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Lord Bassam of Brighton moved Amendment No. 23:

On Question, amendment agreed to.

Clause 162 [Interpretation: exempt trust donations]:

Lord Mackay of Ardbrecknish moved Amendment No. 24:

    Page 125, line 23, leave out (", other than one falling within subsection (5)").

The noble Lord said: My Lords, this group of amendments deals with the question of trusts. The original drafting of the Bill prohibited donations from all trusts, whether blind trusts or not. The Government recognised that that would be wrong and that the

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original wording of the Bill did not reflect the views of the Neill committee. These amendments were therefore tabled. However, I believe that there are some serious, and almost certainly unintended, defects in the amendments on exempt trusts, which came into the Bill on Report and are now in Clause 162.

The chosen cut-off date of 27th July 1999 is the date on which the White Paper was published. That date is used for the establishment of exempt trusts which do not need to prove that the property was placed in trust by a permissible donor. However, what would be the position in respect of a trust established between that date and the commencement date of Part IV? Would such a trust, established perfectly legitimately by a permissible donor, fall within the definition in Clause 162(2) or (3)? If not, would a party therefore be prohibited from accepting any donation from such a trust? I cannot believe that this is the intention of the drafting. It is a complicated matter. I have therefore written to the Minister requesting a definitive reply.

The drafting of Clause 162(2)(b) and (c) is also problematic. This prevents a pre-27th July 1999 trust (to which I shall refer as an old trust) to which after that date any property has been added, or which has had its terms varied, from donating to a party. Given that these amendments were tabled only two weeks ago, I do not believe that that is fair or just. Perfectly legitimate open trusts established before July 1999 may well have had their terms varied, or property added to them, after that time.

Paragraph 3.34 of the White Paper makes reference only to prohibiting donations from blind trusts. Therefore, it cannot have been expected by any trustee or person wanting to donate to or establish an open trust after the publication of the White Paper that any variation of terms or further donations that they may have made to any open trust would render that trust unable to make donations to political parties.

In addition, the Government have said that the provisions preventing donations from old trusts to which property has been transferred after 27th July 1999 are necessary to stop such trusts being used to channel impermissible donations in the future. But what is wrong with allowing a permissible donor to continue to put money into an old trust that he may have established either between July 1999 and today or in the future? That is especially true of donations made to old trusts by permissible donors that may have been made between July 1999 and the present. While a permissible donor may now realise that continuing to donate to an old trust would render the trust unable to donate, and could therefore perhaps set up a new trust, this would not have been the case until the Government tabled their amendments two weeks ago. Therefore, things done by permissible donors and trustees before they were aware of the government amendments tabled last week could mean that perfectly legitimate open trusts were nullified.

To remedy the situation, I have tabled a number of amendments to Clause 162(2) to change the cut-off dates in respect of the creation of old trusts, the transfer of property to them and the variation of their

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terms. They propose that the cut-off dates in each of these cases should be changed either to the date on which the Bill receives Royal Assent, or the date on which the clause comes into force. While the latter would be preferable, our view is that the former is the least that should be done.

Finally, as I indicated at Report stage, it seems preferable that Clause 162(5) should be taken out altogether. It prohibits donations from any trust, whether old or new, where a trustee exercises any discretion in making the donation. I believe that this would have almost exactly the same effect as the original wording of the Bill; it would prohibit donations from any trust. As we have pointed out, trustees may have a discretion as to whether to give capital, rather than interest, to beneficiaries. That would be a discretion. They would not be allowed to donate.

In all trusts a degree of discretion is given to trustees. A trust may have been established in very broad terms for the benefit of the conservative cause, the socialist cause or the liberal cause. Even if trusts were set up to benefit the Conservative Party, the Labour Party or the Liberal Party, the trustees may have a discretion as to whether or not the money should be donated centrally, to local constituencies, or even regionally. Provided trustees comply with the terms of trust deeds and provided the source of donations to the trust is declared, as required under the provisions of the Bill, in the case of all trusts, or the source of permissible donors in the case of new trusts, I do not understand why donations from such discretionary trusts should be prohibited; nor do I believe that that is the intention of the Government or of the Neill committee. However, that is the effect of the drafting.

This is a complex matter. I wrote to the Minister on Friday, outlining my reasons for tabling the amendment. I hope that he and his experts have had an opportunity to consider the matter with a view to ensuring that the Bill represents the intentions of the Neill committee and those of the Government, so that donations from open trusts, which are legitimately set up, will continue to flow to political parties. I beg to move.

Lord Bassam of Brighton: My Lords, with his customary efficiency, the noble Lord has outlined a number of arguments. I shall try to answer some of the points. If I do not answer them as thoroughly as he would like, I hope that they can be dealt with in later correspondence.

At Report stage, we amended the Bill to allow donations to be received from trusts in certain circumstances, if they were established prior to the date of the publication of the White Paper for this Bill. This concession can be found in Clause 162(2). It was designed to cater for only one circumstance--that of a trust set up so long ago that it would now be difficult, or perhaps impossible, to establish with certainty that the person who had donated money to the trust was a permissible donor. The concession was not designed to allow an old trust to be used as a mere shell for a new

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set of transactions which would not comply with the regular conditions for donations from trusts as set out in Clause 162(3).

Amendments Nos. 25 and 26 would alter the whole scope of Clause 162(2) so that instead of making special consideration for old trusts it would make special provisions for ones established after Royal Assent or the coming into force of this clause. Old trusts would then have to comply with subsection (3). We doubt whether that was the noble Lord's intention in tabling the amendments. In any event, it would destroy the purpose of subsection (2) and others in the House would clearly be opposed to that.

If the proposed amendments were made, first, it would be possible for a donation to come from a trust established by a person who was not a permissible donor. That is inherent in subsection (2) as it stands. Secondly, it would be possible for the trust to be a discretionary trust; that is, one which allows the trustee to choose who should be the recipient. Thirdly, it would be possible for the trust to have been varied after proposals for legislation in this area were published on 27th July 1999. Fourthly, it would be possible for money to have been transferred to the trust after that date. Again, there would be no requirement that the money must have come from a permissible donor. Nor would there be any limit on how large the transfer might have been compared with the money that was originally put into the trust. The result of Amendment No. 29 would have been to allow additional funds to have been put into an old trust, or to be put into it in the future, without any limit of time, provided that the additional funds came from a permissible donor.

The Government were persuaded to allow a limited exemption for old trusts and we want to be as reasonable as possible about it. We have moved a long way since the draft Bill published with the White Paper, but I cannot commend to the House a set of arrangements which would simply open the door to a wholesale evasion of the requirements which we are now setting for the future. Indeed, if the amendments were made, we would no longer feel able to commend subsection (2) to Parliament.

We do not believe that a case has been adequately made out on this issue and we are not certain of the trusts which the noble Lord has in mind. However, we shall of course pay close attention to the points that the noble Lord raised in his recent correspondence on this technical matter. I hope that he will feel able to withdraw his amendment. I believe that he should do so and that we have the balance about right in regard to trusts.

Lord Mackay of Ardbrecknish: My Lords, I shall not labour the point because I had hoped that we could agree and that would have been that. The other place will have to examine the issue when it sees the amendments that we put into the Bill on Report. I shall read with care the points that the Minister made and any letter he decides to send to me after he has read what he said. The situation could be worrying because

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some trusts which thought they were acting properly could be faced with the imposition of retrospective legislation as a result of changes made at the Report stage. I shall leave it at that and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 25 to 32 not moved.]

7.15 p.m.

Schedule 1 [The Electoral Commission]:

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