---

Political Parties and Elections Bill

Amendments 120A and 132B would enable donors to obtain tax relief on small or moderate donations to the established political parties. This practice has been successfully adopted in several countries, notably perhaps in Canada. Tax relief on modest donations was recommended by the Committee on Standards in Public Life in its 1998 report on the funding of political parties, of which I shall read the conclusion in paragraph 8.20: ""We therefore conclude that the balance of argument is in favour of allowing tax relief on donations to political parties by deduction at source. We think that tax relief should be limited to ""donations of up to £500 in any one year (or the first £500 of larger donations). This sum is within reach of a moderately well-off party activist, and not just the rich. We believe that it also represents a balance between setting the level so high that it loses its purpose of encouraging parties to seek large numbers of smaller donations or setting it so low that the benefit of tax relief is not worth pursuing"." Most of the recommendations in the committee’s report were accepted and incorporated in the 2000 Act, but not this one. I was a member of the Committee on Standards of Public Life at the time, as was the noble Lord, Lord MacGregor of Pulham Market, who I am extremely pleased to see has put his name to this amendment. All political parties need funding. It is highly undesirable that all funds should come from the Government as used to, and may still be the case in Sweden, since it greatly reduces the need to go out and recruit members and give more contact with the voters. Equally, however, it would be at least as undesirable—or even more so—that party funding should come mainly from a small number of rich donors making very large donations. That would be a travesty of democracy; it would give too much influence to the big donors, both in the setting of the donee party’s policy and in enabling the donee party to run a more effective campaign. It is important to encourage parties to seek small or moderate donations from people who are not in a position to exercise influence over the party but who give money to it because they believe in and support it. One way of doing this is to give tax relief for small or moderate donations, including membership subscriptions, which enables donors to give a larger sum of money for the same net cost to them as now prevails. This does not involve the payment of any taxpayers’ money to political parties out of government funds; rather, it reduces the amount of tax that the donor has to pay to the Government, which I believe is considerably more acceptable to the public than payment out of government funds. Political parties are an essential part of any democratic system. We recognise that giving to charities should be encouraged by tax relief to the donors. By extending tax relief to donations to political parties, we would recognise that those donations are also very much in the public interest and deserve tax relief. It may not be known by many Members of the Committee, but tax relief has already been extended by the Inheritance Tax Act 1984, previously called Capital Transfer Tax Act 1984 to bequests by will to a political party which won at least two seats at the preceding general election or one seat and a total of no fewer than 150,000 votes. Tax relief on modest donations is not linked to the question whether there should be a cap on very large donations. If there is such a cap, then increasing the value of smaller donations would be an acceptable way of restoring some of the income lost to the parties. If there was no cap, tax relief would increase the value to the parties of smaller donations and reduce the extent of their dependence on large donations. Both of these seem to be desirable conclusions. On the question whether tax relief might work, we have the advantage in this country of an established system of tax relief for donors to charities through the gift-aid system. I have no doubt that using a modified form of gift aid is the best way of achieving tax relief on gifts to political parties. It would, as I said, be a modified form. There are two main modifications. First, gift aid applies to gifts of any amount. That is, indeed, the right thing for gifts to charity—the bigger the gifts the better—but it does not apply to donations to political parties because it is an essential purpose of the tax relief on political donations to increase the value of smaller donations as against bigger ones. As I have mentioned, the Committee on Standards in Public Life recommended that relief should be given on donations of £500 in any one year, or on the first £500 of donations exceeding that total in the year. As that committee recommended the limit in 1998, I have increased the limit in paragraph 5 of Amendment 132B to £1,000, which may or may not be an appropriate figure. I shall certainly be happy to consider any variations. The second modification is that tax relief for gift aid extends to higher rate tax so that higher rate taxpayers get refunds of their higher rate tax on the amount of their gift to charity. Again, that is fair enough for gifts to charity, but to apply that rule to donations to political parties would give greater tax relief to donations from higher rate taxpayers than to donations of the same initial amount from a donor who is not paying higher rate tax. Paragraph 6 of the proposed new schedule in Amendment 132B restricts tax relief for any donor to the basic rate of tax. Another question concerns the parties that should be eligible to receive donations that give rise to tax relief. Gift aid is of course available for donations to any registered charity, but I doubt whether tax relief for any registered political party would be appropriate, at least initially; it may be possible to widen the number later. That could lead to the problem which arose in Germany, where state funding is available to minor parties. One such party was the Grey Party, which campaigned for pensioners. Having received a generous fund from the state, the party used it for building residential homes for their members rather than using it for fighting elections. It is undesirable to give it to a party—even a registered party—which might act in that way. I put in the test of two seats at the previous general election on the basis of the exemption from inheritance tax. By an oversight, I am afraid, I failed to add the possibility of one member being elected and at least 150,000 votes being cast as an alternative test. There could indeed be further possible tests or different tests to decide which parties are entitled to the benefit of the tax relief. Tax relief on the lines suggested by these amendments is plainly desirable. It reduces the influence of very rich donors; it encourages parties to seek more members; and it recognises that modest donations are an important part of the democratic process. The part that modest donations can play has been highlighted dramatically by President Obama’s huge success in funding his campaign by myriads of small donations. That should be the target for which we look. I beg to move.