Corporate report

Government response to 'Regulating Election Finance'

Published 15 September 2021

Government response to ‘Regulating Election Finance’

Introduction

I welcome the publication of the ‘Regulating Election Finance’ report published by the Committee on Standards in Public Life.

Electoral law is already strong and built on the right principles. I agree fully with the principles set out in Chapter 1 of the report and I am confident that they are all represented by the current legislation. This includes, but is not limited to, fairness, transparency and democratic engagement being open to all.

Of course, it is right that the legislation should be reviewed and updated as necessary. The nature of campaigning has changed significantly since the Representation of the People Act 1983 and the Political Parties, Elections and Referendums Act 2000 were introduced. The campaigning landscape has changed even in the last few years, since legislation was last updated in 2014 by the Transparency of Lobbying, Non Party Campaigning and Trade Union Administration Act. The Elections Bill currently in Parliament is bringing forward the key changes we need to make now, and reflects the priorities identified in the Government’s 2019 manifesto to strengthen electoral integrity.

The report puts forward many recommendations that deserve full consideration. While I note the intended benefits of many of the recommendations, further work must be done to consider the implications and practicalities. Electoral law is complex and it is important to do the necessary work to ensure any changes are workable and avoid unintended consequences - as we have already done for measures in the Elections Bill. Therefore, it is right and prudent that the Government take the necessary time to fully understand the impact of each of the recommendations before considering whether or not to put any into law.

The Government intends to look at all the recommendations in the CSPL report, alongside other recommendations set out in similar reports including the forthcoming Report of the Public Administration and Constitutional Affairs Committee into the work of the Electoral Commission, as part of further work looking at the regulatory framework for elections, beyond the Elections Bill.

I am grateful for the work of the Committee on this report and am heartened by the fact that the Elections Bill is already delivering on several of the recommendations in the report. Below, I will set out the Government’s initial view on recommendations contained within the report and I look forward to considering each of the recommendations in more detail in due course.

Chloe Smith

Government Response to ‘Regulating Election Finance’

Electoral Law

• Recommendation 1: The Government should bring forward a bill to simplify and consolidate electoral law as has been recommended by the Law Commission.

The Government understands the reasoning behind this recommendation and the previous calls from the Law Commission, and others, and agrees that simplifying and consolidating electoral law would be desirable. Electoral law is complex, partly because of the various pieces of legislation and amendments that have been made over the years, but also because it needs to cover such a wide range of activities.

Wholesale consolidation of electoral law would be a long term and intensive undertaking. Instead, the Government is prioritising critical reforms in key areas of electoral law. The Elections Bill will strengthen the integrity of elections and update elections law to ensure that our democracy remains secure, modern, transparent and fair. This includes reforms related to election finance such as increasing the transparency around third-party campaigning, restricting foreign spending at UK elections and ensuring the integrity of the level playing field provided by campaign spending limits.

The Electoral Commission has a duty to ensure compliance with the rules on election finance and they have a key role to play in producing high quality and clear guidance that supports understanding of the law amongst campaigners.

National Party and Local Candidate Expenditure

As the report highlights, a range of stakeholders have been concerned about the distinction between party and candidate expenditure highlighted by a recent Supreme Court case. The Government has heard these concerns and the Elections Bill contains an amendment to the rules on notional expenditure. This clarification will ensure that candidates and agents understand their responsibilities and have confidence that they will not be liable for benefits in kind which they did not use or know about. The report also sets out concerns about party expenditure directed at candidates. The existing rules already make it clear that such spending should be apportioned appropriately and reported by candidates, who are all subject to spending limits which ensure a level playing field. The Elections Bill contains an amendment to the legislation which will simplify the way in which third parties (including political parties) can pay for authorised spending which they incur to promote a candidate at an election.

The Electoral Commission

The Government agrees that the existence of an independent regulator is essential for compliance with electoral law but that regulator needs to be accountable. To that end, we are bringing forward reforms in the Elections Bill that will increase the accountability of the Electoral Commission to Parliament. Of course, we also welcome the inquiry into the work of the Commission being held by the Public Administration and Constitutional Affairs Committee.

Donations

• Recommendation 2: PPERA should be amended to provide specific clarification that to be a permissible donor, an individual must be on a UK electoral register.

• Recommendation 3: PPERA should be amended to provide that company donations should not exceed net profits after tax generated in the UK within the preceding two years.

• Recommendation 4: PPERA should be amended to require unincorporated associations that meet the threshold for registration with the Electoral Commission to conduct permissibility checks on a relevant donation (that is, money intended for political activity).

• Recommendation 5: The government should amend the law to simplify the disclosure requirements that apply to unincorporated associations. The new rules should provide transparency around political gifts made to unincorporated associations donating more than £25,000 (the current threshold) to political parties in a year. They should also be straightforward to understand and simple to comply with.

• Recommendation 6: The law should be updated so that disclosure requirements apply when unincorporated associations provide donations to candidates, in addition to parties and non-party campaigners.

• Recommendation 7: PPERA should be updated to require parties and non-party campaigners to have appropriate procedures in place to determine the true source of donations. Parties and non-party campaigners should be required to develop a risk-based policy for managing donations, proportionate to the level of risk that they are exposed to.

• Recommendation 8: PPERA should be updated to require political parties to include a statement of risk management in their annual accounts that sets out the risks relating to their sources of funds and the steps taken to manage those risks.

• Recommendation 9: The Electoral Commission should provide detailed guidance to parties and non-party campaigners on how to develop a proportionate risk-based policy on procedures and checks for identifying the true source of a donation.

• Recommendation 10: PPERA should be updated to require all donations over £500 to be donated only through the banking system.

The rules that apply to political donations are already strong and based on the right principles. The rules are already very clear that individuals donating to political parties, recognised third-party campaigners, candidates and others must be on the electoral roll (or otherwise eligible, as Irish citizens can donate to parties in Northern Ireland). This will not change with the removal of the 15-year limit on the voting rights of British citizens who move overseas, as proposed in the Elections Bill.

All political parties, registered third-party campaigners, registered referendum campaigners and regulated donees must check donations (valued at more than £500) to ensure they come from a permissible source within 30 days of receiving them. If a donation is found to be impermissible, it must be returned to the donor. Proxy rules prohibit money being funneled through a donor by a foreign individual with the direct purpose of donating to a party.

The general principle in the legislation is that donations can only come from sources which are UK-based or who have a legitimate interest in UK elections. A company is a permissible donor if it is: registered as a company under the Companies Act 2006; incorporated in the UK; and carrying on business in the UK.

To be a permissible donor, an unincorporated association must be made up of two or more persons, wholly or mainly carry out its business in the UK and have its main office here. Unincorporated associations making political contributions of over £25,000 during a calendar year, must notify the Electoral Commission. They are required to report certain gifts they receive to the Commission, information about which is published by the Electoral Commission.

It is right that voters and organisations in the UK are able to donate to political parties, specific candidates and election campaigns. Our democracy is strengthened by people donating to campaigns that they believe in. The transparency of electoral funding, including the regulation of donations, is a cornerstone of the UK’s electoral system and contributes towards a healthy democracy. As the report points out, it is very important to balance the need for parties and other campaigners to generate funds against the cost of actually carrying out checks on donations, to ensure they come from permissible sources. We think the current rules are proportionate and achieve this balance.

The Government absolutely recognises the risk posed by those who wish to evade the rules on donations. This is why there are already provisions which explicitly prohibit money being funneled through permissible donors by impermissible donors and why it is an offence for donors and campaigners to purposefully evade the rules.

The Commission already produces guidance which helps campaigners understand if a donor is really permissible. To support campaigners, the Government is considering further guidance on donations which might support campaigners to take a risk based approach to donations, similar to ‘know your customer/client’ guidelines used in financial services, and undertake enhanced checks where appropriate. This guidance would likely set out ‘best practice’ approaches above and beyond what is required by the law to further reinforce the integrity of the system.

All of these recommendations on donations will be considered carefully in detail to assess their viability in practice. The Government keeps the rules on donations under review to ensure they continue to provide an effective safeguard on the integrity of our political system.

Campaign Expenditure

• Recommendation 11: The costs of directly employed staff working on election and referendum campaigns should be included in the spending limits for political parties and referendum campaigners.

The Government notes that staff costs are excluded from political party spending returns. The Government notes that the Committee has not consulted political parties on this specific proposal, which could have significant implications on the manner in which political parties structure themselves inside and outside election periods. The Government notes that any plans to change the long-established provisions may be detrimental, if political parties were effectively discouraged from hiring and retaining directly-employed staff. It is in the public interest that democratic engagement by political parties takes place all year around, which in turn, is helped by the retention of permanent staff.

Asset Declaration

• Recommendation 12: All new parties and referendum campaigners should be required to submit a declaration of assets and liabilities over £500 on registration. The declaration should include an estimate of the costs invested in buying or developing the data they hold when they register.

As part of the Elections Bill, the Government is bringing forward a requirement for new political parties to declare if they have assets or liabilities over £500 and, if they do, to provide details of these when they register with the Electoral Commission. This information will be published by the Commission, providing the public with earlier transparency of party finances. The reporting of this type of financial information is already familiar to existing parties and the Commission, for the purpose of annual accounting.

Digital Campaigning

• Recommendation 13: The government should change the law to require parties and campaigners to provide the Electoral Commission with more detailed invoices from their digital suppliers. For targeted adverts this should include the messages used in those campaigns, which parts of the country they were targeted at, and how much was spent on each campaign.

• Recommendation 14: The government should change the law to require parties and campaigners to subdivide their spending returns to record what medium was used for each activity so that more information is available about the money spent on digital campaigns.

• Recommendation 15: The government should legislate to require social media platforms that permit election adverts in the UK to create advert libraries that include specified information.

• Recommendation 16: Social media platforms’ advert libraries should, as a minimum, include all adverts that fit the legal definitions of election campaigning in UK law. Social media platforms should ensure their advert libraries contain the following information: • precise figures for amounts spent, rather than ranges • who paid for the advert • for targeted adverts, information about the intended target audience of the advert and the types of people who actually saw the advert.

The Government recognises that online campaigning has become a significant part of modern elections. This is one of the reasons we are proposing to introduce a digital imprint regime as part of the Elections Bill. While methods of campaigning have changed over recent years, and continue to change at each election with the introduction of new social media platforms, spending on digital campaigning at an election must already be reported. This applies to political parties, candidates and other types of campaigners.

The current wording in the law ensures that all types of advertising are covered, regardless of the medium or tools used. Therefore, there is no need to categorise in law different types of advertising, for example, as this could run the risk of becoming outdated and incomplete and lead to the unintended consequence of omitting certain types of spending.

Campaigners already have to detail their spending in their returns and provide invoices for payments over a certain amount, which are then made available for public scrutiny. This provides an important level of transparency on spending, including the cost spent on digital campaigning. To take this further, the digital imprints regime introduced by the Elections Bill will give even more transparency to digital spending, making it very clear who is promoting paid-for political adverts online. The regime will also increase transparency of unpaid digital campaigning material in scope of the regime as well.

Requiring campaigners with a statutory duty to submit more detailed invoices which provide additional information about digital activity would need to be looked at carefully, as the detail provided on an invoice is determined by suppliers and not by parties or campaigners themselves.

The Government also welcomes the steps already taken by some online platforms to create election advert libraries and therefore contribute to the transparency of electoral campaigning.

The Government is committed to increasing transparency in digital campaigning to empower voters to make decisions. As part of this, we take these recommendations on digital campaigning seriously. As with all of the recommendations made by the CSPL, the Government will look in detail at the recommendations and consider the implications and practicalities. In addition to considering options for future legislative reform, we will also consider whether any non-statutory actions can be taken forward on digital campaigning, for example working with various social media and other digital platforms, and parties and campaigners, to develop guidance setting out digital campaigning best practice.

Foreign Expenditure

• Recommendation 17: In line with the principle of no foreign interference in UK elections, the government should legislate to ban foreign organisations or individuals from buying campaign advertising in the UK.

As the report notes, the prohibition of foreign money entering UK elections is already an important principle in legislation. Donations to political parties, candidates and other campaigners can only come from UK sources, unless otherwise eligible and registered third-party campaigners must have a legitimate interest in the UK to campaign (i.e regulated election expenditure).

We are extending this even further as part of the Elections Bill to cover all third-party spending, above £700, during a regulated period. This means that even those third-party campaigners who are not spending enough to be required to register with the Electoral Commission must be eligible to register with them, in order to spend on campaigning during a regulated period before an election. The £700 de minimis will ensure this does not unfairly capture those who might accidentally spend, while prohibiting any foreign spending above this amount during a regulated period. This prohibition on foreign expenditure during a regulated election period will include expenditure on campaign advertising.

Of course, some social media companies have already taken steps to prohibit paid political advertising from overseas and we welcome this. As set out above, the Government will consider what role guidance setting out digital campaigning best practice can have in supporting campaigners and platforms in this space in the future.

Reporting Timeframes

• Recommendation 18: Reporting deadlines for parties and non-party campaigners spending over £250,000 at a general election or UK referendum should be reduced from six months to four months.

• Recommendation 19: The Electoral Commission should publish election expenditure of parties and non-party campaigners spending over £250,000, within two months of receipt of the full set of spending returns, i.e. within six months of the election or referendum.

• Recommendation 20: Parties and campaigners spending over £250,000 at a general election or UK referendum should submit spending returns to the Electoral Commission in electronic format. Parties and non-party campaigners spending under £250,000 should do so where this is practicable.

The Government recognises the balance needed between providing information about election spending to the public in a timely manner and political parties and other campaigners having enough time to prepare their spending returns. The current law seeks to achieve that balance. We will look carefully at the recommendations on this and engage relevant stakeholders to understand whether or not changes to this would be beneficial and workable. It will be important to weigh the intended benefits of these proposals against the administrative impact that they could have.

Non-party campaigning

• Recommendation 21: Parties should be required to identify what is spent by third parties as targeted spending on their behalf. The government should introduce a specific reporting category for targeted expenditure that non-party campaigners have spent in relation to an authorisation given by a political party.

• Recommendation 22: To increase the information available about third parties in advance of an election, non-party campaigners should be required to disclose the following information when registering with the Electoral Commission: • a brief summary of the purpose of the campaign • geographical location of the campaign • whether it is part of a joint campaign • website address.

• Recommendation 23: The law should be amended to require a specific non-party campaigner register for each election event and to require non-party campaigners to register at each election in which they intend to campaign.

• Recommendation 24: Registered non-party campaigners and referendum campaigners that spend less than the relevant registration threshold should be required to submit a declaration that they have not exceeded the threshold, rather than complete a full spending return.

• Recommendation 25: The government should clarify in legislation the scope of the law on issues-based campaigns. The aim should be to provide campaigners with greater confidence that campaign activity from before an election is called is unlikely to meet the ‘purpose test’ of promoting electoral success if that activity does not focus on candidates or parties and does not mention voting or elections.

• Recommendation 26: The government should change the law to give the Electoral Commission the power to issue codes of practice on key aspects of third-party campaigning.

The Government agrees with the principles that third-party campaigning should be transparent, and that campaigners should participate on equal terms to each other and be accountable. These principles are already represented in the current law and will be further strengthened through the Elections Bill. The combination of the digital imprint regime and the requirement for third parties to register at a lower level of spend will provide the electorate with better visibility of who is campaigning at elections, and therefore increase transparency. The Elections Bill also contains provisions which will increase the transparency of joint campaigns between political parties and third-party campaigners and protect the integrity of spending limits by ensuring groups cannot appear on both the third-party and political party registers at the same time and therefore potentially access multiple spending limits.

In line with what is highlighted in the report itself, these measures have been developed with the burden they place on campaigners in mind. Increased transparency is important, but campaigners must still be able to participate. This is why the regulation of third-party campaigners registered on, what is in effect, a new ‘lower tier’ is proportional to their level of campaign spending, for example they will not be subject to donation reports or have to submit spending returns.

Additionally, it is important to ensure that all campaigners understand their responsibilities. The law regulates only relevant spending and this is supported by the guidance produced by the Electoral Commission on what constitutes spending, which was produced in collaboration with third-party groups. Where concerns persist amongst third-party campaigners as to what does and does not constitute regulated election spending, the Government would encourage the Commission to work with those groups to further improve that guidance and understanding.

We will look carefully at all the recommendations on third-party campaigning to consider the necessary detail behind the recommendation. The transparency rules around third party campaigning are already robust and will be further strengthened by the Elections Bill. Any additional measures in the future must have clear benefits while also being practical for the Commission to regulate and not place undue administrative burdens on campaigners.

Compliance - Criminal and Civil Regimes

• Recommendation 27: Criminal offences in PPERA that relate to essentially administrative requirements, such as the late submission of spending returns, should be decriminalised. The government should consult the Electoral Commission to identify those offences which fall into this category.

• Recommendation 28: The Electoral Commission should, as a priority, focus resources on upgrading their website. This should take place in collaboration with interface and user experience professionals so that it is as user friendly as possible.

• Recommendation 29: The Electoral Commission should develop an interactive guidance resource accessible through its website, with online walkthroughs or training modules to explain the legislation and its requirements to parties, campaigners, candidates and interested individuals.

• Recommendation 30: The government should approve the draft statutory codes of practice on campaign expenditure for political parties and candidates, prepared by the Electoral Commission, and lay a copy of the codes before each House of Parliament for approval.

• Recommendation 31: The Electoral Commission should be granted the power to issue statutory codes of practice on any other area of regulation for which it is responsible.

• Recommendation 32: The Electoral Commission should provide clear and authoritative advice that parties and non-party campaigners can rely on. The Commission should seek regular feedback from the Parliamentary Parties Panel and voluntary organisations on the advice it provides to ensure that it meets the needs of those it regulates.

• Recommendation 33: The Electoral Commission’s powers to compel the provision of documents, information and explanation outside of an investigation should be extended to enable the Commission to request information from any person who may hold relevant material that it reasonably requires for the purposes of carrying out its functions.

• Recommendation 34: The Electoral Commission should have new, explicit powers to share information with the police and other regulators such as the Information Commissioner’s Office, where the Commission considers it to be in the public interest.

• Recommendation 35: Electoral Commission investigations under PPERA should be opened within 12 months of the date of the offence being committed or, if later, from the date at which the Electoral Commission first became aware of the circumstances of a potential offence. This period should be capable of being extended on application to a court by up to 12 months in exceptional circumstances and/or where the subject of investigation has caused or contributed significantly to the delay.

• Recommendation 36: There should be a 12-month limit on the duration of Electoral Commission investigations under PPERA. This period should be capable of being extended on application to a court by up to 12 months in exceptional circumstances and/or where the subject of investigation has caused or contributed significantly to the delay. In a case where the Commission goes to court to force a party to comply with an investigation notice, the Commission should have the ability to ask the court to extend the time limit further. The extension would be the period from the first request by the Commission to the date on which the party in question supplies the information.

• Recommendation 37: The maximum fine the Electoral Commission may impose should be increased to 4% of a campaign’s total spend or £500,000, whichever is higher.

• Recommendation 38: The Electoral Commission should be required to provide those it regulates with a clear explanation of the rationale for the size of the sanctions it imposes in individual cases, to improve confidence in the fairness of its decision-making.

• Recommendation 39: The responsibility for granting permission to parties, non-party campaigners and referendum campaigners to pay late invoices or bills from suppliers should be transferred from the courts to the Electoral Commission.

• Recommendation 40: Where leave to pay is granted, the Electoral Commission should have the ability to sanction the late receipt or payment of the claim in order to encourage compliance.

• Recommendation 41: The requirement to receive all invoices within 30 days and pay them within 60 days of polling day should apply only to amounts over £200.

• Recommendation 42: Political parties should be required to provide a pre-election report only if they are standing candidates for election and receive a reportable donation or loan (worth over £7,500) during the pre-election reporting period.

• Recommendation 43: Political parties should be required to submit a PPERA spending return only if they incur regulated PPERA campaign spending.

• Recommendation 44: For uncontested elections, candidates should not be required to submit zero spending returns.

We believe the current system, where many offences in the Political Parties, Elections and Referendums Act 2000 can be dealt with using civil sanctions but also referred to the police where appropriate, is a good system. It is proportionate but allows for escalation in the most serious cases.

The Commission already has a duty to ensure compliance with the rules as far as possible and they do this partly through their guidance and the advice they provide to campaigners. In addition, the Elections Bill will make provisions for a Strategy and Policy Statement, to be approved by Parliament, to which the Commission must have regard when exercising their functions. The Statement will further allow Parliament to hold the Commission accountable in relation to the exercise of their functions. Pending the outcome of a statutory consultation (and parliamentary approval), this may include guidance on the Commission’s function of ensuring compliance with electoral law via guidance.

Further, it is up to the Commission how their website works and how their guidance is displayed, although it is important that guidance is displayed clearly and is accessible. The Commission have consulted with various stakeholders in the past to produce guidance and in principle, we think this should be continued where possible.

The Codes of Practice also play an important role in ensuring compliance with the rules and we recognise the work of the Commission in creating the draft Codes. However, it is right to wait until the reforms proposed in the Elections Bill are in place (such as on clarifying the law on notional expenditure) before updating the Codes as necessary and then laying them before Parliament. Laying the Codes in advance of this would be a wasteful exercise given the expected changes the Elections Bill will bring to the rules. The Commission is already able to produce guidance on any area of electoral law that they are responsible for. The creation of any new Codes would need to be considered carefully, to understand what they could cover and whether they could go further than existing guidance.

In terms of investigations, the Commission already has extensive investigatory powers for offences under the Political Parties, Elections and Referendums Act 2000 (PPERA). They are already able to request specific information from registered campaigners at any time and request this from others, such as suppliers, as part of an investigation. As part of their civil sanctioning powers, the Commission can also issue a fine where a campaigner is found to have committed an offence under PPERA. They are able to issue fines of up to either £5,000 or £20,000, per offence, depending on the type of offence committed. They can also refer criminal matters to the police. It is of course right and proper that the Commission should justify the size of a fine to anyone in receipt of a fine and the Government would encourage the Commission to do this. Any extension of the Commission’s investigatory and fining powers would need to be considered carefully to assess the necessity and proportionality, as it is vital that they are effective but do not cause a chilling effect on electoral participation and campaigning. Any direct comparison with the fines that can be issued by the Information Commissioner’s Office should note the clear differences between the two regulators and the types of entities they regulate. Political parties are not global corporates but are predominantly made up of volunteers.

In terms of the length of investigations conducted by the Commission, it is important to resolve investigations within a reasonable time period. Currently, prosecutors have six months from receiving sufficient evidence to bring such proceedings in relation to summary offences under PPERA (and within a period of three years post-offence), but more serious offences (and the Commission’s use of civil sanctions) are not subject to a time limitation. By contrast, under the Representation of the People Act 1983 (RPA) prosecutions of an offence under that Act must be commenced within 12 months of an offence being committed (with the potential to extend the deadline by 12 months by making an application to a court). The Government notes and will further consider the potential benefits in aligning the PPERA regime with the RPA regime, given the RPA court application regime has worked effectively where necessary. The Government also notes that the Commission has internal targets to conclude their investigations within 180 days and that the report found that it is rare for the Commission’s investigations to last more than 12 months. The Government will consider this in light of the evidence in the report that prolonged investigations can cause potentially unwarranted reputational damage (including during electoral campaigns) and distress to those that are investigated.

We intend to look at all the recommendations on the Commission’s investigatory powers and processes, including those on fines, leave to pay and requirements on reporting, and review the current rules to further analyse and understand their impact.

Compliance - Candidates

• Recommendation 45: Criminal offences in the RPA that relate to essentially administrative requirements, should be decriminalised and replaced with civil sanctions. The Electoral Commission’s regulatory powers should be expanded to include the enforcement of civil sanctions for candidates.

• Recommendation 46: The Electoral Commission should develop a secure online facility for the submission, certification and publication of candidates’ election expenses returns.

• Recommendation 47: The requirement on returning officers to publish the availability for inspection of candidates’ election expenses returns at all applicable polls, and to publicise outstanding returns in local newspapers, should be revoked and returning officers should be placed under a new obligation to publicise this information on the council website.

The local nature of offences under the Representation of the People Act 1983 means that it is sensible for investigations to lie with the police, rather than the Electoral Commission, who deal with wider scale campaigns run by political parties and third-party campaigners.

The Government believes statutory notices in local newspapers have an important role in any transparency regime and should not be changed without a wider review of the implications for the newspaper industry and for local accountability.