Parliamentary briefing: Representation of the People Bill (Part 4 – Campaigns and Political Expenditure: control of political donations) – Committee Stage

• Political parties, candidates and campaigners are responsible for ensuring donations made to them are from permissible sources. Clause 58 introduces a ‘know your donor’ framework for donations and loans worth over £11,180.
• Under Clause 58, donees will be required to assess the risk that a donation or loan is being made by an impermissible donor. The risk assessment will inform donees of the appropriate checks they should carry out in order to be confident about the true source of funds and make an informed decision as to whether to accept the donation or enter into the loan. The Bill establishes a duty on the Commission to produce statutory guidance on how donees can undertake a risk assessment.
• While this will introduce a new know your donor culture into the political finance space, it is not entirely novel, and similar checks have existed for some time in charity law.
• The thresholds at which risk assessments are required should be the same as the threshold at which donees currently report donations, with the exception of candidates. This would reduce complexity for donees, who would not have to navigate a new set of obligations at a new threshold. It would also create a ‘know your donor’ regime that is sensitive to different levels of risk in the political finance regime.
• It is important the checks are proportionate and workable to avoid placing an administrative burden on donees. We support the principle of the clauses but have two clear recommendations to strengthen the risk factors:
  • First, we have recommended that the listed risk factor “any other risk factors the party considers to be relevant” be amended to read “any other risk factors a reasonable party would consider relevant”. The current drafting allows donees to rely on a defence that they did not consider a risk factor to be relevant when deciding whether to accept a donation.
  • Second, we have recommended the inclusion of an additional risk factor relating to location. We propose that “a person’s connections to other countries and jurisdictions” be added to the list of risk factors. This additional factor will increase the likelihood that donees will identify and prevent potential foreign financial interference in UK politics.
• The UK Government should consult with the regulated community over which factors should be considered in the risk assessment. Their expertise and experience of elections is essential in ensuring the proposals are workable and do not deter legitimate participation

• Currently, if an individual is on the electoral register, they are a permissible donor. This includes attainers in Scotland and Wales, who can register from age 14.
• This clause amends the Political Parties, Elections and Referendums Act 2000 (PPERA) so that only individuals aged 16 or over who are on the electoral register are permissible donors. This will change the rules for Scotland and Wales, where those under 16 on the register can currently donate. This will mean the age for permissible donors is consistent across the UK.

• Currently, if a company is registered at Companies House and ‘carrying on business’ in the UK, it can donate to a UK political party or campaigner. The company does not need to have made enough money in the UK to cover the donations it makes.
• This opens the system to foreign influence and means that foreign actors could legitimately use a UK company as a conduit to channel money into UK elections.
• Clause 60 introduces new controls on donations from companies and limited liability partnerships (LLPs). It introduces a revenue test, under which a company or LLP donor must have generated sufficient revenue over any financial years wholly contained within the three previous calendar years to fund the value of their donation. It also introduces a ‘significant control test’, which aims to demonstrate that company donors have a legitimate connection to the UK and are not controlled by foreign entities.
• As drafted, these provisions do not sufficiently strengthen the system against foreign money to entering British politics, as companies could still donate more money overall than they have made in the UK.
• The Commission strongly recommends two changes that are necessary to strengthen Clause 60 and reduce the risk of foreign money entering British politics through companies. The Rycroft Review has also made similar recommendations.

Company donation limit

• Any company donation limit must apply to the total value of a company’s political donations in a calendar year, regardless of the number of recipients.
• The proposal in the Bill applies the limit separately to each recipient, so for example, a company could donate an amount equal to their revenue to a party and then donate the same amount to each of the party’s (or multiple parties) MPs, councillors and candidates. This makes the measure ineffective, as it would allow companies to make legitimate donations that are many times their revenue, with no guarantee of the source of these funds.
• To be at all effective, any company donation limit must apply to the total value of all of a company’s political donations in a calendar year, regardless of the number of recipients. This could be achieved through a donor declaration, with minimal administrative burden and we have no evidence that companies will struggle to track the donations they make in a year.

Using profit as a measure

• To go further and more effectively prevent foreign money from entering the system, we recommend that a company’s post-tax profit be used as the measure of its UK earnings, rather than revenue.
• Using profit as a measure would help to guarantee that a company has made enough money in the UK to fund its donations. Revenue provides no such guarantee, as it does not show whether a company has retained enough money after costs to fund its political donations.
• We know voters are concerned with the ‘true source of money’ entering UK politics.– Using profit over revenue ensures voters can have the confidence that entities are only able to influence the political process in a way that is directly tied to their economic value in the UK, and more accurately reflects their true financial capacity.

• Clause 61 makes it clear that if an individual donor is eligible to be on an electoral register, but is not registered to vote when they donate, then their eligibility cannot be considered at a factor. Courts can only consider whether the donor was actually registered to vote at the time of donation.
• This will reduce the risk of impermissible donations being treated inconsistently, and aligns with previous recommendations made by the Committee on Standards in Public Life.

• Unincorporated associations are associations of individuals who have joined together to carry out a shared purpose.
• The Commission has highlighted weaknesses in the security and transparency of the unincorporated associations’ regime for many years. Currently, unincorporated associations are not required to ensure that those who donate to them are permissible donors. This means that they could legitimately make donations using funding from otherwise impermissible sources, including from overseas.
• There are also currently no transparency requirements in law for unincorporated associations which donate to candidates, rather than to political parties or campaigners. Voters have limited information on unincorporated associations as those that are registered with the Commission must only provide a name and address. Unlike other categories of donor, there may be no publicly available information to identify those responsible for the association and the nature of its activities.
• We are supportive of a number of the changes introduced through Clause 62 and Schedule 9. The changes would prevent unincorporated associations subject to reporting requirements from making political donations funded by impermissible donors. These clauses also improve voter transparency around the funding of unincorporated associations. They will need to register and start reporting the money they receive once they hit a threshold of £11,180 and any gifts over £2,230.
• Whilst we welcome those changes, the security of the political finance regime could be further improved by requiring all unincorporated associations, and not just registered unincorporated associations, to conduct permissibility checks on relevant gifts that fund their donations.
• Donors making political gifts to unincorporated associations should also be required to provide information about the true source of funds, if their gift is being (partially) funded by other individuals and entities. These ‘agency’ and ‘principal donor’ requirements apply to donations to political parties and other donees, and should be extended to donations to unincorporated associations.