Cash-for-Honours scandal

Cash for Peerages describes a political scandal in the United Kingdom in March 2006. Several men nominated for peerages by prime minister Tony Blair were rejected by the House of Lords Appointments Commission when it found that they had lent large amounts of money to the governing Labour Party at the solicitation of Labour fundraiser Lord Levy. Suspicion was aroused that the peerages were a quid pro quo for the loans, and the incident was referred to the Police as a breach of the law against selling honours. It is possible that the affair will come to affect the public's perception of sleaze in public life, especially as it coincided with "Jowellgate" in which the husband of a government minister received a large financial payment and wrote a letter which appeared to seek private financial gain based on his closeness to the government.

Background

There has long been public concern at the connection between political donations and the award of peerages. In May 1998, the then Chairman of the Political Honours Scrutiny Committee, former Conservative Cabinet minister Francis Pym, told a House of Commons Select Committee that the committee considered a political donation a point in a nominee's favour as it indicated involvement in public life, and that the nominee had "put their money where his mouth is".

In the summer of 2005, a list of 28 people nominated for working peerages was prepared. The list contained 11 Labour nominees, 8 Conservatives, 5 Liberal Democrats, 3 members of the Democratic Unionist Party and one member of the Ulster Unionist Party. The Green Party ultimately declined to nominate. The list was sent to the House of Lords Appointments Commission, which had been established in 2000 to check for the suitability of those nominated for an honour.

Publication of the list was delayed and stories began to appear in the press stating that the Commission had concerns about some of those nominated on grounds of their large donations to political parties. In February 2006, stockbroker Barry Townsley, who had donated £6,000 (and loaned £1m on commercial terms) to the Labour Party and contributed £1.5m to a City Academy under a government scheme, withdrew his acceptance on the grounds of press intrusion into his private life.

Townsley, who is currently the subject of an investigation by the Serious Fraud Office, was followed by property millionaire Sir David Garrard, who withdrew his name in March 2006.

Sir Gulam Noon MBE, the British-Indian food company millionaire, was also nominated by the Labour Party after having made donations and loaned money (he also had his nomination rejected by the Appointments Commission). Sir Gulam told the Times newspaper a "senior party man" told him "there was no reason why I should declare this loan because it was refundable". "I was told by this same person that because there was interest on the loan it was a commercial matter and would not come under the same party funding rules as a donation."

Chai Patel

On March 8 2006, Dr Chai Patel (Director of the Priory healthcare group) who had donated £10,000 to the Labour Party complained that he was being rejected by the Commission. He said "It is a fact that I have donated, but what is being implicated is that I would be rewarded with a peerage. I have never asked for any favour for the money that I have donated. My children suggested that if I had not given this money, I would not be seen in this light. But I happen to support this Government. I gave money to the party because I happen to believe in what it stands for. I can't change what has happened." Patel stated that he had asked a QC for advice on whether his human rights were being abused by the Commission.

1997 Labour Party commitments

The 1997 General Election Labour Party manifesto was entitled “new Labour because Britain deserves better”. In the section headed “We will clean up politics”, the text pointed to the debasing of democracy through Conservative MPs who had taken cash for asking questions in the House of Commons. A pledge was made to the “reform of party funding to end sleaze” with the commitment to a law to require all parties to declare the source of all donations above a minimum figure, which Labour already did voluntarily. Foreign funding would be banned. These commitments were delivered in 2000 with the Political Parties, Elections and Referendums Act 2000.

It also described the need to reform the House of Lords which would end the right by law of hereditary peers to sit and vote in the House of Lords. This commitment was delivered in 1999 with the House of Lords Act 1999. In relation to the system of appointment of life peers Labour’s stated objective was to ensure that over time party appointees as life peers would more accurately reflect the proportion of votes cast at the previous general election, a commitment that has since been altered so that the two main parties in the House of Lords should instead have approximately equal strength.

Loans

On March 12, the Sunday Times reported that shortly before being told that he would receive a peerage, Patel had been asked to change a donation to the Labour Party he was planning to make into an unsecured loan. On March 26, The Independent confirmed that it was Lord Levy that asked Patel to switch using this unsecured loan approach. He agreed and loaned £1.5m to the party, telling them that he would be prepared to change the loan into a donation at some point in the future. Over the next few days stories were printed which stated that the Labour Party had borrowed £3.5 million from private individuals during 2005, the year of a general election. It was subsequently revealed that a total of £13.95 million had been loaned by wealthy individuals to support Labour's election campaign . The figures released mean the bulk of the £17.94m the party spent on its general election campaign was paid for by loans from individuals on the understanding their names would not be made public.

Loans made on commercial terms, as was the case here, are not subject to reporting requirements to the Electoral Commission. However the Treasurer of the Party, Jack Dromey stated publicly that neither he nor Labour's elected National Executive Committee chairman Sir Jeremy Beecham had knowledge of or involvement in the loans and had only become aware when he read about it in the newspapers. Dromey stated that he was regularly consulted about conventional bank loans. As well as announcing his own investigation he called on the Electoral Commission to investigate the issue of political parties taking out loans from non-commercial sources.

The affair centred on two aspects of Labour's political fund raising activities. First, to what degree was there a tacit or implied relationship between the large scale donors and their subsequent recognition via the honours system? Second, the rules on party funding (applicable to all political parties in the UK) require that anyone donating £5,000 or more must be named - but loans of any amount do not have to be declared provided they are made on commercial terms. This loophole raises accusations of undue secrecy and potentially calls into question the probity of those involved in procurement and handling of such large and anonymous sums, particularly when the elected party treasurer was unaware of the existence of the loans.

Lord Levy, a close friend of Tony Blair (who is the Prime Minister's personal envoy to the Middle East, as well as occasional tennis partner), has raised funds for Labour and was identified in the press as a key figure in arranging the loans and on 17 March 2006 it was announced that the Public Administration Select Committee of the House of Commons had invited him to give evidence on political financing . Committee Chairman Tony Wright said:

“With continuing speculation about whether the system of scrutiny is sufficiently robust and as part of our wider inquiry into current standards of probity in public life, we will be hearing from those charged with scrutinising nominations to ensure that there are robust safeguards against honours for sale.”

Another issue is repayment: the Labour Party owed about £14m before the election. The interest on the loans amounts to £900,000 a year and some of the loans have to be repaid within months, either through further borrowing or gifts. In these circumstances, one unanswered question concerns why Lord Levy asked for loans rather than gifts.

Full list of contributions

On 20 March 2006 the Labour Party issued the full list of 12 lenders together with the sums involved:

Rod Aldridge - £1m

Richard Caring - £2m

Gordon Crawford - £500,000

Professor Sir Christopher Evans - £1m

Sir David Garrard - £2.3m

Nigel Morris - £1m

Sir Gulam Noon - £250,000

Dr Chai Patel - £1.5m

Andrew Rosenfeld - £1m

David Sainsbury, Baron Sainsbury of Turville - £2m

Barry Townsley - £1m

Derek Tullett - £400,000

Total: £13,950,000

Criminal investigation

Corrupt procurement and award of honours is legislated against by the Honours (Prevention of Abuses) Act 1925 and the Public Bodies Corrupt Practices Act 1889. The Metropolitan Police are investigating three complaints they have received under the 1925 Act.

Political reaction

There was widespread support for an enquiry and some calls to revise the process of party political funding.

Tony Blair

Speaking at his monthly news briefing on 16 March, Prime Minister Tony Blair confirmed his knowledge of the loans but denied any connection between the large loans from three private individuals and whether they were subsquently nominated for honours. Blair said all three men were known party donors and would have made excellent Labour "working peers". He suggested that further changes to the honours system might be needed .

When questioned, the PM commented that he did not think that Dromey had revealed details of his lack of involvement in the handling of the private loans in order to undermine or implicate either him or 10 Downing Street. Dromey's very public expression of concern (he toured various television channels to interview on the matter) raised suspicion among some supporters of Tony Blair that his actions were deliberately designed to embarrass the Prime Minister and consequently benefit Prime Minister in-waiting Chancellor Gordon Brown. Dromey denied this, saying he had been forced to go public when his persistent questioning failed to satisfactorily resolve the matter.

Charles Clarke

On 16 March the Home Secretary stated "The treasurer should know about all the fundraising issues that arise".

However, he later called into question Dromey's competance, saying he had "serious questions about Jack Dromey's capacity" as Labour treasurer and the fact Dromey did not know about the loans meant "you have to wonder how well he was doing his work" finally adding, "I don't know why Jack behaved as he did." He rejected as "nonsense" a suggestion that the treasurer had spoken publicly about the loans to speed up the transition of power from Blair to Chancellor Gordon Brown.

Sir Jeremy Beecham

The chairman of Labour's governing body the NEC accused Charles Clarke of speaking out of turn and defended party treasurer Jack Dromey. He said the treasurer "shouldn't be criticised" and had "acted perfectly properly". It was "absolutely clear that the reasons that NEC officers, including the elected party treasurer, did not know about the loans had nothing to do with any failings on their part". He added: "Jack Dromey has always carried out his responsibilities with great diligence and retained the absolute confidence of the NEC in ensuring that this issue is dealt with." In an interview on BBC2's Newsnight he said Clarke had not read the situation correctly. "I don't know how closely Charles has been involved in all this. He's not been on the National Executive for a number of years. I wouldn't have said it in Charles Clarke's position.".

Harriet Harman

In a measure aimed to avoid any conflict of interest, Dromey's wife Harriet Harman—a minister in the Department for Constitutional Affairs—relinquished her responsibilities for overseeing electoral reform and House of Lords reform.

Diane Abbott

Writing of Dromey's reaction in The Times of March 17 2006, left-wing Labour MP Diane Abbott said :

"But perhaps Mr Dromey is furious because he has seen things that have not yet been made public. Perhaps facts have finally been revealed to him about new Labour’s inner circle and their adventures in influence-peddling and in the world of the super-rich that he really did not know before. And the enormity of what he has discovered may have made him determined that whoever else may be swept away in the ensuing scandal, it will not be him."

Clare Short

Former cabinet minister and Blair critic Clare Short, described the issue with characterist bluntness:

"What we're getting is a bubble of these clever people who've captured the state, don't need a party, don't need any members, don't have turbulent people having opinions, who then get money from rich people and run our state without consulting anyone else".

David Cameron

"We've got to stop this perception that parties can somehow be bought by big donations either from very rich people, or trade unions, or businesses."

The Conservative Party admitted that it has engaged in similar borrrowing (but did not reveal any links to nominations for peerages). Such loans have been reported in party accounts though the annual accounts are not yet published for the period covering the 2005 general election.

David Cameron's proposals are:

Ban on all loans unless from financial institutions on fully commercial terms

£50,000 cap on donations

Tax relief on donations up to £3,000

State funding of £1.20p per vote won at general elections for parties with MPs, plus annual payment equal to 60p per vote

New commission to handle honours

General election party funds limited to £15m

These proposals would also reduce the number of MPs from 646 to les than 600.

Ian McCartney

The Labour Party chairman Ian McCartney defended the loans with the BBC quoting him as saying :

"Bear in mind too that we fought the 2005 election in the face of a very heavily funded Conservative campaign - a large part of which was reportedly funded by loans, and targeted at individual Labour MPs."

Sir Menzies Campbell

Liberal Democrat leader Sir Menzies Campbell said that his party had not nominated anyone for a peerage who had loaned it large sums. He said the Lib Dems received loans from three people in the period before the General Election and have declared their names and the sums lent. He urged transparency on funding, and suggested a £50,000 cap on donations by individuals and a reduction in maximum permitted party election spending from £20m to £15m:

"There should be no secret loans of any kind, and if the lord chancellor is proposing that in legislation currently before Parliament, that's something we will most certainly support."

John Prescott

Deputy Prime Minister John Prescott told the BBC that he was "not happy" he found out about the millions loaned to the Labour Party by reading it in the papers but insisted the loans would later appear in the party's audited accounts. He refused to give a guarantee that Labour had not given peerages for loans, saying "I am bound to say not all the information possibly is out yet and we are still looking at it."

Mr Prescott said he favoured a change to state funding but also said he would not rule out the suggestion that private loans should be capped : "There's a kind of unhealthy approach to political financing in this country. What we need to do is have a healthy debate."

Lord Falconer

Amendments to the Electoral Administration Bill to make it a legal requirement that loans to political parties are made public in a similar way to donations will be urgently considered by Lord Chancellor Lord Falconer .

Not the first time

The expression "cash for peerages" has a long history. In the 1960s, Roy Thomson, 1st Baron Thomson of Fleet, had some justifiable claim to a peerage as a Canadian and later British publisher. As even his company history observes, "Roy had noted that all proprietors of newspapers seemed to become members of the House of Lords. He had also noted this was emphatically ‘a good thing’" and he showed himself ready to do whatever was required to achieve this goal, believing at first that it could be a simple open purchase but moving on to explicit lobbying of prime ministers. He contributed money to charitable bodies which were deemed to improve his chances. Eventually, having bought The Scotsman, The Sunday Times and later The Times, he became sufficiently important to Harold Wilson that he was "raised to the peerage" as Lord Thomson of Fleet. King James I was more overt; he created the title of baronet and sold them for £1,500 each to raise money for his war in Ireland.

In the 1920s Prime Minister Lloyd George was involved in a barely concealed "cash for patronage" scandal managed by Maundy Gregory, which resulted in the 1925 Act which barred it (purchase of peerages had not previously been illegal), and in the 1960s Harold Wilson's resignation honours list was similarly embroiled in what became infamously known as The Lavender List (hand-written on lavender paper by Marcia Williams). This, though widely deemed to include some unsuitable and unsalubrious nominees, rewarded Wilson's friends and carried no suggestion of overt reward for money — given or loaned. Joseph Kagan, Baron Kagan, ennobled in the Lavender List, was convicted of fraud in 1980 — for some years he had been funding Harold Wilson's Leader's office.

As recently as 2004 the issue of large donations to a political party being linked to the award of a peerage arose when Paul Drayson donated £555,000 to the Labour Party. His company, Powderject, had also received a valuable government contract to make vaccines.

External links

• Guide to peers and House of Lords
• Labour 1997 Manifesto: new Labour because Britain deserves better