26/06/07 - Donation Statements furnished by political parties for 2006

Part 4 - Loans to political parties

During 2006 the Standards Commission received a number of enquiries concerning loans to political parties. These enquiries had been prompted by revelations that certain political parties in the UK had received significant loans in the run-up to the 2005 general election. The Standards Commission considered it appropriate to write to political parties setting out the position under which loans provided to political parties, either by financial institutions or by individuals or bodies which are not financial institutions, might be regarded as donations under the Electoral Acts.

A donation is defined in the Electoral Acts as a contribution for political purposes and includes a contribution of money and the free or below cost provision of goods, property or services. Where a loan is provided to a political party by a financial institution and the normal rules attaching to such loans apply, the loan is not regarded as a donation to the party. However, where a loan is provided to a political party by a financial institution in circumstances where either the interest charged is less than the lowest rate available from the financial institution or the loan is not repaid in accordance with the terms and conditions under which the loan was issued or is only partially repaid, the benefit to the party may be regarded as a donation and may, therefore, be subject to the disclosure and maximum limits applying to the acceptance of donations.

Where an individual or body, who or which is not a financial institution, gives a loan to a political party, it must be evident that the loan offered is a bona fide loan. In that regard the following conditions would apply:

• as with a loan from a financial institution, the terms and conditions applying to the loan and its repayment must be stated clearly in writing;
• interest is chargeable on the loan at a rate (whether fixed or variable) which reflects the interest charged by financial institutions on loans of a similar amount and duration. Where the interest charged is less than the lowest rate available from a financial institution, the benefit accruing from the difference in rates is regarded as a donation to the party.
• the Standards Commission may require sight of the terms and conditions, including the interest charge, applying to the loan and may require confirmation that the loan has been repaid in accordance with these terms and conditions;
• if the loan is not repaid in accordance with the terms and conditions, or is only partly repaid, the benefit of such non-repayment may be regarded as a donation to the party and could be subject to the disclosure and maximum acceptance limits applying.

The Standards Commission also requested the appropriate officer of each political party to:

i) confirm that any loans provided to the party by a financial institution since the commencement date of the Electoral Acts (15 May 1997) had been subject to the terms and conditions which are normally imposed by the financial institution and that the provision of such loans did not constitute a donation to the party;

ii) provide details of any loans provided to the party since the commencement date of the Electoral Acts by individuals or bodies which were not financial institutions.

In relation to loans from financial institutions, all of the political parties confirmed either that they did not receive any such loans or that any such loans received by them were subject to the normal terms and conditions applied by the financial institution and did not constitute a political donation. All of the political parties stated that they did not receive a loan from an individual or body, who or which is not a financial institution

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