Duncan Hames, Dr Sam Power and Dr Susan Hawley gave evidence.

We will now hear oral evidence from Transparency International, Dr Sam Power and Spotlight on Corruption. We have until 5.50 pm for this panel. Could I ask each of you to introduce yourselves and say a little about your organisations?

Duncan Hames:

Hello, I am Duncan Hames. I am the director of policy and programmes at Transparency International UK, which is the British chapter of a worldwide anti-corruption movement in more than 100 countries.

Dr Power:

Hi, I am Dr Sam Power. I am a lecturer in politics at the University of Bristol. I should also say, for transparency, that for about the past 18 months I have been funded by the Economic and Social Research Council and internal University of Bristol funds to work as a parliamentary academic fellow in the House of Commons Library. Based on my area of expertise, I have written various impartial briefings on matters relevant to this Bill, but I am, of course, speaking in my capacity as an independent academic from the University of Bristol today.

Dr Susan Hawley:

Hi, I am Dr Susan Hawley. I am executive director of Spotlight on Corruption. We are an anti-corruption charity that focuses on the enforcement of the UK’s anti-corruption Laws, including on political integrity and political finance.

Q Thank you for coming this afternoon. Welcome back, Duncan, to these hallowed halls; it has gone downhill since you were last here.

I have taken great pleasure in reading all the evidence that has come in today. There are some bits I agree with—particularly from Dr Hawley and Dr Power—but there are some recommendations that I would be concerned about if we started to implement. Sorry, Mr Hames, but I am going to focus on the other two witnesses first. First, where do you see the balance between the freedom to practise democracy and overburdensome restrictions that could harm transparency and restrict voter interaction with the party political process?

We have heard this morning that there is a perception that overseas voters are finding it incredibly hard to engage with voting and have many obstacles to voting. You have a proposal that any overseas voter wishing to be considered a permissible donor should also be a UK-registered taxpayer and have submitted at least one non-zero tax return in the two years prior to making the donation. Does that not risk creating two tiers of voter—well, we already have that, but exacerbating it? For example, someone in receipt of benefits or who falls underneath the tax threshold in this country is allowed to vote. Why should they be allowed to vote, if an overseas voter who does not pay tax should not be allowed to vote? That is to Dr Power, then I will come back with another question.

Dr Power:

There is a two-tier system, effectively, if you have overseas voters and overseas taxpayers, and UK-based taxpayers. It is pretty easy to draw a distinction between where the level of threat is and where the level of overburdensome regulation is, if you will.

I sometimes get concerned when I hear about how this approach can be overly burdensome. It is often used as a crutch to prevent genuine weaknesses in the system being dealt with. I do not think it is too much to ask of people who live overseas, who might well be slightly more politically exposed, to show that they are also engaging with the British system and paying tax in that respect. I do not necessarily have concerns that that creates a two-tier system—people are allowed to donate in the UK, of course, and people are allowed to donate overseas. Of course, if they lived overseas and did not pay tax, they could donate under the £500 limit.

Q On the original question about the balance between overburdensome regulation and the ability to interact with the electoral process, Dr Hawley, in your evidence, at paragraph 9, “Campaign spending limits on an annual basis”, you state:

“Parties are increasingly building up their war chests well before the run-up to elections and engaging in permanent campaigning. This can have an impact on subsequent elections; as the Committee for Standards on Public Life…noted in its 2021 report”.

It is always going to be the case that political parties have to fundraise to communicate with the electorate. Where is the balance? What I could not quite work out from that submission is where you see the balance between restricting fundraising and keeping communications with the electorate going over that 18 months, rather than seeing it as campaigning? I might not be clear, but I am trying to see where you see that balance coming through.

Dr Susan Hawley:

This is not about stopping it; it is about having limits apply across the annual period. An Amendment that relates to the digital campaigning side has already been tabled. That is a recognition that we are in an age of permanent campaigning and to make sure that the public know what is being spent to influence them. It is about transparency and fairness, because if some parties are able to keep a lot of money in those pre-regulated periods and others are not, an imbalance is created when it comes to the election. It is about transparency and fairness.

Q I want to ask all three witnesses about one other area, very briefly. A recommendation in your evidence, Dr Hawley, is that we:

“Prohibit crypto donations until/unless…crypto currency becomes much more widely used by a greater cross-section of the population”.

That is something that needs to be seriously explored, because of evidence given to us earlier in Committee about the lack of regulation that has caught up with something that is to me completely not understandable. You support that proposal, Dr Hawley, because it is your proposal, but do the other two witnesses support an interim ban on cryptocurrency donations until the regulatory framework has caught up? Also, if we get a suitable regulatory framework, do you think such donations should be re-established or do you think that they should just be banned permanently?

Duncan Hames:

We do support a moratorium for the purposes you describe. How temporary it should be depends on whether it is possible to address the risks. At such point as Parliament is confident that other forms of payment carry no additional risk to sterling or even cash, then the case for the moratorium would not be as strong. Right now, it is an absolute minefield to try to work out exactly where this money originates, which drives a coach and horses through the existing rules we have on political finance.

Thank you. Dr Power?

Dr Power:

We are short on time, so I will say yes, and you can refer to my evidence. The only thing I would add is that one of the concerns we have about crypto-currency generally is its ability to supercharge donations below £500, which is underneath the check for permissibility. If that is a particular concern with cryptocurrency, there is a case for not only banning it, but bringing down the level of the permissibility requirement. In my submission, I suggest £50, which aligns with the candidate regime, because that would create a further barrier to that particular concern.

Thank you, and thank you for the work you have been doing.

Q What is your assessment of the “know your donor” regime set out in the Bill?

Dr Susan Hawley:

We welcome the introduction of the “know your donor” regime, and the clarifications that it will have robust penalties for parties and candidates who do not undertake proper risk assessments. I am afraid that it currently needs some tweaks to be strengthened.

Obviously, we do not want to impose too much of a burden on parties but, if we are addressing foreign interference, it is very odd that the current “know your donor” policy does not say anything about addressing the potential source of wealth from high-risk jurisdictions or politically exposed persons. That is our first point. Any other regulated sector would and does need to address those risks.

Secondly, as the policy is currently framed, we think there is far too much discretion for political parties to decide what the risks are. That is unhelpful, because there will be inconsistent application of risk assessments across parties. That discretion should be reduced.

Finally, we have concerns that the fact that the Electoral Commission’s guidance can essentially be changed by the Secretary of State could lead to it being completely overridden, and that would be really problematic. We would like to see safeguards to ensure that cannot happen if there is to be a power for the Secretary of State to amend the Electoral Commission’s guidance.

Q Do any other witnesses wish to add anything?

Dr Power:

I would only add that I concur. The one slight concern I have with the “know your donor” requirements is overly burdensome regulation. The thresholds for conducting those requirements should align with the thresholds for the person having to undertake them, because you could end up with a situation where a regulated entity is looking at three different thresholds. I would want the Bill to be clear that these align, and I know that the Electoral Commission shares that concern.

Q In the interests of full transparency, Transparency International and Spotlight on Corruption are both grantees of the Joseph Rowntree Reform Trust, of which I am a director.

You talked about reducing discretion, and there are proposed amendments that would clarify who is no longer a permissible donor. I agree that clarifying some of that would be helpful for political parties. However, may I invite all the witnesses to talk about what is currently in the Bill on money coming in from overseas? The Government have been very clear that they want to take steps to tackle foreign interference, and we are looking at the recommendations from Philip Rycroft’s review. Could you say whether the provisions in the Bill are robust enough to stop foreign money being funnelled through UK entities? If not, what steps would you recommend to tackle that?

Duncan Hames:

We certainly welcome the valiant efforts that officials in the Minister’s Department have been making to address this issue, and there are some welcome steps, particularly on unincorporated associations, to ensure that they are not used as a back door. However, we do not have any prohibitions in this country on people who are not entitled to vote in this country owning companies that trade here. Therefore, it would be entirely possible for someone who you all agree should not be allowed to donate money in British politics to none the less acquire a company that does that job for them, which would comply with the provisions as currently set out in the Bill.

Our view is that, hard as we might try, so long as people are determined to find a way, it is very hard to be absolutely confident that you have shut this door. That is why we think the lack of any kind of cap whatsoever on how much any one person can put into British politics means that the risk of money entering British politics and getting round these controls is uncontained. We would argue that these measures need to be accompanied by some kind of donations cap.

Dr Susan Hawley:

It is absolutely a risk. I believe the Rycroft review is looking at whether you make sure that the regulated sector and financial institutions in the UK are playing their role. There would definitely be scope for a joint intelligence unit where they could share transactions that appear suspicious with law enforcement. Obviously, that relates to whether the enforcement set-up is sufficient and whether the Laws are sufficient. In relation to enforcement, this also comes down to having proper donor declarations and beefing up the section 54A donor declaration to address some of those risks and make sure that the money is not coming via permissible donors in the UK, but from abroad.

Dr Power:

We also have regulated and unregulated periods at which different levels of scrutiny apply to donations to different regulated entities. Of course, some of those entities are less regulated or unregulated during unregulated periods.

As a thought experiment, if I were a malign foreign actor, I would probably focus on the unregulated periods as the times when I could use my money wisely, as it were. There is a good case for considering, within reason, how we can move towards a system with year-round regulations, taking into account the importance of a vibrant democracy, such that we do not end up with money being spent and donated during relatively unregulated times.

I am working with the Public Bill Office on an Amendment that extends the regulated period. Given the narrow scope of the Bill, that is a way of thinking about that.

Q In the interests of full transparency, I have worked closely with Duncan and Susan and knew both of them prior to being elected to this place. I have a quick question that builds on some of the areas we have already talked about. Susan, on the point of how we put into practice checks that could look at people who may be connected to somebody who is politically exposed or to a high-risk jurisdiction, you said that the Bill has good “know your donor” checks but that they need to be strengthened further. How would those be delivered in practice?

Dr Susan Hawley:

The Electoral Commission needs to come up with robust guidance on that. It needs to look at industry standards from the regulated sector to tackle money laundering. I want to come back to the donor declaration, because that is also critical to this. We have heard from law enforcement that it is not clear to them that the proceeds of crime are not allowed as donations, for instance. If you have a situation where proceeds of crime can be donated, that is pretty extraordinary. We need a robust section 54A that puts some onus on the donor and makes a false declaration a criminal offence.

I do not know whether that answers your question, Lloyd, or whether you wanted me to talk more about “know your donor”, but I think they complement each other. You have “know your donor”, which is about what parties do, but also the donor declaration, so that you are putting some onus on the donor to actually be honest about where that money comes from.

Q Thank you; that is helpful. Another key point that we have discussed in detail is about recent investigations finding that around £6 million in donations through UK-registered companies have ultimately turned out to have been owned by individuals who are not eligible to vote here in the UK, and therefore not permissible donors. Do you feel that the proposed safeguards governing corporate political donations are sufficient, and do you think that this Bill goes far enough to up the ante against that kind of foul play?

Dr Susan Hawley:

No. I think it has done a valiant job in introducing the beneficial owner test and a UK connection test, but we know that the Electoral Commission has flagged the revenue test for corporations as a real risk for foreign interference. The way that is laid out in the Bill also does not provide a cap at all; it allows money to be donated to a host of different people.

The revenue test really needs to be looked at again, because we have the Electoral Commission saying very clearly, “There is an increased risk of foreign interference if you keep the revenue test.” You also have tax experts saying that it is actually fairly easy to generate significant UK turnover while having no genuine UK operations. This is the moment to look at that again. It is also not quite clear why a company that owes a lot of tax, or that is making a loss, should feel it needs—or should be able—to donate.

Q Shifting attention slightly towards enforcement, we know that, when trying to tackle foreign interference in the democratic process or dodgy donations, enforcement is essential to creating a better, fairer and more transparent landscape. The intention is to increase the Electoral Commission’s fining capabilities to £500,000 per offence, up from the current £20,000, via secondary legislation. Do you think that that shift upwards is sufficient as a strong, robust deterrence against breaking the rules in this country?

Dr Susan Hawley:

It is very much an improvement on what we have at the moment; I think everyone would agree that, if you have a multimillion-pound campaign budget, a £20,000 fine is frankly laughable. We would, however, like to see it strengthened in two ways.

First, we would like this to be on the face of the Bill. We have a report coming out next week in which we compare the Electoral Commission’s powers to the Information Commissioner’s Office and ofcom. Those bodies have this in the legislation, and they also have not just a maximum fine level but a percentage; the Committee on Standards in Public Life recommended that it should be £500,000 or 4%, whichever is higher. Again, you could argue that, if you have a multimillion-pound campaign budget, £500 k could become a potential cost of doing business, so we need that percentage option to give the Electoral Commission the flexibility to impose penalties in egregious cases.

Secondly, the Electoral Commission has a very high threshold, compared with other regulators, for when it can actually impose penalties. Ideally, we would like to see that looked at again, because no other regulator is hampered by that high threshold.

Duncan Hames:

If I may, the problem with enforcement is that it takes a long time, and we are talking about democratic events here; by the time enforcement takes place, the consequences have already happened. People saw Elon Musk giving out cheques to make millionaires of people taking part in an election campaign in the States; they all thought that the rules were being broken and that something should be done about it, but nothing was, and he was at the right hand of the President within weeks of that moment. We ought to be looking at measures that we can take that prevent problems from happening, rather than just chasing things after the event.

Nathan Gill is serving a 10-year prison sentence for bribery offences, which he admitted to in court, that happened nearly 10 years before he was convicted. There is a long lag if you rely on that kind of enforcement to address offending, and the problem that you are trying to stop.

Q I have a very quick final question, taking a step back and responding to what you have just said. You feel that in the current landscape no single law enforcement body has overarching responsibility for enforcement, and particularly enforcement of electoral finance Laws. It feels a bit patchwork at the moment: sometimes it is the police; sometimes it is the commission. Do you feel that is something that we need to look at overhauling so that we can have a much more comprehensive response that works more robustly, and hopefully more swiftly, in response to the issues that you just mentioned?

Dr Susan Hawley:

We really welcome the recommendation of the Joint Committee on the National Security Strategy—published today—that there should be a specific unit. I think that there is growing recognition within law enforcement bodies that that is required. Up to now, the problem has been that those law enforcement bodies will argue that they do not have the Laws or the sentences that would empower them to use the serious investigative tools that they have at their disposal to get to the bottom of some of this behaviour. That is why the criminal offence in section 54 and section 54A really needs to be looked at. We welcome the Amendment recently tabled by Matt Western to address the knowledge test so that it is not set too high.

We also need to look at sentences because we hear again and again from law enforcement that if you do not have a serious crime-level sentence, you cannot use the skills that you can deploy for serious crime for this kind of offending. If we are talking about foreign interference, those are the tools that need to be deployed against impermissible donations.

Q You have answered many of the questions that I had. Thank you all for your work. Briefly, do you have a view on where the cap on political donations should be, or how it should be set? That is a question for each of you. And should we have a cap on annual spending, to get away from the gaming of the system around regulated periods that Dr Power referred to? Where should it be set, and how?

Duncan Hames:

We propose that a cap of £50,000 annually from any one donor is reached by 2030. That would still be much higher than in a number of other jurisdictions that have introduced donation caps, such as Canada, France, Italy and—from July—Australia. If it were phased in, with a cap reducing year by year between now and then, that would provide time for political parties to adapt.

We have done our own modelling, which I would be happy to share with the Committee, in which we look at the effect of that cap on overall party fundraising. I think you will find that, although we have recently had an arms race in campaign spending—not least because the spending limits were raised so dramatically just before the last General Election—political parties fought all sorts of elections and referendums in the previous decade without needing anything near the kind of money that was available in the last general election, when nearly £100 million was spent.

Dr Power:

I agree that we absolutely need a cap on donations. I am less wedded to a level as much as to the idea that there needs to be a cap that people can get around the table and agree to, and which seems fair. To not have a cap on donations risks much more than to have one. It is absolutely essential. We have seen the effect that can have in countries that do not have caps on donations, particularly the USA, and the effect that the very rich can then have.

What I mean by that is not an effect on the outcome of politics but an effect on the process of politics. You end up with about 400 individuals accounting for 75% of total party donations. Given that we are discussing the Representation of the People Bill, that is not a situation in which people are represented. It is essential that we find some way—in a Bill called “Representation of the People”—to fix the system properly such that the people feel represented. A cap on donations is essential and well within the remit of the Bill.

On a cap on spending, I align with the 1998 CSPL review, as well as Jack Straw when he introduced the Political Parties, Elections and Referendums Act 2000. He said that there has been an “arms race” in spending and that we should always set a spending limit below the extent to which we expect to spend at an election. Until 2023, that limit was set at £19.5 million, if you stood a candidate in every Constituency, which does not happen. If we say that the limit was £19.5 million, that should have been the baseline, and there was no good justification for it to be uprated in 2023—in fact, I think there is a good case for bringing the limit down further still. It would not have an effect on the good that money does in a system, which is to enrich debate and to allow political parties to get their positions across.

That brings us to the end of this panel. On behalf of the Committee, I thank all our witnesses for their evidence.