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Electoral Insight - Reform of Election Financing: Canada, Great Britain and the United States

Electoral Insight – May 2002

Soft Money, Issue Advocacy and the U.S. Campaign Finance Law

The British Political Parties, Elections and Referendums Act

Professor, and Céline Roehrig Researcher, Political Science Department, Concordia University

In our societies, political parties are one of the principal means through which citizens participate in democratic life. As declared by the Parliamentary Assembly of the Council of Europe in May 2001, Footnote 1 political parties require resources and money to play this role appropriately in today's context and, in particular, to showcase their ideas in the media and present them to the public. However, it is necessary to establish some rules for party financing, to restore public confidence in the parties. We must also prevent financial contributions to parties from becoming another way for lobby groups to exert influence over elected officials and their decisions. In addition, we must guarantee equality of chances among the various parties, and regulate access to the information media, for otherwise the costs of political advertising and marketing could quickly become uncontrollable.

Somewhat surprisingly for a country that has made a major contribution to ongoing research on electoral behaviour, until the beginning of last year Great Britain had few rules to control spending by political parties during an election or referendum period. The main legislation on the subject, the Representation of the People Act 1983, confined itself to candidates' sources of financing in an electoral period and had no specific provisions covering thirdparty spending. The law was largely modelled on an 1883 statute and imposed no limits on spending during an electoral period. And for many years, Great Britain saw steady growth in party spending.

At a time when a good many Western democracies had already passed legislation on the subject, Great Britain undertook to remedy the situation, especially since the amounts spent by political parties during elections varied significantly. The Conservative Party had large reserves at its disposal; those of the Labour Party were more modest. Consequently, members of Parliament acknowledged that certain parties had substantially more financial resources available to them than others, and hence were inclined to spend more freely during election campaigns. Members of Parliament, in effect, recognized the fact that parties with above-average monetary and non-monetary resources probably had better chances of winning elections. The new Political Parties, Elections and Referendums Act thus has three specific objectives: 1) ensure reasonable financing for party operations; 2) limit donations from inappropriate sources; and 3) contribute to equality of opportunity for the various parties.

The Committee on Standards in Public Life

The first step toward passage of the new Act was the creation in 1997 of the Committee on Standards in Public Life, chaired by Lord Neill. The mandate and objectives of the Neill Committee were thought-provoking. They were to review the British legislation with the goal of controlling and reforming the existing financing systems, to ensure that parties become more responsible and transparent to those they represent, and to prevent a situation where electors' votes are inevitably cast for the parties with the biggest budgets. The Committee drew from the experience of other Western democracies in this area, particularly current legislation in Germany, Canada, the United States and Sweden. In its November 1998 report, after extensive public consultations, the Committee recommended limiting party expenditures during an electoral period, Footnote 2 including additional amounts received by the candidates themselves. It also proposed a series of changes to make the new provisions of the Act conform to those already in effect at the constituency level. The recommendations of the Neill Committee culminated in the new Political Parties, Elections and Referendums ActFootnote 3 which came into effect on February 16, 2001.

Principles of the new Act

The Electoral Commission

This Act affects many players in society and has many implications, especially for political parties. It provided for the establishment of an independent and impartial electoral commission, Footnote 4 which occurred on November 30, 2000. The House of Commons approved the nominations of the Commission's six members on January 10, 2001. The Commission, chaired by Sam Younger with Chief Executive Roger Creedon, is mandated to ensure a balance between public and private funding. It controls money collected by registered political parties and their expenditures during parliamentary or other elections. Footnote 5 Further, it establishes mechanisms for greater transparency in their accounting, audits their accounts and, if required, takes action against individuals or companies suspected of violating the law.

The main idea behind the creation of an electoral commission is that it is not possible to set limits on political parties' donations and expenditures unless there is an enforcement system. As envisaged by the Political Parties, Elections and Referendums Act, the Commission will also have to report on the conduct of any election or referendum held in the U.K. and advise the Government on any changes that it should make to the Act. Footnote 6 This Commission will also have substantial powers to inspect the transactions of political parties and third parties during elections and referendums. The Commission, which started its work in early 2001, Footnote 7is made up of six members, of which only the Chairman is full-time. The rules governing party financing in an electoral period have been in effect since last February 16. In the months ahead, the Commission, which must be totally independent of Government, will have to devote efforts not only to its mandate, but also to modernizing the British electoral system, raising public awareness of the democratic process and encouraging the public to participate in future elections. Furthermore, it will ultimately be required to amalgamate a number of duplicated functions under the supervision of a single, non-partisan organization. It should be noted that its budget, although not controlled by any department, will be approved by the House of Commons. One matter remains to be reviewed: while this Commission is supposed to be accountable for its activities to Parliament, to prevent those activities from being influenced by the government of the day, its activities are nevertheless controlled by the Speaker's Committee, which consists of influential political figures who are Government members.

Control of Donations

Table 1 - Comparison of expenditures permitted for parties and candidates under British and Canadian electoral legislation
Great Britain Footnote 17 Canada Footnote 18
Election expenditures based on number of constituencies contested. Election expenditures based on number of registered voters and electoral districts contested.
Foreign contributions to candidates and parties strictly regulated. Only contributions from European companies and/or companies whose main place of business is Great Britain may be used to finance a party or candidate. Foreign contributions to candidates and parties (from a foreign company or association not carrrying on business in Canada, a union that does not hold bargaining rights in Canada, a state or agent of a foreign state, or individual who is neither a Canadian nor a permanent resident) are prohibited.
The source, name and address of any company or individual making a donation of £5 000 or more (no requirement to disclose the amount donated) to a party or candidate, as well as the date of receipt of the donation, must be disclosed. All amounts of £200 or more must be entered in the accounts. The source, name and address of any company, individual or other contributor donating more than $200 to a party or candidate must be disclosed
There is a tradition of neutrality and independence for the press and electronic media. Paid political broadcasts are prohibited, though free political broadcasts are permitted. Media not required to be either neutral or independent.
No tax credit for small donations. Maximum tax credit of $500 for any annual contribution of $1 075 or more.

No one would deny that the British political parties require considerable financial resources to develop their visibility and attract support for their ideas among citizens. While there is no question that the parties require adequate funds to carry out their functions and finance their activities, as well as their election campaigns, it is also a priority for the Political Parties, Elections and Referendums Act to regulate private donations and party expenditures, particularly those related to the media. This is chiefly due to the fear of a good many citizens in Great Britain and elsewhere that the media are losing their independence with respect to political parties. The new Act makes it possible to combat "party corruption" and encourages greater balance between public and private funding.

The Act places stricter controls on the amount and source of contributions to political parties, to prevent them from relying almost exclusively on individual private donors. It has become clear that membership dues in recent years – the most democratic and least controversial form of party contribution – now represent only a tiny portion of the financial resources of political parties. Footnote 8 This is partly because a good many citizens are unhappy with the actions of the parties they have supported in the past. For this reason, donations have become a significant source of revenue for British political parties – hence the urgency of the need for mechanisms to prevent individuals or companies from influencing the political scene through the funds they bestow upon these parties. This will help guarantee a level playing field for all political parties.

The Political Parties, Elections and Referendums Act prohibits political parties from accepting any donation of £5 000 or more from foreign sources. Furthermore, any anonymous donation must be refused, as well as any donation from an individual or company Footnote 9 that does not qualify as an eligible donor. Footnote 10 Finally, any company that decides to donate money or effect a sponsorship, loan or any other transaction at a rate favourable to a party must receive prior approval from its shareholders. If the directors should fail to do so, they are personally responsible for paying compensation or damages if the unauthorized funding should prove prejudicial to the company in question. Finally, any monetary or non-monetary funding collected so as to conceal the identity of the donor will be considered fraudulent and subject to penalties under the Act.

The Act also provides for the annual disclosure of citizens' donations Footnote 11 to political parties in amounts greater than £5 000 at the national level or £1 000 at the constituency level, including donations in kind. Footnote 12 In addition, the use of blind trusts to finance political parties through party leaders, members of Parliament or parliamentary candidates is prohibited. Political parties must submit their accounts to the public through the Electoral Commission. Responsibility for having accepted financing from an unauthorized source falls upon the party that benefited from the financing. Parties will have to satisfy themselves that donors, individuals or companies meet the conditions required to finance their activities.

However, there is one major change to be noted. Direct funding received by British political parties (that is, "Short money" Footnote 13 and "Cranborne money" Footnote 14) to support their parliamentary functions will be increased, to encourage parties to depend less on a small number of sizeable donations, generally from large corporations. The direct funding provides for the research assistance needs of the Cabinet and shadow cabinet and supports the Leader of the Opposition, his or her chief of staff, and staff. The parties in power and in opposition will also have access to the Policy Development Fund and may continue to benefit from the free broadcast of certain programs and free flying time. One interesting aspect of the Act concerns the provisions adopted by the Neill Committee on the advertising expenses of these parties (print publication, production and broadcasting of partisan programming, posters, etc.). The Government and the Neill Committee agreed to maintain the ban on the broadcast of paid political programming on radio and television. The new Act also applies to the new electronic media. It therefore reinforces the importance of the political neutrality of the media in the U.K.

Control of Expenditures

Table 2 - Comparison of financing of the main political parties during the last British general elections held on June 7, 2001
Conservative Party Labour Party
Total financing £1.5 million + donation of £5 million from Sir Paul Getty £2 million, including £1.1 million from trade unions
“Short money” £295 159 in public funds
Other major contributions £200 000 from Robert Fleming Holding Ltd.

£29 000 from the Carlton Club

£25 000 from Mike Batt, the musical composer used for the Tory campaign

£22 474 from the president of Dixons

£10 000 from the Tower Casino group
£500 000 from the electricians’ union, the AEEU

£400 000 from Usdaw

£335 125 from the GMB union

£125 000 from the president of Ispat International

£100 000 from Christopher Ondaatje, the supermarket giant

£100 000 from Martin Slowe Estates Ltd.

£28 150 from the RMT union

£20 000 from the Granada group

£12 000 from Tim Waterstone, president of the HMV group

While no one can deny the importance of funding sources for political parties, the Political Parties, Elections and Referendums Act could not fail to pay particular attention to the ways in which money is spent during an election or referendum period. It has, therefore, set limits on authorized expenditures during election campaigns, for otherwise parties would be constantly driven to intensify their fundraising.

The Act adopts a number of provisions for limiting the rapid growth in spending that has characterized the last four general elections in the U.K. For example, it imposes limits on candidates' expenditures in their respective constituencies, but also on the parties' expenditures at the national level during an election campaign. Footnote 15 The crucial concept implicit here is that the fewer disparities there are in the spending of the various parties, the fairer the election will be. The imposition of spending limits on British political parties will thus serve to deal with electoral corruption and prevent certain parties with sizeable financial resources (such as the Labour Party, the Liberal Democrats or the Conservative Party) from inevitably winning the majority of seats in legislative elections. These measures should also help prevent certain parties from spending exorbitant amounts, thereby obliging their competitors to solicit ever more funding from wealthy individuals or large corporations who are "buying" influence. The new Act should also put a stop to any repetition of the undisclosed donation of gifts to political parties that was seen when John Major was leader of the Conservatives.

The Act should, therefore, curb the power of any party to "buy" votes during elections thanks to the size of its budget. The objective is, in fact, to ensure that the financing of political parties is totally transparent. To that end, all parties will have to keep strict records of all receipts and expenditures, which must be submitted at least once a year to the Electoral Commission. The Commission will audit the accounts and, if necessary, make them public. It will also institute deterrent penalties and publish the identity of donors whose financial assistance exceeds a certain limit. Once the Electoral Commission has sufficient proof that a party has exceeded its spending limit, it will refer the matter to the courts for an order of confiscation of the donations in question. The confiscated monies will be deposited in the consolidated fund. All other persons who knowingly ignore the rules on the origin of donations will be liable to criminal prosecution and the case will be referred to the police, who will take the necessary action.

With regard to the extending of tax advantages for donations or membership dues, the British Government rejected proposals for the adoption of tax relief of up to £500, as proposed by the Committee on Standards in Public Life. The Government's argument was that the state should not intervene in any way, and that this type of mechanism, which indirectly encourages more substantial private financing (since such provisions make citizens more inclined to donate money to parties), is contrary to the British approach.

Guiding principles of the new Act with respect to referendums

The Political Parties, Elections and Referendums Act raises for the first time the issue of the financing of political parties during referendum periods. The Act guarantees that no political party, whether in power or not, can be favoured during the holding of a referendum. It also addresses the issues of whether the government of the day should play a promotional role in the campaign, whether citizens should be authorized to finance groups participating in the campaign and, where applicable, whether limits should be set on the financing of their campaigns and how those limits should be calculated.

As to party financing during referendum periods, the recommendations of the Neill Committee were based on the conviction that both sides of a referendum campaign must have the same opportunities to present their views to the public. Secondly, the Committee wanted to ensure that referendum campaigns could not be biased by the intervention of the Government. Similarly, the Neill Committee suggested a series of changes designed to limit the spending of parties and other organizations participating in these referendums so as to prevent some parties from getting more public attention than others because of their more ample resources. Hitherto, the main referendums held in Britain were subject to a variety of parliamentary measures, since no legislation existed on the subject.

The Political Parties, Elections and Referendums Act, therefore, provides for greater transparency in the financing of referendum campaigns and proposes much the same rules as apply to the financing of political parties during elections, as explained earlier. Footnote 16 The Act requires organizations and individuals participating in a referendum campaign to disclose all donations of £5000 or more, and prohibits acceptance of any donation from an unauthorized source. No individual or entity may donate more than £10000 for a referendum campaign. The Act further imposes a limit of £5 million for each of the two groups in such a campaign. When an individual or authorized party receives £250 000 or more during a referendum period, that person or party must prepare an expenditure report.

Secondly, the Act prescribes that the party in power and members of the Government may obviously present their arguments as they see fit, but may not use taxpayers' money or the machinery of government to promote their ideas. Finally, the Act forbids the government of the day from publishing any document pertaining to the referendum within the period starting 28 days before the vote. These measures will help prevent the Government from using large sums of taxpayer money to influence citizens.

Conclusion

The new Political Parties, Elections and Referendums Act can be expected to have a major impact on how companies, unions, lobby groups and foreign interests are able to affect the results of general elections and, ultimately, government decisions. It will help prevent elections from being almost exclusively influenced by large amounts of cash from individual companies or interests, particularly foreign ones. It will enable the parties engaged in the election campaign to compete in a political arena that is more fair and equitable by virtue of the very fact that they will have to win support from an electoral base that is more diverse than ever before.

With the passage of the Political Parties, Elections and Referendums Act, the United Kingdom joins other European countries that have legislated on party financing during electoral or referendum periods.


Endnotes

Footnote 1 Parliamentary Assembly, Council of Europe, Financing of Political Parties, Report of the Political Affairs Committee, Document 9077, 4 May 2001: http://stars.coe.fr/doc/doc01/EDOC9077.htm#_ftnref78.

Footnote 2 This amount was recently set at nearly £20 million per year by the government for any party with a candidate standing in every constituency of the United Kingdom. Otherwise, the amount is £30 000 per contested constituency.

Footnote 3 The content of this Act is similar to that of the Canada Elections Act, which is designed to (1) limit the expenditures of candidates and parties in an election period; (2) control contributions – and their amounts – made by companies and individuals; (3) control the publication and posting of advertising in an election campaign; and (4) control the amounts spent by parties during a fiscal year and the amounts and origin of contributions to them.

Footnote 4 The activities of the Electoral Commission will be controlled by the Speaker of the House of Commons, the Home Secretary, the Minister for Local Government, the Chairman of the Home Affairs Select Committee and five members of the House of Commons designated by the Speaker of the House (the Speaker's Committee). These officials will oversee the exercise of the Electoral Commission's functions and approve its budget and a comprehensive five-year plan. The Electoral Commission and Speaker's Committee will be annually accountable for their work to the House of Commons.

Footnote 5 The authority of the Electoral Commission extends to control of election expenditures not only during British legislative elections, but also European Parliamentary elections, Scottish parliamentary general elections, National Assembly for Wales ordinary elections or Northern Ireland Assembly general elections.

Footnote 6 Other commissions of this type exist in certain Commonwealth countries. For example, Australia has an electoral commission, which offers independent services to electors and encourages them to take part in elections.

Footnote 7 This Commission is entirely independent from Government, and directly accountable to Parliament. In effect, the Commission's goal is to ensure a certain transparency in political parties' financing. As was the case in Canada at the time of the Royal Commission on Electoral Reform and Party Financing chaired by Pierre Lortie, growth in election expenses remains at the heart of the new British Commission's concerns.

Footnote 8 The dues collected by the British Labour Party represented only about 25% of its total annual receipts in 1997, compared with over 50% in 1992 (Fifth Report of the Committee on Standards in Public Life, The Funding of Political Parties in the United Kingdom, 1998, Vol. 1 (Cm 4057-I), p. 30).

Footnote 9 By an eligible individual or company is meant: individuals registered in electoral registers in the United Kingdom; companies registered in the United Kingdom or other countries of the European Union, provided they carry on business in the United Kingdom; registered political parties; trade unions, friendly societies, and any other unincorporated association that carries on business or other activities in the U.K. and whose main office is there (section 48(2) of the Political Parties, Elections and Referendums Bill ).

Footnote 10 The new British Act is much more "tolerant" in this regard than legislation adopted in the United States, Canada and most European countries, in that in those countries foreign donations are inevitably prohibited. Studies done in the early nineties in Great Britain have shown that the largest donations have come, not from companies incorporated in Great Britain, or even expatriates living outside the country, but from heads of major foreign corporations. This no doubt explains the British approach on this subject.

Footnote 11 It should be noted that there are major differences of judgment among the countries that have such legislation about the limit of the amounts that must be disclosed. Canada appears to be the country with the smallest limit, followed by the United States, Greece, Italy, France and lastly Germany (Martin Linton, Money and Votes, p. 80). France, for example, has capped permissible donations at 50 000 French francs per year per donor and at 30 000 francs for electoral campaigns; the cap in Belgium is 20 000 Belgian francs per year per donor for any one party and a maximum of 80 000 francs for all parties; in Spain, 10 million pesetas per year per donor. It should be noted, however, that many European countries still have no legislation limiting donations to political parties, among them Austria, Switzerland, the Netherlands, the Czech Republic and Denmark.

Footnote 12 The term "donation" has been specifically defined as including any gift, whether of money or property; any fee paid for membership in or affiliation to a party; any money spent by a third party to pay any expenses directly or indirectly incurred by a party; any money lent to a party otherwise than on commercial terms; or any property, services or facilities for its use or benefit, and/or any type of sponsorship. However, the term excludes the advantages that already accrue to candidates in elections, such as the franking privilege for mailing their literature during legislative and European elections, use of public buildings such as schools for holding meetings, free broadcasting of certain programs, or free flight time. Yet this is relative, since the United Kingdom has traditionally been perceived as a country that is mistrustful of public financing of political parties.

Footnote 13 "Short money" is a kind of indirect state assistance to parliamentary parties. This type of financing was introduced in 1975. Three quarters of the amount released in each parliamentary cycle is directed to the Opposition (Office of the Leader of the Opposition, the shadow cabinet (i.e. the counterparts of the Government ministers) and the other parties of the Opposition in the exercise of their parliamentary functions).

Footnote 14 "Cranborne money" was introduced in 1996. The amount of this assistance has recently increased. See The Funding of Political Parties in the United Kingdom, The Government's proposals for legislation in response to the Fifth Report of the Committee on Standards in Public Life, Presented to Parliament by the Secretary of State for the Home Department by Command of Her Majesty, July 1999, paragraphs 6.6 and following.

Footnote 15 The new Act limits party expenditures for all types of elections in Great Britain. In brief, it limits spending by any party to £30 000 per contested constituency in the U.K. It further provides that the annual expenditures of any registered party may not exceed £793 500 in England, £108 000 in Scotland, £60 000 in Wales and £27 000 in Northern Ireland for any general parliamentary election. It also provides that expenditures of each registered party for European Parliamentary elections may not exceed £159 750 in England, £18 000 in Scotland, £11 259 in Wales, and £6 750 in Northern Ireland.

Footnote 16 A good many of the Act's provisions appear to anticipate the upcoming referendum on the Euro.

Footnote 17 National general election.

Footnote 18 (Legislative) federal election.

REFERENCES

Ewing, Keith. The Funding of Political Parties in Britain, 1987.

Ewing, Keith. Money, Politics and Law, 1992.

The Monitor. The Constitution Unit Bulletin, No. 12, September 2000, p. 7.

The Monitor. The Constitution Unit Bulletin, No. 14, March 2001, p. 7.

Linton, Martin. Money and Votes, Institute for Public Policy Research, 1994.

Canadian Royal Commission Report on Electoral Reform, 1992.

Speech by Peter Mandelson on electoral reform: www.makevotescount.org.uk.

Parliamentary Assembly, Council of Europe. Financing of Political Parties, Report of the Political Affairs Committee, Document 9077, 4 May 2001: http://stars.coe.fr/doc/doc01/EDOC9077.htm#_ftnref78.

Political Parties, Elections and Referendums Bill: www.parliament.the-stationery-office.co.uk/pa/cm199900/ cmbills/ 034/2000034.htm.

Political Parties, Elections and Referendums Act: www.hmso. gov.uk/acts/acts2000/20000041.htm.

Political Parties, Elections and Referendums Bill: www. parliament.the-stationery-office.co.uk/pa/1d199900/1dbills/048/2000048.htm.

Australian Electoral Commission: www.aec.gov.au/main.htm.

Australian Capital Territory Electoral Commission: http://www.elections.act.gov.au/emndex.html.

Canada Elections Act: www.elections.ca.

Elections Canada Web site: www.elections.ca.

Elections and electoral systems around the world: www.psr.keele.ac.uk/election.htm.

Fifth Report of the Committee on Standards in Public Life, The Funding of Political Parties in the United Kingdom, 1998, Vol. 1 (Cm 4057-I), p. 30.


Note: 

The opinions expressed are those of the authors; they do not necessarily reflect those of the Chief Electoral Officer of Canada.