite small.

I was grateful for the support from the Liberal Democrat Benches. The hon. Member for Hazel Grove (Mr. Stunell) posed the question of where the money would come from to fund the political process in the future, as several categories of donors to our political parties are excluded by the Bill. He asked who would replace the overseas donors who could no longer contribute, the corporate donors who might in future have difficulty getting shareholder approval for their donations, and the large donors who valued their present state of anonymity but whose names would have to be published if they wrote cheques for more than £5,000. The hon. Gentleman's view was that the parties would have less money at their disposal, so an incentive scheme such as the one proposed would be of value to all political parties.

I am grateful for the support of the hon. Member for Tatton (Mr. Bell). We all applaud his championing of the cause of the little people in politics. The measure is designed to govern the financing of political parties, so as an Independent, the hon. Gentleman unfortunately would not benefit from the provisions of the new clause. The Bill is quite specific in its definition of an "Independent".

My hon. Friend the Member for Poole (Mr. Syms) spoke of the change in the cultural environment that would be brought about by the Bill. He argued that through legislation, we should make people aware that it was socially acceptable to give slightly larger sums to political parties—sums up to £500—in the same way as it is socially acceptable to give larger donations to charities, up to the same level. He thought that that should be encouraged by our political process.

Finally, we heard the contribution from the Minister, who at the beginning had difficulty distinguishing his billions from his millions. I can reassure him that the figure that he was looking for was £5 million, not £5 billion. He later qualified that as £4 million to £5 million. In the context of Government expenditure, £5 million is quite small beer, considering the incentive effect of the new clause. We are discussing the incentive effect for parliamentary democracy, not state subsidies for political parties.

The Minister accepts that we need to broaden the base of support for our political parties, but he believes that capping at just under £20 million the sum that a large political party can spend in a general election would broaden the base of our democracy.

The Minister was entirely wrong about one thing: the new clause may have been tabled in the names of my right hon. and hon. Friends, who are all members of the Conservative party, but it is not a recommendation of the Conservative party alone; it is a recommendation of the Neill committee.

Neill's recommendation 38 states: Tax relief by deduction at source should be introduced, limited to the basic rate, on donations of up to £500 a year to eligible registered political parties. Neill's recommendation 39 goes on:

Political parties should be eligible to claim under the tax relief scheme if at the last general election two members of the party were elected to the House of Commons or one member was elected and the party won at least 150,000 votes. The Government must not cherry-pick the Neill report, which arose from an independent inquiry and is broadly supported in the House and very much supported in the country. The report is designed to bring a new level of financial propriety into our political process, and transparency into our political operations. Underlying the report is the view that we should broaden the base of political support and encourage more people to participate in the political process, not just by voting at elections but by contributing to our political parties. If the Government do not accept the new clause, we will press the motion to a Division.

6 pm

Question put, That the clause be read a Second time:—

The House divided: Ayes 150, Noes 272.

Division No. 102] [6 pm
Ainsworth, Peter (E Surrey) Hammond, Philip
Allan, Richard Hawkins, Nick
Amess, David Hayes, John
Ancram, Rt Hon Michael Heald, Oliver
Arbuthnot, Rt Hon James Heath, David (Somerton & Frome)
Atkinson, David (Bour'mth E) Heathcoat-Amory, Rt Hon David
Atkinson, Peter (Hexham) Hogg, Rt Hon Douglas
Baldry, Tony Horam, John
Bell, Martin (Tatton) Howard, Rt Hon Michael
Bercow, John Hughes, Simon (Southwark N)
Beresford, Sir Paul Jack, Rt Hon Michael
Body, Sir Richard Jackson, Robert (Wantage)
Boswell, Tim Jenkin, Bernard
Bottomley, Peter (Worthing W) Kennedy, Rt Hon Charles (Ross Skye & Inverness W)
Bottomley, Rt Hon Mrs Virginia
Brady, Graham Key, Robert
Brake, Tom Kirkbride, Miss Julie
Brazier, Julian Laing, Mrs Eleanor
Browning, Mrs Angela Lait, Mrs Jacqui
Bruce, Ian (S Dorset) Lansley, Andrew
Bruce, Malcolm (Gordon) Letwin, Oliver
Burns, Simon Lewis, Dr Julian (New Forest E)
Butterfill, John Lidington, David
Campbell, Rt Hon Menzies (NE Fife) Lilley, Rt Hon Peter
Lloyd, Rt Hon Sir Peter (Fareham)
Chope, Christopher Llwyd, Elfyn
Clappison, James Loughton, Tim
Clark, Dr Michael (Rayleigh) MacGregor, Rt Hon John
Clarke, Rt Hon Kenneth (Rushcliffe) McIntosh, Miss Anne
MacKay, Rt Hon Andrew
Collins, Tim Maclean, Rt Hon David
Cotter, Brian Maclennan, Rt Hon Robert
Cran, James McLoughlin, Patrick
Curry, Rt Hon David Madel, Sir David
Davey, Edward (Kingston) Malins, Humfrey
Davis, Rt Hon David (Haltemprice) Maples, John
Day, Stephen Maude, Rt Hon Francis
Duncan, Alan Mawhinney, Rt Hon Sir Brian
Evans, Nigel May, Mrs Theresa
Faber, David Moss, Malcolm
Fabricant, Michael Norman, Archie
Fallon, Michael Oaten, Mark
Feam, Ronnie O'Brien, Stephen (Eddisbury)
Flight, Howard Ottaway, Richard
Forsythe, Clifford Paice, James
Forth, Rt Hon Eric Paterson, Owen
Foster, Don (Bath) Pickles, Eric
Fowler, Rt Hon Sir Norman Portillo, Rt Hon Michael
Fox, Dr Liam Prior, David
Fraser, Christopher Randall, John
Gale, Roger Redwood, Rt Hon John
Garnier, Edward Rendel, David
Gibb, Nick Robathan, Andrew
Gill, Christopher Robertson, Laurence
Gillan, Mrs Cheryl Ross, William (E Lond'y)
Gray, James Ruffley, David
Green, Damian Russell, Bob (Colchester)
Greenway, John St Aubyn, Nick
Grieve, Dominic Sanders, Adrian
Gummer, Rt Hon John Sayeed, Jonathan
Hague, Rt Hon William Shephard, Rt Hon Mrs Gillian
Hamilton, Rt Hon Sir Archie Shepherd, Richard
Simpson, Keith (Mid-Norfolk) Wardle, Charles
Spelman, Mrs Caroline Waterson, Nigel
Spicer, Sir Michael Webb, Steve
Stanley, Rt Hon Sir John Whitney, Sir Raymond
Steen, Anthony Whittingdale, John
Streeter Gary Widdecombe, Rt Hon Miss Ann
Stunell, Andrew Wigley, Rt Hon Dafydd
Swayne, Desmond Willetts, David
Wilshire, David
Syms, Robert Winterton, Mrs Ann (Congleton)
Tapsell, Sir Peter Winterton, Nicholas (Macclesfield)
Taylor, Ian (Esher & Walton) Yeo, Tim
Taylor, Matthew (Truro) Young, Rt Hon Sir George
Taylor, Sir Teddy
Trend, Michael Tellers for the Ayes:
Tyrie, Andrew Mr. Peter Luff and
Walter, Robert Mr. Geoffrey Clifton-Brown.
Abbott, Ms Diane Cryer, Mrs Ann (Keighley)
Ainger, Nick Cryer, John (Hornchurch)
Ainsworth, Robert (Cov'try NE) Cummings, John
Allen, Graham Cunningham, Rt Hon Dr Jack (Copeland)
Anderson, Janet (Rossendale)
Armstrong, Rt Hon Ms Hilary Cunningham, Jim (Cov'try S)
Ashton, Joe Dalyell, Tam
Atkins, Charlotte Davey, Valerie (Bristol W)
Austin, John Davidson, Ian
Banks, Tony Davies, Rt Hon Denzil (Llanelli)
Bayley, Hugh Davis, Rt Hon Terry (B'ham Hodge H)
Beard, Nigel
Beckett, Rt Hon Mrs Margaret Dean, Mrs Janet
Begg, Miss Anne Dobbin, Jim
Bell, Stuart (Middlesbrough) Donohoe, Brian H
Benn, Hilary (Leeds C) Doran, Frank
Benn, Rt Hon Tony (Chesterfield) Dowd, Jim
Bennett, Andrew F Drew, David
Benton, Joe Dunwoody, Mrs Gwyneth
Bermingham, Gerald Eagle, Angela (Wallasey)
Berry, Roger Eagle, Maria (L'pool Garston)
Best, Harold Edwards, Huw
Blears, Ms Hazel Ellman, Mrs Louise
Blizzard, Bob Ennis, Jeff
Borrow, David Etherington, Bill
Bradley, Keith (Withington) Field, Rt Hon Frank
Bradshaw, Ben Fisher, Mark
Brown, Rt Hon Nick (Newcastle E) Flint, Caroline
Browne, Desmond Flynn, Paul
Buck, Ms Karen Gapes, Mike
Burden, Richard Gardiner, Barry
Burgon, Colin George, Bruce (Walsall S)
Butler, Mrs Christine Gerrard, Neil
Campbell, Mrs Anne (C'bridge) Gibson, Dr Ian
Campbell, Ronnie (Blyth V) Gilroy, Mrs Linda
Cann, Jamie Godsiff, Roger
Casale, Roger Goggins, Paul
Caton, Martin Golding, Mrs Llin
Cawsey, Ian Gordon, Mrs Eileen
Chapman, Ben (Wirral S) Griffiths, Jane (Reading E)
Chaytor, David Griffiths, Nigel (Edinburgh S)
Clapham, Michael Griffiths, Win (Bridgend)
Clark, Dr Lynda (Edinburgh Pentlands) Grocott, Bruce
Gunnell, John
Clark, Paul (Gillingham) Hall, Mike (Weaver Vale)
Clarke, Charles (Norwich S) Hall, Patrick (Bedford)
Clarke, Rt Hon Tom (Coatbridge) Hamilton, Fabian (Leeds NE)
Clelland, David Hanson, David
Clwyd, Ann Heal, Mrs Sylvia
Coaker, Vernon Healey, John
Coleman, Iain Hepburn, Stephen
Colman, Tony Heppell, John
Connarty, Michael Hesford, Stephen
Corbett, Robin Hill, Keith
Corbyn, Jeremy Hinchliffe, David
Cousins, Jim Hoey, Kate
Crausby, David Hood, Jimmy
Hoon, Rt Hon Geoffrey O'Brien, Bill (Normanton)
Hopkins, Kelvin O'Brien, Mike (N Warks)
Howarth, Alan (Newport E) Olner, Bill
Hoyle, Lindsay Organ, Mrs Diana
Hughes, Ms Beverley (Stretford) Pearson, Ian
Hughes, Kevin (Doncaster N) Pendry, Tom
Hurst, Alan Perham, Ms Linda
Hutton, John Pickthall, Colin
Iddon, Dr Brian Pike, Peter L
Illsley, Eric Plaskitt, James
Jackson, Ms Glenda (Hampstead) Pond, Chris
Jamieson, David Prentice, Ms Bridget (Lewisham E)
Jenkins, Brian Prosser, Gwyn
Johnson, Alan (Hull W & Hessle) Purchase, Ken
Johnson, Miss Melanie (Welwyn Hatfield) Quin, Rt Hon Ms Joyce
Quinn, Lawrie
Jones, Helen (Warrington N) Rammell, Bill
Jones, Ms Jenny (Wolverh'ton SW) Rapson, Syd
Raynsford, Nick
Jones, Dr Lynne (Selly Oak) Reed, Andrew (Loughborough)
Jones, Martyn (Clwyd S) Roche, Mrs Barbara
Kaufman, Rt Hon Gerald Rooker, Rt Hon Jeff
Keeble, Ms Sally Rooney, Terry
Keen, Alan (Feltham & Heston) Ross, Ernie (Dundee W)
Kelly, Ms Ruth Rowlands, Ted
Kemp, Fraser Roy, Frank
Khabra, Piara S Ruane, Chris
Kidney, David Ruddock, Joan
King, Ms Oona (Bethnal Green) Russell, Ms Christine (Chester)
Kumar, Dr Ashok Ryan, Ms Joan
Ladyman, Dr Stephen Salter, Martin
Laxton, Bob Sarwar, Mohammad
Lepper, David Savidge, Malcolm
Leslie, Christopher Sedgemore, Brian
Levitt, Tom Shaw, Jonathan
Lewis, Ivan (Bury S) Sheerman, Barry
Linton, Martin Simpson, Alan (Nottingham S)
Lloyd, Tony (Manchester C) Skinner, Dennis
Lock, David Smith, Rt Hon Andrew (Oxford E)
Love, Andrew Smith, Angela (Basildon)
McAvoy, Thomas Smith, Miss Geraldine (Morecambe & Lunesdale)
McCabe, Steve
McCafferty, Ms Chris Smith, Llew (Blaenau Gwent)
McDonagh, Siobhain Soley, Clive
Macdonald, Calum Southworth, Ms Helen
McDonnell, John Spellar, John
McFall, John Squire, Ms Rachel
McGuire, Mrs Anne Starkey, Dr Phyllis
McIsaac, Shona Steinberg, Gerry
McKenna, Mrs Rosemary Stevenson, George
Mackinlay, Andrew Stewart, David (Inverness E)
McNulty, Tony Stewart, Ian (Eccles)
MacShane, Denis Stinchcombe, Paul
Mactaggart, Fiona Strang, Rt Hon Dr Gavin
McWalter, Tony Straw, Rt Hon Jack
McWilliam, John Stringer, Graham
Mallaber, Judy Stuart, Ms Gisela
Marsden, Gordon (Blackpool S) Sutcliffe, Gerry
Martlew, Eric Taylor, Rt Hon Mrs Ann (Dewsbury)
Meacher, Rt Hon Michael
Merron, Gillian Taylor, Ms Dari (Stockton S)
Michie, Bill (Shefld Heeley) Taylor, David (NW Leics)
Miller, Andrew Temple-Morris, Peter
Mitchell, Austin Thomas, Gareth R (Harrow W)
Moffatt, Laura Timms, Stephen
Moran, Ms Margaret Tipping, Paddy
Morgan, Ms Julie (Cardiff N) Todd, Mark
Morley, Elliot Touhig, Don
Morris, Rt Hon Sir John (Aberavon) Truswell, Paul
Turner, Dr Desmond (Kemptown)
Mountford, Kali Turner, Dr George (NW Norfolk)
Mullin, Chris Twigg, Derek (Halton)
Murphy, Denis (Wansbeck) Tynan, Bill
Murphy, Jim (Eastwood) Vis, Dr Rudi
Naysmith, Dr Doug Walley, Ms Joan
Norris, Dan Ward, Ms Claire
Wareing, Robert N Wise, Audrey
Watts, David Wood, Mike
White, Brian Woolas, Phil
Whitehead, Dr Alan Wright, Anthony D (Gt Yarmouth)
Wright, Dr Tony (Cannock)
Wicks, Malcolm Wyatt, Derek
Williams, Rt Hon Alan (Swansea W)
Tellers for the Noes:
Williams, Alan W (E Carmarthen) Mr. Clive Betts and
Winnick, David Mr. Greg Pope.

Question accordingly negatived.

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