My attempt to get the law changed to prevent rich tax exiles bankrolling UK political parties has been taken up by Lord Campbell Savours. Here is the relevant section of the Lords debate:

Amendment 82

Moved by Lord Campbell-Savours

82: Clause 8, page 6, line 8, at end insert—

“(1A) In section 54 of the 2000 Act (permissible donors), in subsection (2)(a) after “register” there is inserted “who is resident in the United Kingdom for the purposes of Part 14 of the Income Tax Act 2007 and is not a non-domiciled United Kingdom resident”.”

Lord Campbell-Savours: I am afraid that I shall spend a little more time on this amendment. I have tried to be brief on other matters to which I have referred in Committee, but this is a very controversial area and the debate we are now having will be followed closely in the House of Commons, whence these amendments originally came.

This is an extremely important amendment which seeks to deal, in part, with a Linton loophole—that is, a loophole that has been identified by Martin Linton during his considerable work on these matters over the past 20 years. These two amendments were originally tabled in the House of Commons and were supported by 216 Members. They were probably among the highest signature-endorsed amendments ever produced in the Commons. Yet, for all sorts of reasons that I hesitate to go into in detail during proceedings in this Committee, the matter was not debated in the Commons. Amendments 84 and 85, to which there were 216 signatories, were tabled by Mr Prentice and constituted the fourth group of amendments scheduled for debate out of a total of six on day two of proceedings on the Bill. The House had from 3.40 pm to deal with all six groups, and had to complete its consideration by 7 pm. That left three hours and 20 minutes to deal with these highly controversial areas of the Bill. The first three areas included limits on donations, caps on donations and unincorporated associations. Consideration of this group began at 5.20 pm and was interrupted at 7 pm under the programme Motion governing Report stage—that was the amendment before this amendment could be called, with the result was that there was no debate in the House of Commons.

Mr Prentice asked me whether I would move the amendments in this House, and I agreed. His argument is simple. He says: “We in the Commons were denied the opportunity to discuss these matters, and we now rely on you in the House of Lords to give us in the Commons the opportunity to deal with these matters”. He goes on to say that if the pay-roll vote had been free to add their signatures to this amendment, a majority of the Commons would have supported the amendment. He is convinced that in a Division in the Commons, these amendments will go through. I bring these amendments to your Lordships’ House because the Commons was, under the programme procedure, denied the opportunity to debate and vote on these matters, and we should give them that opportunity; and because of the merits of the amendments.

The question is simple. Why should a person who does not pay tax in the United Kingdom, or is not liable to tax on their earnings in the United Kingdom, be denied the right to influence the election of the Government by making a substantial political donation? The answer is because, as individual citizens, we collectively pay our taxes in the belief that, having paid them, we have the right to influence how they are used. The payment of, and liability for, tax gives us and not others the right to decide. It is our money, not theirs. It is for us to decide which Government should be in place to spend the money raised from us as citizens through taxation. Those who are not liable to taxation are not entitled, through the use of their money, to influence the Government that is in place to decide how our taxes are spent. Why should a person who is not liable for tax in the United Kingdom influence the use of taxpayers’ money paid by those who are liable for tax?

I will exaggerate to make my point. If a Hungarian billionaire philanthropist, entrepreneur, oligarch, public benefactor—whatever you want to call him or her—acquires British residency, buys a home in London, spends most of his or her time abroad, refuses to make himself or herself liable for tax in the United Kingdom and then offers a political party a £10 million donation, should a UK political party be permitted to accept it? The public would be appalled, the political party would be discredited and Parliament’s credibility would be further undermined.

As I understand it, that can happen under the law as it stands. The argument therefore turns on where we draw the line. What does the Prentice amendment do? It would make it unlawful for any person who is not a UK resident for tax purposes and is not a non-domicile UK resident to make a substantial donation to a political party. The higher limit of donations would be defined in law.

The amendment is based on a simple principle: if you want to donate, you have to be liable to tax. Of course, there are limitations on that. If a person is not ordinarily resident, they are liable for tax only on income which arises in the United Kingdom and only a person who can spend 183 or more days in the UK is a UK resident under the six-month rule. Also, someone will be regarded as a resident if they come to the United Kingdom regularly and after four tax years they visit during those years on an average of 91 days or more a year. I am sure that if I am wrong legally on these matters, I will be corrected, but I have tried to source that material as accurately as I can. If I need to be corrected on the detail, then others should do so.

“There is substantial evidence to suggest that money could have a powerful impact on the outcome of general elections, particularly where targeted at marginal constituencies over sustained periods of time”.

I will not get into the names of people or even the parties involved because that is irrelevant to this debate, but one noble Lord who lives offshore refuses to make himself liable to tax in the United Kingdom. He converted a £3 million loan into a gift to a political party and then went on to donate a further £100,000 to that party and an additional £30,000 to a mayoral election campaign. Do we really believe that that is acceptable? As the Electoral Commission, which has got it right for once said:

“The permissibility requirements in the 2000 Act are intended to ensure that only people and organisations with a close relationship to the UK can donate to political parties. It is for Parliament to decide if this is appropriate”.

That is precisely what we are doing with this amendment.

In a spirit of frankness, I should say that the Electoral Commission has allegedly expressed some reservations over the workability and proportionality of the Prentice amendment. But the enlightened Mr Prentice has considered its reservations and come up with a solution to the problems. He suggests that a donor simply ticks a box on his or her tax return and then the Electoral Commission needs only to certify with the Inland Revenue that that is the case—that a ticked tax return has been received. I cannot see how such a simple solution can be described as disproportional, particularly when such a donation could influence the result of a general election. Some people believe that such donations have influenced the results of general elections. Of course, it would apply only when donations exceeded a threshold laid down in regulation.

I now draw the attention of the Committee to a letter from the House of Lords Appointments Commission to Mr Tony Wright, chairman of the Public Administration Committee, announcing changes to the selection criteria for Peers of the realm. It states:

“I am writing to notify you of a slight strengthening of the selection criteria which the Appointments Commission will in future use when assessing nominees for non-party-political peerages. The Commission has agreed these changes as part of its review of policies and procedures and in the light of experience”.

A copy of the press notice is then attached which states:

“The Commission also wants to strengthen the existing requirement that a nominee should be resident in the UK for tax purposes, and be willing to confirm his or her acceptance of the requirement to remain so. This strengthening will also be reflected in our vetting criteria for future party-political and other nominations for peerages”.

Surely, if the appointment to the Lords requires UK residency for tax purposes and a liability to tax within the United Kingdom, it must follow that donations of millions of pounds to political parties, which could influence whole general elections—elections to the elected House, the House of Commons—must at the least have the same tax liability requirements.

Finally, I turn to the response of the Government on these matters. They have circulated a document. I do not know how widely it was circulated, but it was sent to Members of Parliament in the House of Commons, certainly to Labour MPs, and perhaps even wider. However, I shall place it on the record because it is it is in the public interest. It is headed:

“Tax status and donations: Gordon Prentice amendments. Two amendments have been tabled by Gordon Prentice MP to make political donations from individuals who do not pay full UK tax illegal ... there are a number of practical problems”.

Paragraph 1 states:

“The amendments would not prevent non-UK taxpayer donations. The amendments as tabled would not in practice prevent political donations from non-UK taxpayers, as they could use other routes—such as companies or unincorporated associations—to pass on funds ... These amendments would not affect company donations”.

My response to that is very simple. Why do the Government—presumably the Government were behind the document that I am now reading—table amendments to deal with the deficiencies in that area of these amendments? I invite my noble friend to consider with his officials and other Ministers in the department whether it would be possible to table amendments on Report to deal with the deficiencies identified.

I had a conversation with the Justice Secretary Mr Jack Straw about the matters raised in the next paragraph and he raised exactly these issues with me. Paragraph 2 states:

“The amendments would create an anomaly in rules regarding democratic participation. The amendments would allow a non-UK taxpayer to stand for election, collect and receive political donations, vote in elections and potentially sit in a democratically elected body. But the same individual would be barred from donating money—even to their own campaign. There is no coherent reason for this discrepancy,”—

say the Labour Government—

“and indeed such a move would be open to legal challenge on the grounds of unjustifiable difference of treatment. If there is a desire to tackle the residence and tax status of donors, it is preferable to do so in a broader context”.

That is an interesting phrase. The document continues:

“Tackling the issue in a broader way means that any risk of legal challenge would be minimised”.

So why do we not do that? Why do we not table an amendment on Report that tackles the matter in a broader way to deal with the concerns expressed in paragraph 2 of this document which has been circulated on behalf of the Labour Government—my party in Government?

Paragraph 3 states:

“The amendments would be impractical and burdensome. An additional reason for opposing the amendment is that, as things currently stand, it would be very difficult to deliver in practice. This is particularly the case given the concerns surrounding confidentiality of tax data and the fact that such data are not readily verifiable (ascertaining whether a person is resident in the UK for tax purposes would in most cases require a specific investigation). Whereas at present political parties can fulfil their compliance duty to check that an individual is on the electoral roll, or a company is registered at Companies House, by consulting public records—obliging parties to check the tax/residence status of donors would be an impossible task. Tax records are not public documents and in any event there is no single record of individuals’ tax status”.

We are not asking the public to have access; we are asking the Electoral Commission to go to the Revenue to check whether it would be compliant with the law in the event that it were to be incorporated in the law in the way that I suggest in the amendments.

This opens up the further question of what would happen if a party was shown to have accepted an impermissible donation some time after the event. It would presumably be required to pay the money back, despite never having been able to verify whether the donation was permissible in the first place. Such a scenario would undermine the confidence of political parties, as well as the public, in the regulatory system. I would have thought that it would concentrate the minds of parties, that they would want to be sure that it was a permissible donor donating the money, and that it was within the law. It would probably make the parties extra diligent. I know that the Liberal Party, for a period, had some difficulties in this area and, on reflection, I am sure that it regretted what happened. But the point is that it must have concentrated its mind so that in the future it would not find itself in that difficulty again, as indeed is the case. We have all learnt from what happened over the Liberal experience. Let us tighten up the law in the way I am suggesting because we can make it work.

I say to my noble friends, I do not know where this document came from, but it must have something to do with the Government. It is a criticism of the amendment and it certainly did not come from the Conservative Party. On the basis of the document here and the reservations expressed, why do we not table amendments on Report that deal with all these matters and then deal with the concerns expressed by 216 Members of Parliament of all political persuasions, not including the payroll vote? If this House carries the amendment when finally we divide on it—as we will do on the Floor of the House—the House of Commons will have the opportunity of deciding on something that it wants to decide on. I believe that it is the function of the House of Lords to give it every opportunity to do so. I beg to move.

Lord Tyler: I and my noble friend Lord Rennard have added our names to Amendments 82 and 84 for a number of reasons. I shall, as briefly as possible, add to what the noble Lord, Lord Campbell-Savours, has already said and try to emphasise one or two additional points.

First, I entirely endorse what he says about the extent of support within the House of Commons and the totally inadequate lack of attention to this issue because of the way in which the legislation was so-called “programmed”. Old-fashioned politicians like me used to think of it as guillotining. The only point on which I differ from the noble Lord is that I think it was 218 members who signed the amendment; a very substantial number.

To pick up on one extremely important point that the noble Lord made towards the end of his speech, all parties would benefit from this situation being sorted out. What happened in the past has gone; we have all had unfortunate experiences in this field; the sooner this issue is cleaned up and it becomes absolutely apparent to the public that it has been

addressed, the better. It is not going to be retrospective, but the lessons of the past should be informing us for the future.

We, too, believe that it is a matter of principle that those whose commitment to the United Kingdom stops short of making a substantial contribution to its economy through their tax should not be put in a privileged position. It is surely the greatest irony that you can save a bit of money by being a tax exile, and then you can use it to invest in the United Kingdom political parties to try to reduce the tax burden, perhaps, on non-doms. It is extremely important that we find ways to deal with this issue. To me, tax is the rent we pay to live in a civilised society. It is part of being a citizen of the United Kingdom or any other democracy.

The noble Lord, Lord Campbell-Savours, referred to the Rowntree report. I do not intend to follow him in detail, but I drew that report to the attention of the House in a Question some months ago. We are still awaiting a considered response from the Government to that extremely important report, which raised very substantial issues about the way in which the political system is seen and the extent to which individuals in our society feel disenchanted and disengaged from the political system, because of the power of money—not least in terms of the power of foreign money.

The noble Lord referred to the views of the Electoral Commission and I take seriously the fact that it recognises the purpose of what we are seeking to achieve, but has some concerns about its application. It is clearly a problem that it is impossible for any regulatory body to take a retrospective view of. Were they a tax exile last year or are they a tax exile this year? However, ways can be found around that. If there is a practical way, as the noble Lord said, for the Appointments Commission to look at this issue in relation to nominations to this House, and if that is seen to be a perfectly legal, unchallengeable way to assess the tax status of an individual, why, for goodness’ sake can that not be used in the same way?

There are two subsidiary issues to which the noble Lord has not referred. As he pointed out, small donations might well fall outside this particular restriction, for reasons that we all understand. However, as I understand it from the briefing that was repeated to me from the Electoral Commission, which I received before Second Reading, if each individual donation is £1 less than the threshold, and the donation is made at that level every week of the year and goes, in aggregate, way over the top of the threshold, it would not be caught in terms of reporting and checking the origin of those donations. That cannot be right. I had hoped that having raised this at Second Reading the Minister and his team would have found a way of closing what is, at least apparently, a loophole. If it is an apparent loophole for the Electoral Commission, it must surely be one that we should take very seriously, because it would be crazy if the aggregate donation over the full 365 days of the year turned out to be dramatically more than Parliament and government intend in terms of the threshold. I hope that the noble Lord can respond to that in particular. As I have said, I raised that at Second Reading; I did not receive an answer then and I was hopeful that we would have received a substantial amendment to deal with it now.

On the other question to which I should like to draw attention, the noble Lord, Lord Campbell-Savours, mentioned the question of companies that might be in the control of an otherwise impermissible donor. The answer to that is of course in Amendment 89, to which he may care to add his name, in the name of my noble friend Lord Rennard and myself, and in Amendment 90. Both amendments deal with this issue. We will come to them in due course, but it is not impossible to deal with that perfectly justified point. We do not want a way whereby particular donors are excluded as individuals, but they find a route round that simply by having a company which enables them to make donations in a way that would be illegitimate in terms of the amendment and, I hope, the eventual legislation that we pass.

We have a great deal of sympathy with the points that have been raised, not just by the noble Lord, Lord Campbell-Savours, but by a huge number of others outwith politics. These are not just political animals saying that this system is being cheated, it is of a real concern to the interested public, and that was very apparent from the Rowntree report. We hope that the Minister, even if he cannot do so today, will recognise the strength of feeling among Members of both Houses—and rightly so, because the present situation is not sustainable, and the public knows it is not sustainable. The public believes that it is yet one more reason why we have what is now being referred to as a reputational crisis in Parliament.

Lord Henley: The noble Lord, Lord Campbell-Savours, will not be surprised to learn that he does not have my support on his amendments. I shall be relatively brief in dealing with the arguments that he put at considerable length, but there are three important points to make.

First, and I think that the Minister would agree with me, these are matters where we should proceed by consensus. The parts of this Bill that are working best are those where consensus has come into it, as the Minister acknowledged earlier. Secondly, we already have strict rules which deal with controlling who can and cannot donate to political parties. If there is a concern about large donors having a disproportionate influence on the political process, which is in effect what the noble Lord is worried about, that is a matter that in my party’s belief should be addressed by a comprehensive cap on donations. That, as the noble Lord is well aware, would have to affect not only firms and individuals but also the trade unions. If the noble Lord was prepared to go down that route, he might find that some consensus was possible, but I suspect that he and the Government would not like to see their political masters, the trade unions, denied making the contribution that they wish to make to their party.

Lord Campbell-Savours: How would we manage to regulate a multiplicity of £50,000 donations coming in from some obscure part of the world?

Lord Henley: That is not a matter for me to address at this stage. I noted what the noble Lord, Lord Tyler, said about a whole series of individual donations coming in in different weeks. If we could reach an agreement on a comprehensive cap, I have no doubt

that some such means could be found to do it. If the noble Lord wishes to have a comprehensive cap, it must be not just on individuals but on individuals, firms and trade unions—the noble Lord has to accept that.

Thirdly, I go back to the point on which he quoted the Justice Secretary. Confidentiality is very important in relation to individuals’ relations with Her Majesty's Revenue & Customs. I understand that HM Revenue & Customs currently has no power to release data of this kind to other bodies, because of confidentiality.

Lord Tyler: I am listening with great interest to the noble Lord, but does he accept that that principle has been blown to smithereens by the Appointments Commission for this House, which is presumably given access to that precise information?

Lord Henley: It might have been blown to smithereens on that one point but it still exists here. It is a valid point that has to be borne in mind.

I go back to my first and second points, which are the more important. We need a consensus and, if the noble Lord’s real concern is the disproportionate influence coming from individual donors, the route that he should look at is a cap on donations, which must affect all bodies and not just individuals.

Lord Pearson of Rannoch: As a fundraiser for the UK Independence Party, I find these amendments inconvenient. However, I also find them largely persuasive. At Second Reading, I asked the question raised by the noble Lord, Lord Tyler, about the possibility of a large number of cumulative donations of £7,499 coming in by standing order. That is not a problem that the Committee has resolved, and it is clearly unacceptable.

Perhaps I may ask the noble Lords, Lord Campbell-Savours and Lord Tyler, one or two questions. Under these amendments, what would be the position of a UK-resident taxpayer donating through an unincorporated UK association? Have they thought of that? I refer to a genuine UK-resident taxpayer, from whom a donation is currently permissible. Under the amendment, would that situation continue to apply?

Secondly, I did not want to come here as the usual Euro-bore that I am in your Lordships’ House, but I ask the noble Lord, Lord Campbell-Savours, whether he has thought about European law with regard to the amendment. I may be wrong but, as I understand it, under European law, European Union companies and individuals are able to donate in this country in a way that companies and individuals from outside the European Union are not. I apologise if I am setting off a false hare but it is an area that the noble Lord should think about, especially as we go forward. I do not mind betting that if it is not law at the moment, it will be fairly soon. Those are my two questions.

On the subject of trade unions, which I do not suppose will be popular with—

Lord Campbell-Savours: Perhaps I may intervene. As Ministers would say, “It is not in my brief to reply on issues of European law”, so I cannot answer the noble Lord’s question, although I will ask those who brief me to consider the matter and give him an answer. The question of unincorporated organisations is dealt with in the Bill. I understand that they are subject to new restrictions.

Lord Pearson of Rannoch: In that case, I was not sufficiently familiar with the Bill. I hope not to irritate my erstwhile Conservative friends too much, but a trade union is a collective of British resident taxpayers and therefore I cannot see why it would not fall within the ambit of the amendment. Nevertheless, I hope that the noble Lord, Lord Henley, and the Front Benches generally can reach agreement on this matter. I look forward to the answer on my European point and support these amendments in general.

Lord Hodgson of Astley Abbotts: I recognise the powerful, if emotional, appeal made by the noble Lord, Lord Campbell-Savours. Some aspects of what he is thinking about are more complicated than they first appear. I am not sure that membership of your Lordships’ House is a good comparator with the ability to vote. He prayed in aid the new Appointments Commission procedures. It seems to me that, when appointing one of 750 members of a legislature, you will have a higher, or different, standard than for someone who will be one of 50 million voters, because the influence is much greater.

There are two practical points for the noble Lord to bear in mind. The first is that we recognise that a large proportion of our population—often the most talented part—may serve overseas for a period of time. I lived in the United States for five years, and so do many other people. In your period of overseas service, you may cease to be resident for tax purposes in the United Kingdom. Those people who intend to return to the United Kingdom should not in those circumstances be precluded from participating in our elections. That is recognised by the fact that you can continue to vote if you live overseas for 15 years—it used to be 20 years—by remaining on the register here. The noble Lord should address that issue.

The second point is the question of residency and domicile for tax purposes. The noble Lord, Lord Bach, and I were in this Room on Tuesday afternoon discussing perpetuities and accumulations. Residence and domicile for tax purposes is almost as complicated as perpetuities and accumulations. The simple issue of being resident for tax purposes is not a permanent state; you may drop in and out of being resident for tax purposes along the way. Therefore, I am not sure that his case will work in a practical way.

I do not wish to sound as though I am trying to deride every proposal. I hope that when we get to Amendment 108, which talks about a cap on donations and provides a blanket answer to the particular problem that he proposes, the noble Lord will be prepared to speak in favour of it as being at least a halfway house to what he is seeking to achieve here.

Lord Pearson of Rannoch: Before the Minister rises, I have been reminded of one more question for the noble Lord, Lord Campbell-Savours. Does he see his proposed requirement for a donor to be wholly and fully resident for UK tax purposes as a better test of being allowed to donate to a political party than the present test of whether the donor happens to be on the electoral roll? Alternatively, would he require both conditions or has he not yet thought about it?

Lord Campbell-Savours: My proposal provides for a stronger threshold than simply being on the electoral roll.

Lord Brooke of Sutton Mandeville: I do not think that the noble Lord, Lord Campbell-Savours, would regard it as a betrayal of a confidence if I said that he and I had a short conversation during the 10-minute interval while we were waiting in the queue to get some food. I complimented him on the fact that he was participating in this Committee and was here the whole time, and I thought that the Committee gained enormously from his doing so. He reminded me that he periodically moved amendments which, to borrow the language of the noble Lord, Lord Pearson of Rannoch, I might find inconvenient. I said it was perfectly true that I had had quite a lot of those, not only in business such as this but also in business relating to the City of Westminster.

I want to make two generic points about the opening speech of the noble Lord, Lord Campbell-Savours. The first, I remark in passing, relates to parliamentary procedure. I totally understand the unhappiness about the inability of the Commons to debate and vote on the issue that we are discussing now. However, when I was a Whip in the Government between 1979 and 1983, on no less than three occasions we sat for between 100 and 135 hours and did not guillotine the Bill; in other words, we did what the House of Lords does—we looked at absolutely the whole Bill. I recognise that in the ensuing 20 years Governments have found that pattern of behaviour inconvenient, and of course the right to guillotine was always available to us, had we chosen to use it. However, it is slightly disingenuous of the noble Lord, Lord Campbell-Savours, to complain about the outcome in the House of Commons when it is the Government that he supported in the House of Commons who introduced programming that I personally consider to be a flagrant interference with the right of the elected House. I think that the noble Lord wants to interrupt me.

Lord Campbell-Savours: If I had still been in the elected House, I would have voted against it and spoken against it with passion.

Lord Brooke of Sutton Mandeville: I have no difficulty at all in recognising that fact. It is obviously worth referring to in the context of how this amendment has arrived here but I do not think that it can be blamed on the Official Opposition. Fortunately, scrutiny in the House of Lords is automatically available. It is one of the glories of the House of Lords that that is so. I do not in the least begrudge the noble Lord, Lord Campbell-Savours, bringing forward this amendment, and I think it is a very good thing on behalf of the nation that we should have the opportunity to scrutinise it.

The second thing of a generic nature to which I wanted to allude was his observation about the advice that had, I gather, been offered to Labour MPs, although I know not whencesoever it came and the noble Lord, Lord Campbell-Savours, was not able to tell us. The commission briefing on the subject, while pointing out some of the difficulties, makes it quite clear that the issue that we are debating is a matter for Parliament and not for itself. The commission states that it is not for it to make a judgment on the issue.

In the context of the advice, I shall briefly recount a conversation that I once had with a Permanent Secretary of a department in which I was serving as a Minister. We had been contemporary undergraduates, so we knew each other very well in a private capacity. He said that politicians of both parties—I think the Labour Party is a little more prone to this than the Conservative Party, but there is no question that my party is prone to it as well—are extremely resistant to what they regard as negative advice given to them when they come into office, when civil servants tell them why what they want to do is impracticable. He said that they are making a mistake because members of the Civil Service are themselves part of the Government, and they take pride in the manner in which business is conducted because they are paid from the public purse.

The civil servants have two preoccupations. First, if a Minister does not listen to all the arguments against what he is proposing to do, there can be a moment when he is caught out at the Dispatch Box. That could happen even at the Second Reading of a Bill on which the Minister has intervened on dozens of occasions. He has to look at difficulties contained in the Bill which he has never considered before because he has brushed aside the advice that he has received. That is embarrassing for the civil servants sitting in the Box, who have no way of advising him.

Secondly, it is worse when a Government do not take advice in the early stages and then find themselves having to retreat in midstream from the legislation on which they have embarked and start again. It is infinitely easier to prepare legislation over six to nine months than to suddenly have to produce it in a month, to which there has previously been some allusion even in this Committee.

I do not think that the Government are wrong to point out the difficulties of doing certain things. It is the right thing to do so that everyone taking part in the debate on the legislation knows what the real practical difficulties are. I say that on behalf of people who have been in government in both major parties.

Lord Bach: The intention behind Amendments 82 and 84 is to seek to tie the ability of an individual to make a political donation to his or her taxation status. In order to be considered a permissible donor, the 2000 Act requires that an individual must be registered in an electoral register. Amendment 82 would introduce two further conditions or requirements. First, the individual would have to be resident in the United Kingdom for the purposes of the Income Tax Act 2007; and, secondly, that individual would have to not be a non-domiciled United Kingdom resident. Amendment 84,  in turn, would require a donor to affirm that these two additional conditions are met under any statement made as to the source of a donation, as will be required under the provisions of Clause 8.

As the Committee has heard, identical amendments were tabled in the other place but were not reached. It goes without saying that the Government recognise the force of support that these amendments enjoy in another place. I can confirm, and do so, that we understand the argument that the ability of an individual to participate in the democratic processes of this country should be linked to their taxation status in a broad sense. But if these amendments were passed, that would not introduce any further controls on donations from other permissible donors—for example, from companies, and I shall come back to companies in a moment, and non-incorporated bodies. It could therefore have the effect of diverting these donations through other, less transparent routes.

The amendments that we are to deal with later in the name of the noble Lord, Lord Tyler, Amendments 89, 90 and 142, seek, as I understand it, to prevent people who are not allowed to vote in local, parliamentary and European elections, and companies controlled by those people and other impermissible donors, from giving political donations. The qualification is not linked to the tax status of individuals or companies; it is the right to vote that the amendments will deal with, rather than the tax that they pay.

The noble Lord, Lord Pearson of Rannoch, asked about companies donating under European law. To donate, a company must be incorporated in the UK or in an EU member state, but must still carry on business in the United Kingdom. That is at Section 54(2)(b) of PPERA. Effectively, the amendment, even if carried, would not achieve the clear objective that it appears intended to achieve.

My noble friend asked the perfectly proper question of why the Government do not add an amendment to that effect. In order to donate to UK political parties, companies have to be registered and carry on business in the UK. The Government acknowledge the concerns that have been expressed about the scope for evasion of the ban on foreign donations contained in these provisions. As we have indicated throughout—and I shall say a little more about this later—the Government are of course willing to discuss how these provisions might be improved and are willing to hear representations on the best way forward. However, we believe that we should move forward on any proposals for better regulation in this area, if we can, on the basis of consensus. We think that in the long term that is much the best solution.

There are wider issues to consider than those that the amendments would address. We are concerned—and it is a fair concern—that if these wider issues are not looked at, we risk creating a constitutional anomaly. The amendments tabled by my noble friend seek to prevent those who do not pay certain types of tax in this country from donating in their individual capacity to a political party or other regulated recipient. However, they do not attempt to prevent those same people from participating in a very active way in our democracy in a number of significant ways, including by voting, sitting in our legislature and standing as a candidate to sit in our legislature. That would be a significant anomaly for which there would be, on the face of it, no obvious explanation. Because of the concern about the potential for creating constitutional anomalies, which we should try not to create if we can help it, we believe that broader consideration is needed of the relationship between, on the one hand, an individual’s right to civic and democratic participation and, on the other hand, their responsibilities and, in particular, their taxation status.

Noble Lords may be aware—and let me tell them if they are not—that we approached the Committee on Standards in Public Life to suggest that it might want to consider the issue. However, we were advised that the work programme of the committee does not allow it to pursue the matter at present. We are continuing to reflect on how best to take forward this very important matter.

We are, however, clear that it would be wrong to tie democratic rights in one area to taxation status, as the amendments propose, while leaving other democratic rights unfettered. Let me deal with some of the significant practical and legal difficulties which mean that the amendments proposed might not work in their current form. I shall mention briefly a few of these.

First, the amendments raise real practical difficulties, which cannot be wished away, about how a recipient party or the Electoral Commission would be able to verify whether or not what a donor told them about their taxation status was accurate. Coming to a sustainable view about whether or not someone is resident or domiciled in the UK for tax purposes raises complex issues that it may be difficult for either a party or the commission—both may be involved—to resolve on their own without expending considerable time and, potentially, money. An individual’s taxation status is essentially retrospective—a tax return is normally submitted at the end of a financial year—and it might, therefore, be difficult at a point of time in the middle of a year to determine what an individual’s tax status is.

One way to deal with this might be to enable information about taxation status to be shared among key stakeholders in the process. Information on whether an individual is resident and/or domiciled in this country for taxation purposes is currently held only by Her Majesty’s Revenue and Customs in certain circumstances. HMRC does not collect data on residence and domicile status unless it is relevant to an individual’s tax calculation, and it does not hold a list of individuals who are non-resident or non-domiciled. It may be that for the proposal to be fully effective, HMRC would need to collect additional information specifically for this purpose in addition to any information it currently holds. The Electoral Commission or others would want to be able to access this information, whether it be routinely or on a more limited basis.

I hardly need to tell the Committee that the confidentiality and data-sharing implications of any proposal to tie residency to donation permissibility would at the very least have to be carefully considered given Her Majesty’s Revenue and Customs’ statutory duty to preserve taxpayer confidentiality. I note that the Electoral Commission has expressed concerns about the workability of the proposal in its briefing note on the Bill ahead of the debate. It is worth quoting what it says about this aspect. The commission states:

“In order to assess whether any donation from an individual is permissible, the recipient would need access to authoritative information about that individual’s tax status. The Commission would also need access to that information to confirm compliance. We think it highly unlikely that this will be achievable in practice or (if so) that the resulting burden on regulated entities and on HM Revenue and Customs would be proportionate”.

I should also note that at present many people are potentially unaware of the concept of domicile or their domicile status because it is not relevant to their tax affairs. For example, domicile is irrelevant if you have no overseas income. Under this amendment people unaware of their domicile status could unwittingly commit an offence by giving to a political party.

My second practical point, if that is the right expression, is that following the changes made in the 2008 Budget, my right honourable friend the Chancellor of the Exchequer gave a commitment that there would be no further substantial changes to the taxation regime for resident non-domiciles in the rest of this Parliament or the next. Any change to the rules on permissibility of donations should be mindful of this commitment.

Finally, we must also consider any legal implications arising from a proposal further to limit the ability to participate in our electoral system, whether through a narrow limitation on the ability to make donations or something wider on participation more generally.

It is possible—I do not say that it is inevitable, but it is possible—that the proposals in this area would touch on some key principles. For example, any limitation on participation may well raise issues relating to Article 10 of the ECHR, the right to freedom of expression, and Article 11, the right to freedom of association. We must bear in mind that this amendment proposes a restriction that would apply to UK citizens who happen not to be resident in the UK for various tax purposes. Any proposal that seeks to limit the right to democratic participation of a UK citizen, whether it is in this field of donation or any other, will require particularly careful scrutiny and may raise legal issues for which there may be little established precedent. So I hope that the Government can be forgiven for acting here with some caution.

Any potential legal issue will almost certainly be complicated by focusing only on donations, rather than by taking a more consistent approach across the board towards the issue of tax status and participation in politics more generally. These matters may be complex and it is clearly sensible to take the proper amount of time to examine them with the care that they deserve. I do not consider that a task of that detail and potential complexity can safely be completed during the timetable allowed for by this Bill.

There are many other points to bear in mind, some of which have been raised during this debate and which the Government will reflect on in taking forward work on this complex issue. I thank my noble friend for raising this issue in the way that he has and for giving us the opportunity to have this debate, which, I suspect, we may in some way or another come back to at a later stage of the Bill.

Lord Tyler: I am not sure whether the Minister intended to complete his remarks, but could he address the important point raised with me by the Electoral Commission—twice now—that, just short of the threshold for both verifying and reporting, it is possible to make a number of regular donations which would not alone trigger that limitation but would clearly do so in aggregate? That is relevant not only to this discussion but also to the wider one in which we are engaged.

Lord Bach: I have an answer for the noble Lord: if donations which are above the recordable threshold of £500 under this Bill are made by one donor, and the total of those donations over a period exceeds the reportable threshold of £7,500 in that same year, they have to be reported to the commission. We could lower the threshold, but if we were to do so it would be a disproportionate administrative burden. The noble Lord, as I look at him from quite a long way off, does not seem entirely satisfied by what I have said and so I offer to write to him with an answer before the next stage of these proceedings.

I had almost finished what I was going to say. It is for the aforementioned reasons that the Government cannot support the amendments. I hope that my noble friend at least realises that we consider this to be a very important matter, to which I know we will return at a later stage.

Lord Campbell-Savours: I am grateful to my noble friend for his comments. I do not want to be rude to noble Lords, but I shall be quite brief in dealing with them. What my noble friend has said will now be pored over in the House of Commons. His contribution to the debate today will be that which Members of Parliament at the other end will want to read in some detail; indeed, it will be widely circulated.

Lord Bach: I suspect that Members of Parliament may also want to read what the noble Lord said.

Lord Campbell-Savours: I think that they will be far more interested in what the Minister said as against what I said. It is clear that the noble Lord, Lord Tyler, understands the politics of this at the other end; he has obviously been well briefed by his colleagues. The noble Lord, Lord Hodgson of Astley Abbotts, used the £50,000 argument without explaining how it is possible to police foreign donations if they are capped at £50,000. It is utterly impossible, unless you have policemen all over the world checking up on inter-company and inter-family relationships.

The noble Lord, Lord Pearson of Rannoch, presses me on Europe. I have to tell him that my interest in Europe is not as detailed as his, as we know from his weekly interventions at Question Time. The noble Lord, Lord Brooke, raised an important issue: the whole question of how we legislate. He may be interested to know that this recommendation came from a report, sponsored by the IPPR, written some 16 years ago entitled Money and Votes. Among its recommendations is that donations from overseas sources should be banned with three exceptions: registered overseas votes; allocations from parliamentary groups and the European Parliament; and donations below £1,000. Therefore, there has been a longstanding argument over many years on the need for reform in this area.

I turn to the comments of my noble friend Lord Bach. I noted that his brief closely followed mine—that is, the one that I received from my colleagues, which was circulated in the House of Commons. Clearly, it must have come from the Government, because even the order in which the points were raised was very similar to the order of the points in the document that I read to the Committee.

On my noble friend’s point about the release of information from Her Majesty’s Revenue & Customs, is he aware of the NTC project? It is referred to in the document that he was not too happy with, produced by Rowntree. He may remember the debate about two weeks ago on the Floor of the House in which he commented on his reservations about the Rowntree report. I cannot remember the name of the report but it referred to NTC projects which provide HMRC tax-credit data to local authority housing departments. Therefore, there is obviously a process whereby HMRC is able, certainly in the case of housing benefit, to provide information to departments outside HMRC.

My noble friend said that the Government are continuing to reflect on these matters. In the event that this amendment were agreed in the House of Lords, they would have to reflect very fast. I understand that, if it goes back to the other House, Members will want to vote on it unless the Government come up with some alternatives, so they might want to get a move on and sort out an alternative approach, rather than put the Commons in a position where they might have to vote on the amendments that I have tabled here today.

Lord Bach: For the record, the Rowntree report that I was talking about—it is easy to get them confused—is not the one on the administration of elections; it is the one on data-sharing. I am afraid that a few words of criticism did cross my lips on that report.

Lord Campbell-Savours: The reference to the interflow of data between various organisations within government appears in the section dealing with data-matching. Of course, the Government’s case is that through data-matching they will be able to make the system of individual registration more effective. On that basis, I beg leave to withdraw the amendment.

The issue will resurface at Report Stage – the last Lords stage before the Bill goes  to the Commons