Clause 356

Company Law Reform Bill [Lords] – in a Public Bill Committee at on 4 July 2006.

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Trade unions

Amendment proposed [29 June]: No. 219, in clause 356, page 159, line 30, leave out subsection (1) and insert the words—

‘(1) Subject to the exemptions in subsection (5), a trade union is a political organisation for the purposes of this Part.’.—[James Brokenshire.]

Question again proposed, That the amendment be made.

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central

I remind the Committee that with this we are discussing amendment No. 220, in clause 356, page 159, line 33, at end insert—

‘(3) In addition to the other requirements set out in this Part, a donation may only be made to a trade union if such trade union currently has in force a political resolution authorising the trade union to apply its funds in the furtherance of political objects and such political resolution authorised donations or expenditure under one or more of the following heads—

(a) donations to political parties or independent election candidates;

(b) donations to political organisations other than political parties; or

(c) political expenditure in each case up to a specified amount in the period for which the resolution has effect.

(4) For the purposes of subsection (3), “political expenditure” shall have the meaning set out in the Trade Union and Labour Relations (Consolidation) Act 1992 (c.52) and “political resolution” shall have the meaning set out in the Trade Union and Labour Relations (Consolidation) Act 1992 (c.52) save that the reference in section 73(3) of that act to “ten years” shall be deemed to be “four years”.

(5) A donation to a trade union shall not be a political donation for the purposes of this Part to the extent that it is made—

(a) to provide or facilitate the provision of education and training of employees of a relevant company;

(b) to assist the trade union in representing employees of a relevant company;

(c) to assist the trade union in consulting with and meeting employees of a relevant company;

(d) to facilitate the investigation of any matter relating to the terms and conditions of any employee of a relevant company;

(e) to assist or to facilitate negotiations between the trade union and a relevant company and any of its representatives in connection with any complaint or dispute between the company and its employees (or any of them); or

(f) to otherwise promote good employment relations between a relevant company and its employees.

For this purpose a relevant company includes the company by which the donation was made, any holding company of the company by which the donation was made, any subsidiary of such holding company or any subsidiary of the company by which the donation was made.’.

Photo of David Howarth David Howarth Shadow Minister (Energy), Trade & Industry

The subject matter is the regulation of donations by trade unions and its relationship to donations by companies. The amendments created a certain amount of heat in our previous sitting, but I am not sure how much light was cast on the issue.

The amendments would take action on a potentially important problem: the possibility of donations to political parties from companies being laundered through trade unions so that a company evaded the requirement for its shareholders to pass a resolution authorising such donations.

The opposition to the amendments comes from the view that has been expressed by the TUC that such donations would undermine the independence of trade unions and get them into trouble with the certification officer. I would like to make some points on those matters, to which I hope the Minister will reply.

Amendment No. 219 has one deeply unattractive aspect: it states something that is simply not the case and goes into legal fiction. It says that

“a trade union is a political organisation for the purpose of this Part.”

We all know that that is not quite right. Trade unions that have not passed resolutions to set up political funds are not allowed to be political organisations; they are barred from such activities. Even unions that have passed such resolutions are in reality industrial organisations, but with a political aspect to their work. Their main work will always be industrial.

The wording is unattractive and flows from the drafting of the clause, which could have been more elegant. I hope that the Committee will take into account the fictional aspect, which is intended to make amendment No. 220 work rather than to cast aspersions on unions.

On the central point about the laundering of donations via unions, the first question to ask is whether it is possible for political funds to receive donations from non-members of the union. If not, there is no route by which a company can launder a gift to a political party by the method in question. From a superficial reading of section 83 of the Trade Union and Labour Relations (Consolidation) Act 1992, it seems that it is possible for people who are not members of a union to make donations to its political fund. Section 83(1)(a) states:

“There may be added to a union’s political fund only...sums representing contributions made to the fund by members of the union or by any person other than the union itself”.

The Minister might have further comments to make, but at first sight that seems to establish that a company could make a donation to a union’s political fund. Some unions, by their internal rules, rule out that possibility and allow political funds to come only from members’ contributions. However, nothing in the law requires a union to have such a rule.

The second question is whether a donation would undermine the independence of a trade union and therefore make it completely implausible for it to take part in such a scheme. Section 5 of the 1992 Act defines “independent trade union” as

“a trade union which—

(a) is not under the domination or control of an employer or group of employers or of one or more employers’ associations, and

(b) is not liable to interference by an employer or any such group or association (arising out of the provision of financial or material support or by any other means whatsoever) tending towards such control”.

So, we are talking about “domination or control” or liability to interference “tending towards such control”. The question is whether a donation by a company to a union’s political fund—separate from its general fund—would threaten that union’s independence.

I cannot see how that could be, because a donation to a political fund for the purposes of payment on to a political party would by that fact not involve union management, negotiations with employers or any other aspect of the union’s activities as an independent body. It does not threaten, in any way that I can see, the independence of the union as defined in the 1992 Act.

Given those two statutory measures, I conclude that there is a problem: there is a route by which a company can evade the provisions of the Bill. It could give money to a political party through a trade union, and so undermine the law. Although I find the drafting of the amendments unattractive, I ask the Government to consider seriously whether that loophole should be closed through an amendment—if not the one before us, then some other amendment to the Bill or to the underlying legislation.

Photo of Margaret Hodge Margaret Hodge Minister of State (Industry and the Regions)

I want to start by going back to the genesis of the clause and the reason that it is in the Bill. During our extensive consultation, companies asked specifically that trade unions not be treated as political organisations when companies decide on political donations. That is the reason for the clause on trade unions.

Photo of Crispin Blunt Crispin Blunt Opposition Whip (Commons)

This is an inquiry, Mr. Illsley. Is membership of a trade union a registrable or declarable interest in the context of this debate?

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central

That question is a matter for the register, not the Chair.

Photo of Margaret Hodge Margaret Hodge Minister of State (Industry and the Regions)

I do not want any doubt to enter the debate. If the hon. Member for Reigate (Mr. Blunt) so wishes, I shall declare the fact that I am a member of the Transport and General Workers Union. I have no doubt that probably all Members on the Government Benches are members of one union or another, but in no way does that have an inference in relation to what I just said. I hope the hon. Gentleman will have the grace to accept that.

Photo of Crispin Blunt Crispin Blunt Opposition Whip (Commons)

It was a question to the Chair.

Photo of Margaret Hodge Margaret Hodge Minister of State (Industry and the Regions)

I do not want any doubt to enter a debate on such an important issue.

We put a clause in the Bill around trade unions because we were asked to do so by companies. That is because we all know—this is accepted, even in the amendment tabled by Opposition Members—that companies provide a range of crucial facilities to trade unions ranging from meeting rooms to employee time off, which should not be regarded as a donation to a political party. I think that is accepted by Opposition Members.

Photo of Shailesh Vara Shailesh Vara Conservative, North West Cambridgeshire

Were the trade unions part of the consultation process and did they proffer advice as to whether they agreed with the line proposed in legislation?

Photo of Margaret Hodge Margaret Hodge Minister of State (Industry and the Regions)

I was not the Minister at the time, but my information is that the clause was inserted at the behest of companies, the CBI and others—I am getting lots of nods. But of course, during an inclusive consultation, we had contact with the trade unions as well, so they will have had the chance to comment on those issues and we will listen to their representations.

Photo of Shailesh Vara Shailesh Vara Conservative, North West Cambridgeshire

I would be grateful if someone informed me what was the exact advice from the trade unions, as they were part of the consultation process. The Minister has been kind in pointing out the CBI’s position, but as a balance it would be useful to know what was the advice given by the trade unions. If not now, I am happy to receive that later.

Photo of Margaret Hodge Margaret Hodge Minister of State (Industry and the Regions)

To be honest, the hon. Gentleman misunderstands the purpose. I have a TUC briefing here. I have no doubt that it was sent to him as well, as will be the case with the Law Society briefings and everything else. If he reads that briefing, he will see that the view of the trade unions collectively expressed—

Photo of Margaret Hodge Margaret Hodge Minister of State (Industry and the Regions)

As a broad-church party, I would have hoped that the Conservative party was talking to trade unionists as much it talks to business. That is what its leader would wish. It is most interesting that Conservative Members still see themselves as a partisan group.

Photo of Shailesh Vara Shailesh Vara Conservative, North West Cambridgeshire

This is to do with membership rather than consultation.

Photo of Margaret Hodge Margaret Hodge Minister of State (Industry and the Regions)

Let others judge that; it is not a matter for me. All I am doing is commenting on how Conservative Members think it appropriate to carry out business. If the hon. Gentleman so wishes, I shall send him my copy of the TUC briefing.

We have consultation with a huge range of people as we develop advice. I am not even sure that there are minutes of those meetings, but I am not going to undertake to provide them. The hon. Gentleman should consult the TUC direct and I am happy to share with him the briefing that I received. I have received  briefings from all sorts of people—the CBI, the TUC, individual companies, corporate lawyers, et al—as we have developed the Bill.

I have to say to the hon. Member for Hornchurch (Mr. Brokenshire), who moved the amendment, that in setting out the issues on which he believes it legitimate that there should be funding from companies for facilities for trade unions, he has accepted, in conflict with what he is asserting, that trade unions are essentially Labour party organisations. That is not the case.

Trade unions can and do undertake political activity, although it may interest Conservative Members to know that of the about 170 trade unions, only 29 have a political fund, so there is no such general capacity across the trade union movement. I was surprised by what a small proportion of trade unions have a political fund. However, if the hon. Gentleman accepts that those are issues, he cannot then define trade unions as party political organisations and—as insinuated by everything that has been said, and even the body language this morning—Labour party organisations.

As in a company, the core business of trade unions is to act in the interests of their members, whether in negotiations on wages and salaries or on conditions for their members, around health and safety issues or on training, education and personal development issues. I am thinking in particular of the impact that trade unions have had in supporting the development of workers through trade union learning representatives, which the Government introduced.

Unions might look after the individual interests of members if they fall into dispute with their employers at tribunals or get compensation if they are injured at work. All that is the core business on which a trade union will spend its time.

Photo of Justine Greening Justine Greening Vice-Chair (Youth), Conservative Party 10:45, 4 July 2006

I must apologise for not being here on Thursday for the start of the debate. I agree with what the Minister is saying about what trade unions can do to assist members in the modern workplace, but she must be aware of the traditional relationship between the Labour party and trade unions.

In the context of the Prime Minister’s statement that the Government were going to be purer than pure and whiter than white, does the Minister not accept that however reasonable her arguments may seem in this room, outside they will be perceived as a Labour Government giving trade unions extra leeway that they are not giving to other organisations? That is important to take into account too, because the clause will not be perceived as whiter than white.

Photo of Margaret Hodge Margaret Hodge Minister of State (Industry and the Regions)

To be honest, and with the greatest respect to the hon. Lady, that statement completely misunderstands what the clause is all about. I really rather regret it. Most companies that have a trade union with which they do business within the purview of the public company recognise that there are huge benefits in getting maximum value from and having a  good relationship with their work force. If part of that relationship is giving facilities to trade union representatives for all the reasons that I have just enunciated and will not repeat, that is good business practice.

The genesis of this has nothing to do with partial political interest. It is entirely a response to representations that we received from companies, which, with the greatest respect to the hon. Lady, do not see this as party political in any way. It is nothing, nothing, nothing at all to do with her insinuations. If I may say so, they demonstrate the political prejudice that too many Conservative Members have against a very important, long-established way of organising workers in the workplace, which benefits not just those individuals, but collectively ensures that the business maximises its value and best serves the interests of its members. I am really sorry that she takes this very prejudiced approach to trade union activity in the workplace.

Photo of Shailesh Vara Shailesh Vara Conservative, North West Cambridgeshire

I note that the Minister said that this has nothing to do with partial political interest. Does she honestly believe that a contribution by trade unions of £42 million to the Labour party in the last parliamentary Session—

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central

Order. We are not debating the relationship between the Labour party and trade unions; we are debating the clause. I am not going to allow a debate on party political funding.

Photo of Margaret Hodge Margaret Hodge Minister of State (Industry and the Regions)

Thank you for that ruling, Mr. Illsley. I just hope that hon. Members will remember what we are here to consider in the context of the Bill. This is not a cheap attempt to score party political points. The contribution made by the hon. Member for Hornchurch from the Front Bench was not quite in the same vein as those made from the Back Benches, but in view of the serious nature of a measure that will affect companies over time and the fact that we are trying to respond to a legitimate issue that has been raised—not by the trade unions, but by companies—I regret that Conservative Members are trying to develop the debate into a cheap political diatribe.

To return to the issue that we are trying to debate, the list demonstrates that some Conservative Members understand that this is not a party political issue. However, it is limiting in that it spells out activities but does not get close to capturing the wide range of non-political activities undertaken by trade unions, which are often of benefit to and supported by companies.

The purpose of the clause is to make things simpler for companies to reduce their administrative overheads. That is an underlying theme of the Bill, and I hope that it is supported by Opposition Members. Providing companies with a long list of approved trade union activities that they must cross-reference before deciding whether they can legitimately expend resources or time, or allow rooms to be used, would be inconsistent with the principle that runs through the Bill. In restating part XA of the Companies Act 1985, we have responded to requests from business to provide clarity and simplicity.

Photo of Crispin Blunt Crispin Blunt Opposition Whip (Commons)

On a point of order, Mr. Illsley. I apologise for interrupting the Minister, but I have been reflecting on the ruling that you gave to my hon. Friend the Member for North-West Cambridgeshire (Mr. Vara). We are debating the amendments that stand in the name of my hon. Friend the Member for Hornchurch, which are specifically on the issue of donations to political parties and organisations, and political expenditure. The Government, who are resisting the amendments, happen to be from the Labour party, which received £42 million from trade unions in the previous political cycle. I would have thought that a legitimate point to introduce to the debate. I am sorry to challenge you, but will you explain why we are not allowed to refer to that?

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central

It is simply outside the scope of the Bill. The hon. Member for North-West Cambridgeshire and the Minister were debating the relationship between the Labour party and trade unions. The clause talks about the relationship involving trade unions for the purposes of a Government Bill, not the Labour party. Of course, the Government are formed from the Labour party, but that link is not strong enough to enable the Committee to debate political party funding and the relationship between trade unions and the Labour party, so the ruling stands.

Photo of Crispin Blunt Crispin Blunt Opposition Whip (Commons)

Further to that point of order, Mr. Illsley. Of course we will abide by your ruling, but will we be entitled to draw attention to the link in the clause stand part debate?

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central

The hon. Member for North-West Cambridgeshire and the Minister have already drawn attention to the relationship. I do not see the point of a long, detailed debate on the relationship between the Labour party and trade unions in relation to funding. The relationship referred to in the Bill is that between the Government and trade unions, and briefing papers on that are available to members of the Committee. It is not relevant to have a long debate, or any debate, on the funding relationship between the Labour party and trade unions.

Photo of Margaret Hodge Margaret Hodge Minister of State (Industry and the Regions)

Right. I shall try to make progress on the Bill.

Photo of Shailesh Vara Shailesh Vara Conservative, North West Cambridgeshire

On a point of order, Mr. Illsley. I note your comments and welcome your guidance. We are trying to establish the fact that trade unions are politically motivated. Unions are responsible for electing the leader of a political party, who can then become Prime Minister. I would welcome your advice on why such organisations cannot be deemed political.

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central

I think that is a matter for debate. As far as I am concerned, the matter is too far removed from the clause. There is a debate to be had on the TUC and trade unions, but to debate the financial relationship between the Labour party and trade unions is too far removed from the scope of the Bill.

Photo of Margaret Hodge Margaret Hodge Minister of State (Industry and the Regions)

Thank you, Mr. Illsley. I return to the clause and its relevance to companies. I have said two things—that we are responding to a request from business and that the purpose is to simplify processes  for business. I am not going to discuss the matter endlessly, because motivations other than those to do with the clause are at the heart of the Opposition amendments.

I would like to put it on record that we know of no evidence to suggest that political donations to trade unions constitute a real-world problem. My hon. Friend the Member for Burnley (Kitty Ussher) observed last week in interventions on the hon. Member for Hornchurch that any trade union that accepted a political donation from a company could jeopardise not only its status as an independent trade union, but the trust of its members.

Photo of James Brokenshire James Brokenshire Conservative, Hornchurch

The hon. Member for Burnley made some relevant points, and I am glad that the Minister has addressed them, but will she confirm whether that is the view of the TUC or whether it has been challenged in court so that we are clear about the law?

Photo of Margaret Hodge Margaret Hodge Minister of State (Industry and the Regions)

I do not have a clue. I do not know whether there has been a challenge in the courts. Perhaps, being a lawyer, the hon. Member for Cambridge (David Howarth) knows, but I do not. Has it been?

Photo of Margaret Hodge Margaret Hodge Minister of State (Industry and the Regions)

Right, that is interesting. Perhaps Opposition Members would like to launch such a challenge. I am sure that everybody would want to engage with it.

I shall answer some questions asked by the hon. Member for Cambridge, who made a more considered contribution. I am sure he understands that there are disclosure requirements associated with trade unions’ political funds. They have to file annual returns with the trade union certification officer as set out in section 32 of the 1992 Act. Those must contain the specified accounts, including revenue accounts and

“such other accounts as the Certification Officer may require”.

So, it is difficult to envisage a hidden donation going through the route that the hon. Gentleman suggested and not coming out in the accounts or being visible to us all, whatever political party we come from.

Photo of David Howarth David Howarth Shadow Minister (Energy), Trade & Industry

I understand the Minister’s point—the union has to make a return to the certification officer giving a view of what has gone in and out of the fund in a particular year. The problem is that the company making such a donation could avoid having to go to its own shareholders to get a resolution to permit a political donation. The question is not whether there is transparency for union members, but whether there is transparency for shareholders. My initial view is that not many shareholders will read reports of trade union political fund declarations to the certification officer.

Photo of Margaret Hodge Margaret Hodge Minister of State (Industry and the Regions)

I take that point, but I hope that the hon. Gentleman accepts also that those trade union accounts are pretty open to inspection. Section 30 of the 1992 Act provides for an elaborate right to inspect all accounting records, so I think it would be difficult to hide a contribution from a company to a trade union’s political fund.

I am sure we all agree that we do not want to put in place a system that would make it unnecessarily burdensome for companies to fund what most in the Committee agree are non-partisan activities. However, in the light of what the hon. Gentleman has said, I accept that the wording of the clause could give rise to some confusion. I am prepared to look at that so that our intent is carried out absolutely and, if necessary, I shall introduce that further wording on Report.

Photo of James Brokenshire James Brokenshire Conservative, Hornchurch

We have had a helpful debate on the amendments that I spoke to at the end of last week. The contribution from the hon. Member for Cambridge was considered and supported my argument that there is some doubt as to the treatment of donations from a company to a trade union and whether the protections afforded in the context of more political donations would apply in those circumstances.

The Minister’s comments appear to support that and recognise the fact that the amendments might have raised a valid point and highlighted a potential problem. Clearly, the explanatory notes on the clause state that the exemption is intended to cover the issues she talked about—the use of company vehicles by and paid time off for trade union officials. The term “donation” might capture such donations.

It is also interesting that the notes say that this provision is intended to cover trade unions in countries other than the UK. While our debate has focused heavily on the legal treatment of and relationship with trade unions in this country, we must bear it in mind that this provision is intended to have wider effects. While we have debated some issues and legalities that might arise around the treatment of trade unions, we have not touched on whether there are any wider issues in relation to trade unions outside the United Kingdom that may and will have separate legal and regulatory standing in that context.

Our debate has recognised that there is a valid issue. I acknowledge that the Minister has said that the driving force behind that change to the law has come from the companies, that no issue has been raised by the trade unions and that the Government have in no way introduced the change as a consequence of any lobbying by trade unions.

The point at issue is that we have to balance ease of administration, which is a valid point, against the consequences of the actions that have been included. Therefore, we must also take into account the interests of shareholders, which is why we want to ensure that shareholders are properly protected, and the fact that, whether by design or inadvertence, these provisions cannot be, theoretically or otherwise, used in a manner that might allow for a political donation to be made in the way we have discussed this morning. I welcome the fact that the Minister is prepared to consider the consequences.

We also debated the second part of the clause—the broad equivalence argument in the interests of shareholders and those of members of trade unions. The amendment would in many ways impose a level  playing field as between the requirement for trade unions and for companies to have a ballot on donations: there is a four-year rule on one and a 10-year rule on the other. We also want to highlight the broad equivalence argument in the context of the amendment.

This relevant and important issue is a question of clarity and simplification, but it would also ensure that we had a clear understanding of the law and regulations that apply to trade unions. I note that hon. Members have said that there is some issue as to the context of the use of trade unions being described as political, but clearly there was some doubt in the minds of the draftsmen in that they felt it necessary to specify that trade unions are not political.

I do not claim praise or credit for the drafting—I note the comments of the hon. Member for Cambridge—but clearly there is some doubt in that the initial drafting had to say that trade unions are not political organisations in the first place. We are not seeking to give greater emphasis to that point through the amendment, as this is a question of legal drafting more than anything else. On the one hand, it is being said that something is not a political organisation; on the other, we have introduced the amendment as a mechanism to address the concern that we have debated this morning and to undo the balance and ensure that the protections are afforded.

The Minister says that that represents an additional complication of some sort, but I do not see it that way. All the issues that we have highlighted in terms of the important work that trade unions do in education and properly representing employees involve promoting good working relationships and protecting employees’ best interests. That is properly encapsulated in the drafting that we propose. It is also important to state clearly the many issues that the trade unions undertake for the best interests of employees.

In the context of what I have heard from the Minister this morning, while I note that she is prepared to reconsider the issue and come back on Report, I want to press the amendment to the vote to emphasise the importance that we place on it and our belief that companies and businesses should indeed have clarity, but not at the cost of shareholders being prejudiced by how the clause could be used.

Question put, That the amendment be made:—

The Committee divided: Ayes 6, Noes 10.

Division number 11 Nimrod Review — Statement — Clause 356

Aye: 6 MPs

No: 10 MPs

Aye: A-Z by last name

No: A-Z by last name

Question accordingly negatived.

Clause 356 ordered to stand part of the Bill.