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Company Law Reform Bill [HL]

It may be helpful if I begin by reminding the Committee of the provenance of this part of the Bill. In October 1998, the Committee on Standards in Public Life presented to the Prime Minister its report on the funding of political parties in the UK. The report recommended that any company that intended to make a donation either in cash or in kind—including any sponsorship, loans or transactions at favourable rates—to a political party or organisation should be required to have the prior authority of its shareholders. The Government accepted that recommendation and implemented it through the Political Parties, Elections and Referendums Act 2000, by inserting a new regime for control of political donations and expenditure into the Companies Act 1985 as Part XA of that Act. Part 14 of the Bill largely restates the provisions of Part XA in a style consistent with the other clauses. In particular, companies will continue to be prohibited from making a donation to a political party or other political organisation and incurring political expenditure unless the donation or expenditure has been authorised—typically, by the members of the company. A political donation will continue to be defined by reference to Sections 50 to 52 of the Act. However, the Bill makes some important changes to the current regime in the light of representations that we have received from companies and business organisations. In particular, Part 14 introduces greater flexibility for companies. The Bill will, for example, permit holding companies to seek authorisation for donations and expenditure in respect of both the holding company itself and one or more subsidiaries through a single approval resolution. Companies will also be permitted to table separate approval resolutions for donations to political parties and other political organisations. This group of amendments relates to political expenditure by companies. When we read the amendments, we thought that they might be for a slightly different purpose, rather than the seeming drafting inconsistency that has been raised. We will certainly take that point away. We accept that the recommendation of the Committee on Standards in Public Life related to donations to political parties or organisations but did not explicitly cover other forms of political expenditure by companies. That clearly makes sense in the context of the report on the funding of UK political parties. However, the wider company law rationale for this part is to regulate conflicts of interest. We do not believe that it is acceptable for directors to support political parties that promote policies with which they personally agree, rather than policies that will benefit the company. In just the same way, we do not believe that it is acceptable for directors on their own to authorise expenditure on an advertising campaign that promotes policies with which they personally agree, rather than political policies that will benefit the company. Directors face a conflict of interest in such cases. We therefore believe that it is essential that the requirements for prior shareholder authorisation cover both political donations and political expenditure. The amendments tabled by the noble Lords, Lord Hodgson and Lord De Mauley, would amend the definition of political expenditure in Clause 338, so that the test becomes a direct intention of affecting public support for a political party or an independent election candidate. We understand the thinking behind those amendments. Indeed, the Government looked closely at the drafting of the relevant provision in 2000. In practice, it would be very difficult to draw a legal distinction between a primary and secondary intention. The noble Lord, Lord Hodgson, referred to something that was incidental. Obviously, there could be a whole scale here. I fear that the amendment could make the clause less rather than more clear. If the company in the example to which the noble Lord referred was concerned, there is an easy remedy, which is to get approval for the expenditure.