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Lord Bassam of Brighton: My Lords, the noble Lord, Lord Wedderburn has brought his extensive knowledge of company law to bear on the provisions of Clause 52(2). I am very grateful to him for having taken the time to write to me at length on this issue and also to spend a not inconsiderable period of time on a couple of occasions talking matters through with my officials. While we now have a better understanding of the purpose of his amendments, I hope it will not come as too much of a disappointment to him to learn that I cannot commend them to your Lordships' House.

He has indicated that his first three amendments are intended to be taken as a package. They are concerned with the definition of a permissible donor as it relates to companies. Clause 52(2)(b) presently provides that in order to qualify as a permissible donor a company must be registered in the United Kingdom, be incorporated in this country or in another EU member state and carry on business here. The effect of Amendments Nos. 91 to 93 would be to alter two of these three tests and, as I understand it, add a fourth.

Before I go into the detail of the amendments I hope that it will be possible to establish some common ground. The Neill committee recommended that companies incorporated in the United Kingdom should come within the definition of a permissible source. I believe it is fair to say that few would disagree with that proposal. However, once it is accepted that any company incorporated in the United Kingdom and carrying out some business is entitled to contribute to a political party, the question immediately arises as to the impact of the freedom of establishment provisions of the EC treaty on that decision.

If we had left it at that there would have been little doubt that we would have breached the right of nationals of other EU member states to carry on business in the United Kingdom through the form of establishment of their choice. To compel an EU national to incorporate a company here simply to be able to attract the right to make political contributions would not be permitted under EU law. To deny an EU company carrying on business here through a branch office the same privileges offered to a company incorporated under the law of the United Kingdom would be a breach of the treaty.

The Government have taken the view that as we cannot discriminate against EU incorporated companies, we should so define a permissible company, if I may call it that, to embrace both the UK and EU incorporated companies. If I have correctly understood the noble Lord, Lord Wedderburn, he takes what can be described as a more internationalist approach. He would be content for any company, wheresoever incorporated, to be a permissible source provided that it conducts its business wholly or mainly in the United Kingdom.

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But such an approach would have perverse effects. A possible result of the noble Lord's modified text is that a United Kingdom incorporated subsidiary of a foreign country, such as Ford UK, would be a permissible donor, but a blue chip British multinational such as BP, which carries out most of its business abroad, would not be a permissible donor. Such a possibility may be acceptable to the noble Lord, but it is not a result that the Government can endorse.

Amendment No. 92 introduces a wholly new criterion which a permissible company would need to satisfy. The amendment would require that in order to qualify as a permissible donor a company must also have provided written notice to the Secretary of State undertaking to comply with Part IX of the Bill. I do not see that that provision adds anything given the provisions that Part IX companies will be required to obtain shareholder approval before making a donation. If there was concern to ensure that parties only accepted a donation where that shareholder approval had been given, one might go about it by introducing some kind of arrangement whereby it was certified that shareholder consultation had taken place. But to require parties to check that a company had merely undertaken to comply with the shareholder authorisation requirement simply appears to be an extra burden to no real purpose. In any event, we would regard it as the business of company directors and shareholders to ensure compliance with the provisions of Part IX of the Bill and not the business of the registered parties.

Amendment No. 94 would add to the list of permissible donors international federations or organisations falling within Section 1B of the Trade Union and Labour Relations Consolidation Act 1992 to which an independent British trade union is directly or indirectly affiliated. Such bodies would constitute a permissible source irrespective of where they carried out their activities. It seems to me that this amendment is rather similar in spirit to those previously tabled by the noble Lord, Lord Beaumont of Whitley, which would have allowed donations from political parties elsewhere in Europe.

As I pointed out in respect of those amendments, this Bill will not prevent the maintenance of links which may exist between some parties in this country and related movements and parties overseas. The Government have sought to ensure that the ban on foreign funding of political parties does not prevent members of United Kingdom parties participating in visits and conferences intended to foster such links. However, it would be quite another matter to allow funds raised by a party or a trade union in another country to be brought to bear on elections here. Such a provision would be wholly contrary to the Government's intention to ban foreign donations.

I listened very carefully to what the noble Lord, Lord Wedderburn, had to say. Obviously, I shall need to study Hansard very carefully. We are as clear as any Government can be about our position. I invite the noble Lord to withdraw his amendments.

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7.45 p.m.

Viscount Astor: My Lords, before the noble Lord sits down, perhaps I may ask him two questions. First, I am not sure whether he addressed the point made by the noble Lord, Lord Wedderburn, about a potential derogation on the grounds of public policy and EU law. Secondly, if I heard the noble Lord correctly, I believe he said that as regards shareholder approval it would be the responsibility of company directors rather than the political parties. Is the Minister really saying that if a European company suddenly sent a donation to the Labour Party that party would consider that it was entirely the responsibility of the company directors of the donating company to check whether there was shareholder approval, and that the political party should take no action or ask no questions? Is that really what the Minister is saying? One would normally expect a responsible political party to ask questions if it suddenly received a donation from a company registered in Italy, for example, and doing business there, before it popped the money in its back pocket.

Lord Bassam of Brighton: My Lords, I made plain in my comments that that was the situation. The noble Viscount raises a valid point. One would expect a political party to express interest, but it is not for it to check whether the requirement for consent of the shareholders has been complied with. That must be for the company.

As regards European companies donating to political parties without the support of their shareholders, it is for the law of the jurisdiction that incorporates and regulates them to decide how their shareholders should be protected. We have put in place in Schedule 19 of the Bill protection for shareholders in British companies. I hope that that answers that particular point.

The noble Viscount raised a point in relation to Article 46 and public policy. The policy set out in the Bill does not seek to discriminate against EU companies or nationals in the manner in which they do their business. Therefore reliance on the justification for discrimination is not needed. I hope that answers the point.

Viscount Astor: My Lords, I thank the Minister for giving way. The point was that there could be a derogation on the grounds of public policy. That would be allowed under the European Union treaty.

Lord Bassam of Brighton: My Lords, I shall study the noble Viscount's question and correspond with him. It requires a fuller response than I can give him this evening.

Lord Wedderburn of Charlton: My Lords, I hope my noble friend, when he considers the questions of the noble Viscount, Lord Astor, will also consider some of the points I put in the short form of my argument. I wish I had put it in full.

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For example, my noble friend did not address the question of why the term "wholly or mainly" is objectionable in paragraph (b)(ii) of Clause 52(2), but is acceptable in paragraph (h) of that clause. To save the embarrassment of the draftsman, who presumably knew what he meant in paragraph (h), either the Minister must say it is nonsensical and he will not have it for partnerships and other unincorporated types of business, of which there are quite a few, or he must say that if it is good enough for paragraph (h) it is good enough for paragraph (b). He made no mention of that point.

"Wholly or mainly" is a test which is perfectly clear. I appreciate that some clever lawyer may argue in a specific case as to whether it is "wholly" or "mainly". But some clever lawyer will also argue as to whether or not the company has business here. It is a perfectly well-known area of dispute. Under Schedule 21A to D of the Companies Act 1985 the question arises as to whether or not a company has a place of business here and that point is often argued. But one cannot have a statute that says one thing in one paragraph only to have it argued that it is nonsensical to put it in another.

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