Tax ‘exiles’ are funnelling money into our political parties. It’s time to close the loophole

Darren Hughes, Chief Executive

Posted on the 7th March 2019

Here’s a fairly basic democratic principle: those who pour money into our political parties in exchange for influence should – at the very least –be based here at home. Sadly, even that low bar is not being met.

Ten years ago, in the wake of party funding scandals (‘cash for peerages’ among others), a Bill was passed to ensure those who funded UK parties were paying taxes in Britain.

It passed… but the government never enacted it. Now we’ve learnt the impact of that decision.

A new investigation by The Times reveals that Britons living in tax havens and their UK companies have made political donations worth £5.5 million since 2009.

A big chunk of that was accepted around the 2017 General Election. These individuals are swaying our election results – while refusing to in the country where they’d feel the impact of the policies they’re pushing.

Now, no one denies that campaigning costs money. But politicians need to show some respect to their own profession by having an open and transparent funding regime: one which allows them to focus on their policy differences – not who has the largest number of rich friends based in tax havens.

There is a discrepancy in the law, too: businesses donating to parties must generate revenue here, but not individuals based ‘off-shore’. As things stand, millions of people are affected by decisions influenced these tax exiles, leaving our democracy fundamentally exposed to outside interference and unfettered lobbying.

Our Parliament and parties should not be available to the highest bidders around the world. It is telling that campaigners and regulators have been calling for this electoral injustice to be rectified for years now, but parties receiving these foreign donations have refused to act.

The Electoral Commission made proposals on how to close the loophole six years ago – yet still these loopholes exist. There are workable proposals to fix this turgid situation and ministers need to have the courage to act.

Of course, this is just the latest in a series of revelations that our campaign rules are broken, out of date – and putting the principles of sovereign, fair elections at risk. In February a Parliamentary committee warned that big campaigners and outside influencers could pump millions into social media advertising with almost no scrutiny.

Now campaigners are demanding an end to these dangerous loopholes.

Last month the Electoral Reform Society called for a comprehensive update to Britain’s ‘wild west’ party funding and campaigning rules – which was drafted in the late 1990s.

Now we’re working alongside campaign group FairVote and Stephen Kinnock MP to launch a new All-Party Group on Electoral Campaigning Transparency.

The ERS are calling for the government to ensure party donors are tax-resident in the UK, and that businesses funding politics are conducting the majority of their business here.

Our recent report on the campaign ‘wild west’ recommended six wider reforms, calling on the government to:

  1. Extend the imprint requirement – where materials must show who produced them and on whose behalf – to online political advertising
  2. Improve how campaigners report funding and spending, including separate reporting for social media spend, and digital reporting of spend/donations
  3. Support the creation of a single online database of political adverts, which would be publicly available and easily searchable, would similarly increase transparency and allow voters to identify who has produced a piece of content.
  4. Give regulators greater enforcement powers, strengthening the fines or sanctions so they can act as a meaningful deterrent against wrongdoing. The ICO’s powers were increased considerably in the past year, showing what can be achieved if there is political will.
  5. Ensure parties properly engage in efforts to establish a statutory code of practice for political parties and campaigners without delay.
  6. Launch a comprehensive review and overhaul of our electoral law, which needs to be updated and future-proofed for the digital age.

Now is the time for politicians to stand up for voters and make this simple change. Any party which takes a lead on sorting it out can expect to reap electoral rewards. It’s time to clean up party funding once and for all, to finally start dragging Britain’s out-dated campaign rules into the 21st century.

Read our report and sign the petition

UCL’s Constitution Unit have published a new report on the conduct and discourse of elections and referendums.

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