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Fifth Report of the Committee on Standards in Public Life Chairman: Lord Neill of Bladen, QC

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Fifth Report of the Committee on Standards in Public Life Chairman: Lord Neill of Bladen, QC 72858-COI-1-14 Party Funding 5/10/98 10:46 am Page i Fifth Report of the Committee on Standards in Public Life Chairman: Lord Neill of Bladen, QC Standards in Public Life The Funding of Political Parties in the United Kingdom Volume 1: Report Presented to Parliament by the Prime Minister by Command of Her Majesty October 1998 Cm 4057–I £19.70 i 72858-COI-1-14 Party Funding 5/10/98 10:46 am Page ii The Seven Principles of Public Life Selflessness Holders of public office should take decisions solely in terms of the public interest. They should not do so in order to gain financial or other material benefits for themselves, their family, or their friends. Integrity Holders of public office should not place themselves under any financial or other obligation to outside individuals or organisations that might influence them in the performance of their official duties. Objectivity In carrying out public business, including making public appointments, awarding contracts, or recommending individuals for rewards and benefits, holders of public office should make choices on merit. Accountability Holders of public office are accountable for their decisions and actions to the public and must submit themselves to whatever scrutiny is appropriate to their office. Openness Holders of public office should be as open as possible about all the decisions and actions that they take. They should give reasons for their decisions and restrict information only when the wider public interest clearly demands. Honesty Holders of public office have a duty to declare any private interests relating to their public duties and to take steps to resolve any conflicts arising in a way that protects the public interest. Leadership Holders of public office should promote and support these principles by leadership and example. ii 72858-COI-1-14 Party Funding 5/10/98 10:46 am Page iii Committee on Standards WorkingStandar with Othersds in in Public Life Public Life Chairman: Lord Neill of Bladen QC October 1998 I am pleased to present the Fifth Report of the Committee on Standards in Public Life, which addresses the funding of political parties. The extended terms of reference which you gave this Committee last November to enable us to undertake this study were very broad. We have endeavoured to meet the challenge implicit in those terms of reference by addressing a wide range of issues connected with political party funding. Our enquiries have not been confined to the regulation of donations to political parties. We have addressed the regulation of political parties’ election expenditure, the funding and expenditure of third-party organisations and their role in the election process, referendums, the honours system, the provision of state funding to political parties, and changes in the system of Short money. We have also considered the implications for the Scottish Parliament and the new Assemblies in Wales and in Northern Ireland. Many members of the public believe that the policies of the major political parties have been influenced by large donors, while ignorance about the sources of funding has fostered suspicion. We are, therefore, convinced that a fundamentally new framework is needed to provide public confidence for the future, to meet the needs of modern politics and to bring the United Kingdom into line with best practice in other mature democracies. In preparing this report, we took oral evidence over 17 days, in London, Cardiff, Edinburgh and Belfast, from political parties, academics, journalists, representatives of organisations and individuals with relevant personal experience. We commissioned a small survey of the financial circumstances of local party organisations, and we have considered points raised in over 400 written submissions. Some of my colleagues and I have visited Germany, Sweden, the United States of America and Canada, and we have drawn valuable lessons from those countries’ respective experiences of the regulation of political party funding. Unlike the Committee’s first four reports, which focused on ethical questions relating to standards of conduct in public life, this report is concerned additionally with broader issues of public policy. While this might have caused dissension among my colleagues, I am pleased to say that, subject to a single dissent on one issue (the imposition of a cap on election expenditure), all the other areas in this report have the unanimous backing of the Committee. My colleagues and I commend this report to you. We believe that the health of the political parties would be enhanced by the adoption of our recommendations. LORD NEILL OF BLADEN QC 72858-COI-1-14 Party Funding 5/10/98 10:46 am Page iv iv 72858-COI-1-14 Party Funding 5/10/98 10:46 am Page v Working with Others Table of Contents Summary and List of Recommendations 1 1. Introduction and Background 15 2. The Committee’s Approach 24 3. Income and Expenditure of the Political Parties 30 4. Donations: Transparency and Reporting 45 5. Foreign Donations 64 6. Donations: Other Issues 78 7. Public Funding of Political Parties 88 8. Tax Relief 94 9. Financing Political Parties in Parliament 100 10. Limits on Campaign Expenditure 110 11. The Election Commission 146 12. Referendums 155 13. The Media and Advertising 173 14. The Honours System 184 Appendices I Survey of Foreign Countries 194 II Freedom of Expression and Its Legal Protection: A Comparative Review 208 III Electoral Systems in the United Kingdom 213 IV Questions Raised by the Committee 215 V Submissions from the Three Main Political Parties 218 VI Tax Credits for Donations to Political Parties: Note by the Inland Revenue 250 VII Abbreviations 252 VIII Bibliography 254 v 72858-COI-1-14 Party Funding 5/10/98 10:46 am Page vi vi 72858-COI-1-14 Party Funding 5/10/98 10:46 am Page 1 Summary and List of Recommendations Summary and List of Recommendations S.1 The special terms of reference which the Prime Minister gave to the Committee for this study have enabled us to look widely into issues relating to the funding of political parties. This topic goes beyond our usual focus on standards of conduct in public life, although there are many areas of overlap. Indeed, we believe that three of our well-known ‘seven principles of public life’ – Integrity, Accountability and Openness – are especially relevant to the funding of political parties. S.2 Although we are not an investigative body and have no powers to demand information from individuals or organisations, the political parties have co-operated in providing us with a significant amount of background information about their income and expenditure. This is the first time that such detailed information has been forthcoming. We believe this information, which we summarise in this report, gives a useful insight into the parties’ finances. We have also obtained what we believe is a realistic assessment from the parties of what they spend on campaigning, research and administrative activities. The Conservative and Labour parties have told us that between them they spent some £54 million on the last general election campaign. S.3 Without doubt the parties’ belief that elections can only be won by the expenditure (mainly on advertising) of vast sums of money has given rise to something of an arms race. This in turn has put enormous pressure on party fundraisers to devise innovative ways of attracting donations. The result has been the well-publicised, very large donations to both main political parties and also the development of strategies – such as the fundraising dinner attended by senior party figures – which together give credibility to accusations that money buys access to politicians. S.4 It is a small step from the thought that money buys access (encouraged by some party fundraisers) to the widespread public perception that money can buy influence. This accusation is denied by politicians on all sides in respect of their own parties (though they are not averse to suggesting that that is the case with their political opponents). While we have no evidence that such influence has been bought, we believe that the widespread assumption among the public that it can be bought is extremely damaging. This is of particular concern because, as we make clear in this report, we believe that political parties are of fundamental importance to the democratic process. S.5 We are conscious of the changes in political arrangements that have been taking place very recently and will continue to take place in the near future. Among these changes are: the Northern Ireland Assembly; the National Assembly for Wales, and the Parliament in Scotland; proposals for a Greater London Authority and elected Mayor for London; new voting systems for the Assemblies and Scottish Parliament and changes to voting arrangements for elections to the European Parliament. There exists the potential for even more widespread reform of the voting systems following the forthcoming report of the Jenkins Commission. Our proposals for change, therefore, which are not only substantial but are interrelated, aim to have the flexibility to meet changing demands. 1 72858-COI-1-14 Party Funding 5/10/98 10:46 am Page 2 Fifth Report of the Committee on Standards in Public Life S.6 The most significant part of our philosophy depends on transparency. Some of our witnesses suggested this in itself would solve all the problems. While we accept transparency is of major importance, we do not believe that it is sufficient by itself. S.7 Fundamental to our considerations was to ask how much money the political parties need to raise and how far our proposals would affect their ability to do so. Our starting point, from the information received from the parties, was that, to date at least, they have had no insuperable difficulty in raising the funds they need, even with the escalating arms race, although the 1997 general election left both the Conservative and Labour parties in substantial debt.
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