PUBLIC AFFAIRS: Laying down the law - A new Act covering political donations is ruffling PA feathers

It ought to be an exhilarating time for public affairs consultants.

With an election campaign drawing to a close, one certainty - whoever

wins - is that ministers will move, taking their advisers with them, and

reshuffling influence in Whitehall.

But instead of looking forward to the challenge of making new contacts

at the heart of government, a black cloud of uncertainty hangs over

consultants and in-house public affairs specialists.

Since February, a new rule-book covering political donations has caused

consternation, mostly due to the fact the definitions of many of the

terms in the Political Parties, Elections and Referendums Act (PPERA)

have yet to be determined.

GBC public affairs director Dorothea Hodge sums up the concerns of many:

'For the industry as a whole, I think the issue is clarity of


The result is that public affairs professionals are concerned that they

may inadvertently step outside the rules, leaving them open to both

financial penalties and a public relations disaster. 'No one wants to be

the Ian Greer of the new millennium,' observes John Fraser, August.One

Communications head of public affairs.

'The media will take some examples and they may be technical breaches of

the act, but they will be blown up somehow as indications of

corruption,' warns Consolidated Communications board director Ed


It's certainly clear that the presence of the new act won't persuade

journalists that the system is now 100 per cent clean.

'We live in a post-Nolan, anti-sleaze era where there's emphasis on

transparency and accountability, and voters should know who's funding

what. But my experience of money politics in the US, which is far worse

than here because the system allows for paid-TV advertising in politics,

has left me pretty confident that covert money will always find its way

into the system,' observes The Guardian political editor Michael


The PPERA is the progeny of the Committee on Standards in Public Life

and was designed to create a more transparent climate for donors and

political parties and reassure the public that no one was buying

influence or policy decisions in Westminster.

While in the long-term the PPERA, and the body that enforces it, the

Electoral Commission, may achieve all those goals, in the short-term the

new rule-book is making the industry extremely cautious. Given that

company directors can be forced to refund donations and pay for the

damage caused to a company's reputation if shareholder approval hasn't

been agreed, that caution is understandable.

'I think the principle is that consultancies want as much clarity as

possible as quickly as possible and that's what they are anxious to

achieve,' says Association of Professional Political Consultants

chairman Michael Burrell. 'I do not think it's remarkably surprising

that where individuals are at risk of being found to have broken the law

they are anxious - that's only human.'

It's a view echoed by PricewaterhouseCoopers head of public affairs

Chris Lowe. 'Corporate affairs lawyers are advising corporate affairs

directors to be very cautious. It's very unclear what's within the scope

of the law,' he says.

The key issue in determining whether a company needs to declare itself

as a donor is determining what counts as a donation. Under the new

regime, donations in kind such as staff time should be counted but there

are many grey areas where the situation is unclear (see panel, p16).

The most immediate effect of the act has been to stem the flow of

consultancy staff who have traditionally gone to help the political

parties during the election.

'Normally we would have let them have the time off but now it's going to

be holiday,' says Vaizey. 'Most consultancies do not want anyone going

to work for political parties at the election.'

One issue for consultancies may be how to present their position if they

end up on one party's donor list but not another. Fishburn Hedges

director Martin Le Jeune says that in his opinion a consultancy in this

situation will have some explaining to do: 'You will want to demonstrate

to present and potential clients you would work with all political


Burrell takes the view that ultimately most will cover themselves by

ensuring that they qualify with everyone if they breach the threshold

with anyone. 'If you have got to make a donation, consultancies will

make a donation to all five of the major political parties,' he


The other major change is the need for shareholder approval for any


At its April AGM, BP received shareholder approval for a motion that

allowed it to make up to pounds 200,000 in 'political donations' across

the EU.

Observers describe the move as a 'belt and braces' attempt to ensure the

company is covered however donations end up being defined by the

Electoral Commission or the politicians.

BP press officer David Nicholas says consisely: 'We want the ability to

carry on behaving as we have done in the past.'

However, with the corporate climate very much against traditional cash

donations, public affairs specialists may have a tough time justifying

the need to pass such resolutions - especially when shareholders will

think it means cash rather than conference passes, seats at gala dinners

and sponsorship of party events.

'We, as a company, have a fairly clear position that we do not donate to

political parties and I can think of a number of clients who have the

same position. But they would think that would be writing a cheque not

hiring a stand or attending a dinner,' says Gavin Grant,

Burson-Marsteller European chairman (public affairs).

IPR president Ian Wright goes further and argues that the requirements

of the new law will act as a massive disincentive for companies to

engage with politicians.

'Politicians know so little of the commercial world and do not

understand its intricacies. And because they are so concerned about

accusations of sleaze, they've created a system which actually repels

the engagement of companies in the political process,' he says. 'What we

need now is relevant and appropriate regulation. The danger with what

we've got at the moment is something that will force the disengagement

of medium-sized businesses from the political process.'

Part of the problem is that the body charged with clarifying and running

the new system only formally came into being in February. It is perhaps

unfortunate that an election is being held so early in its life.

That's certainly a view shared by Vaizey: 'Speaking personally, this act

should not have been brought into effect until next year when some of

the problems had been worked out.'

Before the election was called, Commission chairman Sam Younger conceded

that when it came to the most pressing issue, campaign spending, there

were grey areas. 'Definitions of exactly what must be included in

campaign expenditure returns, and complex issues such as how gifts in

kind should be valued for the purposes of the return, remain under

discussion. The Act empowers the Commission to issue a Code of Conduct

on campaign expenditure,' he said.

'However, given the short amount of time if a spring general election is

called and the need to consult thoroughly with the parties on any such

code, the Commission has decided not to come forward with a Code of

Conduct,' Younger added.

Despite such uncertainty, Chris Welford, the commission director of

registrations and compliance, says that the early election will tease

the issues out of the woodwork far faster than a long period of bedding


Since the campaign started, the Commission has had to advise on whether

providing transport in the form of planes and helicopters counts as a


His advice is that companies should take the prudent view and declare a

donation if they are unsure. 'If people are in doubt, the easiest way to

deal with the situation is to declare a donation and base it on what is

the true and fair reflection of the market rate,' he says. 'It's this

prudent approach, you can't be criticised because the threshold's so low

you have to be realistic about it.'

In any case, even when the Commission does deliver a verdict on issues

such as conference passes, these opinions could be overturned if an

issue ever got to court.

'Our interpretation may be at this end of the spectrum and someone

else's interpretation, say the court's, could be at the other end of the

spectrum,' admits Welford. 'The problem with the grey areas is that they

remain grey areas until there's been a ruling in the courts.'

Amid the hothouse of concern, Weber Shandwick Public Affairs senior

director Jon McLeod says the industry needs to take a more relaxed view

of the act.

'The first point to make is that the act is not designed to in any way

inhibit or prevent the legitimate pursuit of lobbying aims,' he


He believes that companies should monitor the Commission and any

ministerial comments on the act but they should be careful not to apply

'proscriptive shackles' to their businesses.

'We are not presently expecting to have to declare anything on the basis

of our interpretation of the act,' he says. 'I think what a lot of

people are doing is tieing themselves up in knots for no particular

reasons pre-empting a more restrictive regime that doesn't actually


All of which raises the issue of whether the public affairs industry has

pushed its own case hard enough. Ask if the lobbying industry has

provided itself with the quality of service that clients receive and

more often than not, the result is embarrassed laughter.

However, many concede that the industry could have done more to clarify

the issues before the legislation. 'The industry should ask itself where

did this go wrong and how can we make sure it doesn't happen again,'

says one senior public affairs chief.

'PR companies are often accused of failing to do their marketing very

well and lobby companies don't lobby very well on their own behalf,'

observes Vaizey.

It seems that the political parties have also noted the confusion, which

could ultimately have an impact on their finances if potential

supporters decide not to attend their dinners or go to their conferences

out of fear of the new regulatory regime.

'I have heard, for what it's worth, that some people within the

political parties themselves have also wondered aloud whether a more

active involvement at the stage when the act was going through might

have worked out some of these ambiguities,' adds Le Jeune.


The Electoral Commission was set up by the Political Parties, Elections

and Referendums Act to provide an independent framework to monitor

political donations.

The Commission defines its role as 'to ensure openness and transparency

in the financial affairs of Britain's political parties, and to increase

public confidence and participation in the democratic process.'

In addition to regulating the finances of political parties, it will

also be charged with modernising the voting process, reviewing electoral

law and practice and participating in pilot schemes promoting innovation

in electoral matters. The Commission will promote awareness of electoral

and democratic systems.

In 2002, it is expected to take on the functions of the Local Government

Commission for England, which reviews local electoral matters. Long-term

it will also take on responsibility for reviewing parliamentary

boundaries in 2005, subject to parliamentary approval.

Six commissioners were appointed earlier this year to oversee the body,

including chairman Sam Younger.

Younger, who was chief executive of the British Red Cross for two years,

has spent most of his career at the BBC. In his 20 years at the

Corporation he rose to become managing director of the BBC World Service

in 1994, a role he held until 1998.

Although not a member of a political party himself, his family has been

centre stage in the political process. His father, Kenneth, was a Labour

MP and Minister in the Labour government of 1945-51 and his cousin,

George Younger, was a Cabinet Minister under Margaret Thatcher.

The other commissioners are former Sheffield City Council chief

executive Pamela Gordon, journalist Glyn Mathias, the convener of the

Scottish Council for Voluntary Organisations Sir Neil McIntosh, Criminal

Cases Review Commission member Karamjit Singh and University of London

vice-chancellor and president professor Graham Zellick.


The Committee for Standards in Public Life's Political Parties,

Elections and Referendum's Act (PPERA) came into force earlier this year

and established the Electoral Commission.

Its two main principles are that the public should know the names of

those who have donated more than pounds 5,000 to political parties and

that foreign companies should not be allowed to make donations to UK

political parties.

Limits for donations to local parties are set much at pounds 1,000.

Company annual reports should contain details of any donations to

political parties.

Firms that make donations worth more than pounds 5,000 over a year need

to secure the approval of their shareholders. For UK companies, motions

passed at an AGM may be valid for up to four years.

However, for companies based outside the EU the situation is a little

more complex. The DTI advice suggests wholly-owned subsidiaries will

need 'the resolution of the holding company', if a company is not

wholly-owned then both the holding company and the subsidiary should

gain approval at a general meeting.

For many, the key question is what counts as a donation. As well as cash

considerations, the PPERA adjudges fundraising dinners, sponsorship and

subscription, affiliation and membership fees as donations.

Paying expenses incurred by a political party or organisation, loaning

money, property and providing services on anything other than commercial

terms also counts as a donation.

Where such services are provided they should be accounted for at a

'commercial rate'. If the service is non-specialist, such as stuffing

envelopes, then only the salary cost of the employee should be


Consultancies should also be aware that where 'donations'are made by

consultancy and charged to a client, the client will have to declare


Hiring a stand at a conference does not count as a donation, as long as

the cost does not exceed maximum rates to be set by the Electoral


A decision on what the maximum rate should be is expected before the

autumn's party conference season.

There is, however, some uncertainty as to whether the cost of a pass to

a conference counts as a donation. The Commission is currently arguing

that the price difference between the cost of party member's pass and a

commercial pass is effectively a donation.

Staff taking holiday to work for political parties, or working outside

office hours, do not count. However, the Commission is also still

considering whether a person who stands as a candidate counts as a

donation, if the time they take off to campaign is not holiday. A spouse

of a candidate attending political events in company time may also count

as a donation.

Another area of concern, is the question of donations to third


There's some concern that this category may include think-tanks,

particularly those that are very closely aligned to a single political

party. If this is found to be the case, a company sponsoring research

done by a think-tank, for example, could potentially be in breech of the

act, if the support hasn't been approved by shareholders.

So far six organisations have registered as third parties, two unions,

Charter 88, Democracy Movement, Yes Campaign, Tacticalvoter.Net and The

South Molton Declaration.

A parliamentary answer from Stephen Byers attempted to lay this issue to

rest. 'The Government does not believe, for example, that charities that

campaign on issues of general public interest or political

think-tanks ... are likely to be caused by the definition,' he said.

The key issue is clearly one of definition. According to a BKSH Insight

paper the PPERA definitions of 'political donations' and 'political

organisations' were designed, on the advice of the Neill Committee, to

be broad in scope to prevent evasion.

It is these broad definitions that have caused and seem likely to

continue to cause uncertainty.

Have you registered with us yet?

Register now to enjoy more articles and free email bulletins

Already registered?
Sign in