Donations to Political Parties

Question for Short Debate

Asked by

To ask His Majesty’s Government what plans they have to reform the law on donations to political parties.

My Lords, this week Transparency International published its global index on corruption. The UK has dropped to its lowest ever score and now is more corrupt than Estonia, Hong Kong, Uruguay, Japan, Ireland and Australia. The main reason is that political parties and too many legislators are available for hire to corporations and the super-rich. Of course, corporations and the super-rich do not donate; they invest and expect a return. The grateful politicians oblige by organising threatening issues off the political agenda, feather-duster regulatory systems, tax perks to the rich, crony contracts, VIP lanes, honours and even peerages. This skulduggery happens behind a wall of organised secrecy.

In the 2023 OECD Open, Useful and Re-usable data (OURdata) Index, the UK was ranked 25th. It is now less open and transparent than Colombia, Denmark, Estonia, France, Ireland, Korea, Lithuania, Poland, Slovenia, Spain and Sweden—what a state of affairs. In the year before the 2024 general election, companies handed £42 million to political parties and individual legislators. The Conservatives accepted £15 million from Phoenix Partnership, which is wholly owned by Frank Hester, even though he said that MP Diane Abbott made him “want to hate all black women” and that she “should be shot”. Since 2016, Hester’s company has received £591 million from public contracts. Labour received £4.7 million from Quadrature Capital, a company controlled from the Cayman Islands. Not so long ago, Elon Musk promised £100 million to Reform UK to secure his ideological objectives.

The Electoral Commission does not know the origins of money used as political donations. Any person on the electoral register can pass money, whether from Elon Musk or the Mafia, as political donations. No one knows where foreign-resident UK voters get their money from. Even if the Electoral Commission could investigate, it will not get access to foreign bank accounts and cannot follow the money trail, so there is no way of stopping any foreign money. Companies registered in the UK can hand money to parties, but this does not have to come from their trade or profits in the UK. Even if that requirement were introduced, it could not be effectively implemented. Profits can be manufactured through intragroup transactions and aggressive accounting. In any case, small companies that frequently front these donations on behalf of the rich do not publish meaningful accounts because of the obsession with deregulation.

Greater transparency is considered to be good, but that alone will not end political corruption because political parties remain for sale to the highest bidder. The biggest casualty of political donations and corruption is confidence in the institutions of government. In the 2024 general election, the voter turnout was 59.9%, and people say to me, “It doesn’t matter who we vote for. Corporations and the super-rich always win because they fund parties and legislators”. Policy-makers eagerly meeting donors rarely show the same enthusiasm for meeting the homeless, the hungry, the less fortunate and the poor, who seem to be written out of the system altogether.

My Lords, Members may have noticed that the clock is not working at the moment. I ask noble Lords to stick to their time limit of three minutes—I will wave when their time is up—because we need to make sure that we have time for the Minister’s response.

My Lords, I congratulate the noble Lord, Lord Sikka, on obtaining this debate, although I am going to follow a substantially different tack. I should add that my first declaration in the register of interests in the House of Lords was a ticket to the rugby World Cup final in 2015 given to me by the referee.

I want to make two points. One is on—noble Lords will be aware that I have been pursuing this issue for a number of years—the funding of opinion polls, which are, in effect, campaigning. A few years ago, YouGov took on a poll and the Telegraph displayed it in full, but we were unable to establish who had actually funded it and the circumstances around it.

I have given notice to the Electoral Commission again that I intend to pursue it when we get to debate the legislation, which I understand has been tabled in the Commons in the past few minutes, but I could not get a copy of it before the debate started. That is one matter of concern, because effectively opinion polling is used as a substantial manner of campaigning.

The other item that I wish to raise is relevant in light of the events in politics this week. It is not in a general election but at least one potential candidate for the leadership of the Labour Party is supposed to have already a war chest of £1 million. Any campaign that relates to funding for a post in government or as Leader of the Opposition should be subject to the same requirements as election campaigning in general. At the last leadership election in the Tory Party, Robert Jenrick received £75,000 pounds from a tax haven abroad. I made it absolutely clear that I thought that that should be declared and treated in the same way as overseas funding, because it has a direct bearing on British politics. Those are the two items that I wished to raise.

My Lords, likewise, I should acknowledge the exceptionally impressive timing of this debate, coming just after the Government have published the Representation of the People Bill. It is fair to say, from all we know of the Bill so far—I have not had time to read it yet by any means in full—there is a welcome direction of travel on many issues in terms of trying to improve the transparency around donations to political parties. I fear, however, that it does not go far enough. Obviously, some of those issues are to do with foreign money and potential foreign government interference. Hopefully, the Rycroft review will, in due course, set out ways in which we can go further on that.

I therefore want to concentrate on a slightly different issue in my brief comments. They draw on the research that I published with Chris Butler last year on donations that are made directly to candidates and rightly declared on the candidates’ election expense forms when they submit them, which is all above board, legal and how the law is intended to operate. However, those donations then, in effect, disappear from view because donations made directly to candidates at the moment do not then appear on the Electoral Commission’s register of donations. So, if you are, for example, an inquisitive journalist or somebody doing the due diligence process and you look at the obvious public records, the donations do not appear there at all.

This is not a trivial amount of money. Chris Butler and I estimated that, for the 2019 general election, £3.4 million of donations came into our political system, potentially influencing people, but did not then appear in the Electoral Commission’s records. Moreover, although those election expense forms are kept locally by the relevant returning officers, they are not published and are destroyed after a period. Although the Electoral Commission gathers such forms in, it does not publish them. Indeed, as Chris and I discovered, the Electoral Commission is not terribly keen on releasing copies of that information. When it did release some information to us, much of it was redacted.

My Lords, I welcome this debate on donations to political parties. It is right that we examine how our political system is funded and that we do so with seriousness and transparency. I welcome the Government’s announcement today on the Representation of the People Bill and, in particular, measures to protect candidates, campaigners and staff from intimidation or abuse. At its heart, this debate is about strengthening our democracy and rebuilding public trust and about ensuring that participation in our democratic life is meaningful and fair. That is not only about money; it is about participation and franchise. It is in that spirit I slightly change tack from some of the focus around funding and speak in support of extending the franchise to 16 and 17 year-olds.

Young people today are growing up in a context markedly different from that which shaped many of us in this House. They face existential challenges that are not abstract or distant but immediate and personal. Climate change, housing insecurity and economic and global uncertainty threaten not only their prosperity but their sense of future. Yet many feel that they have little agency over the decisions taken here in Parliament that will define those futures. Extending the vote to 16 and 17 year-olds offers elected representatives a powerful incentive to engage seriously with this cohort. It encourages political parties, candidates and institutions to speak with young people, not merely about them. It creates space for dialogue, political education and a politics that listens as well as instructs.

The evidence supports this approach. Research by the Electoral Commission shows that nearly three-quarters of young people believe that politics should be taught more in schools and colleges. While many understandably encounter political content through social media, they are far more likely to trust the information that they learn about politics in an educational setting. Yet many young people still do not feel confident about voting; they want to understand how voting works, why it matters and how to make informed choices.

My Lords, I am grateful to the noble Lord, Lord Sikka, for introducing the debate and for being so frank about the proposal. As he said right at the end, the alternative to private donations is state funding, which indeed is the lesson of everywhere where we have seen it happen.

There are two obvious objections to a state-funded system. First, we do not have the money. We already have taxes at a higher level than they have been since the end of the 1940s, when we were still coming back from full mobilisation. We are borrowing £150 billion a year and spending £110 billion of that fending off existing creditors and servicing—not paying off—the interest on existing debt. If only we were paying off some of it. The idea that, at this fiscal moment, we would make a new demand on the wallet of the taxpayers is eccentric—or brave, if I can put it more neutrally.

Secondly, once you put this power into the hands of the state, you necessarily open the door to arbitrary decisions as to which parties qualify or can be disqualified. When I was a Member of the European Parliament, this happened in Belgium. Private donations were more or less banned following the Agusta scandal. This then, in effect, put immense power in the hands of the majority of Belgian parties to defund political parties of which they disapproved—for example, because they were in favour of Flemish separatism. That is an extraordinarily powerful loaded gun to put in the hands of any Government. What is the alternative? If people cannot manage without state funding, maybe the parties should do less. Maybe they should trim their ambitions to their means, rather than having to spend all these gazillions on every election.

I am conscious of the time, so I will finish with two quotations. As the age becomes darker and more illiberal, I will cite two quotations from old Whig heroes, one from the end of the 18th century and another from the end of the 19th. I begin with Thomas Jefferson, who came out with a very powerful objection when he said,

My Lords, I appreciate the panache and brio with which the noble Lord, Lord Hannan, delivers his speeches, but I have to say that I disagree with him on state funding. I will develop that in the time available to me. JS Mill and Thomas Jefferson lived some time ago, long before the days of what we would understand to be democracy.

I commend my noble friend Lord Sikka for getting this debate. He went on at some length about countries higher on the scale than the UK in terms of corruption measures. He mentioned various countries, but not Germany. I think Germany is the best example of support for political parties. In Germany’s system there is state funding, with three legs to its stool. The first is democratic legitimacy, because the money follows the votes that political parties gain. The second is transparency, with donations having to be declared fully—anything above €50,000 immediately and anything above €10,000 in the parties’ annual reports. That is important. There is also a prevention of undue influence, which I think we see in this country in terms of political donations.

The Conservative Party is funded by business. The Labour Party is funded to some extent by business but mainly by trade unions: I declare an interest as a member of Unite. That does not give us a level playing field. I am sure the noble Lord, Lord Pack, will feel that the Liberal Democrats do not get a fair crack of the whip. If votes lead to the financial donations that the state makes to political parties, as in the German system, following an election, the people understand what they are paying and why they are paying it. The direct connection is important. Generally, I think voters would rather see a fair system and a level playing field, where things are open and transparent, and it is clear that any political party that gains sufficient votes gets support to go into future elections. I do not think that is a bad idea.

My Lords, I congratulate the noble Lord, Lord Sikka, on securing this debate. I will highlight what I regard as an unacceptable anomaly in the current laws on donations to political parties seeking election throughout the United Kingdom.

Noble Lords will be aware of the list of permissible funding sources for political parties in Great Britain. However, not all your Lordships may know that there is an additional list of sources for political parties in Northern Ireland, and it is quite extensive. The list includes Irish citizens, most Irish-registered companies, trade unions, building societies, friendly societies and, most importantly, Irish-registered political parties.

The consequence of this means that, while foreign political donations are barred in Great Britain, foreign money can and does enter United Kingdom politics through Northern Ireland. This list of additional sources specifically for parties in Northern Ireland was, of course, compiled to satisfy the insatiable demands of Sinn Féin/IRA.

The republican movement has never been short of cash, regularly funded throughout the Troubles and since by protection rackets and bank robberies, including the Northern Bank raid in central Belfast, which added some £26.5 million to Sinn Féin/IRA coffers more than six and a half years after the signing of the Good Friday agreement. However, much of this funding has come from the United States of America, most notably from an organisation known as Friends of Sinn Féin.

According to a recent article in the Irish Times, in the six months to October last year, Friends of Sinn Féin recorded more than $57,000 in donations, including almost $19,000 from a trust set up by an Arizona woman who died in 2020. Since 2022, Friends of Sinn Féin has received more than $440,000 from this trust. Last year, the Belfast Telegraph reported that another front group, Friends of Sinn Féin (Canada), donated some $14,000. That matters, because I am sure no noble Lord believes that Sinn Féin/IRA records the cash it receives.

My Lords, I declare my interest as a senior treasurer of the Conservative Party. I congratulate the noble Lord, Lord Sikka, on his very prescient timing, securing this debate just as the Representation of the People Bill is introduced today.

The Government are proposing to introduce “enhanced due diligence” measures in the forthcoming elections Bill. One has to ask why. If the intent of the legislation is to protect against foreign interference, the new regulatory regime should be targeted in that respect, rather than seeking to envelope genuinely domestic and permissible transactions in extra and excessive red tape. Political parties and regulated donees have a legal obligation to ensure that they receive donations only from permissible sources, which in the case of companies must be companies carrying out business in the UK. Foreign donations are already banned. There are criminal offences in relation to fraud declarations and funnelling unlawful donations via the back door.

However, parties could do with more information from government agencies. In the case of Christine Lee, who gave some £700,000 to Labour Party recipients, it would have been helpful if the security services had alerted Labour to the Chinese Communist Party involvement, for its benefit. Likewise, HMRC has recently declined to share information with national political parties because of so-called tax confidentiality. This fails to recognise an important fact: political parties are not banks or tax authorities. Their assessment of risks is otherwise limited to what is in the public domain. If there are particular risks from specific foreign threats, there should be mechanisms to inform parties of those risks.

The greatest risk of foreign influence lies in third parties, rather than highly regulated and very transparent political parties. That is why we see money flowing into Islamist causes and Gaza independence-style campaigns, which is very worrying. Certainly, the Conservative Party undertakes due diligence checks on its donors, in terms of, first, regulatory compliance and, secondly, political screening and reputational impact. Donations from shell companies are not allowed and not taken. In government, the Conservatives tightened the law against foreign interference and foreign spending; it is the Labour Government who are now dragging their feet by failing to implement properly the foreign influence registration scheme and by not adding China to the enhanced tier. Also, I add my name to those advocating banning cryptocurrency donations. I can see no reason to use them other than for nefarious purposes.