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Ideology wars

Prem Sikka explains how Lord Cashcroft's millions are bankrolling the Tories

In democratic societies people should freely elect their governments, but the reality does not measure up to that ideal. Think-tanks funded by foreign corporations and newspapers owned by global economic elites shape the choices for the British electorate. Rupert Murdoch's News Corporation may not pay much tax in the UK, but its newspapers The Sun, The Times and News of the World faithfully advance their master's political agenda. A free debate about anything is now almost impossible as the media has already taken up positions to recruit citizens.

In the ideology wars, The Sun and Daily Mail routinely run stories vilifying the Labour Party, the welfare state, social rights and human rights legislation. Despite the biggest banking crisis of all times, they still decry attempts to regulate business, and any attempt to redistribute wealth and reduce social inequalities is subjected to cheap jibes. People are acutely aware that many social rights have been secured in the teeth-of-opposition from the monied classes. These have produced social stability and enabled many to live more fulfilling lives.

The 2010 general election is likely to be won or lost in the key marginal seats, where under the first-past-the-post system even a small shift of votes can change the fortunes of political parties. Here again the outcome is being influenced by funds provided by wealthy elites whose heart is not in the UK and political parties are always obliged to repay this debt by producing weak and compliant legislation and enforcement.

A vast business empire

The Conservative Party is in debt to Lord Ashcroft, its Deputy Chairman. His vast business empire controlled from the secretive offshore tax haven of Belize has been funding the Conservative Party and its local associations. In 2000, he was rewarded with a peerage, making him a lifelong legislator with power to shape the life chances of millions of people. In March 2010, just ahead of disclosures by the Cabinet office, he finally acknowledged that for tax purposes he is “non-domiciled”, i.e. he only pays income tax on his personal income and gains arising in the UK, or foreign income and gains remitted to the UK. The law permits him to arrange his personal affairs in such a way that his worldwide income, subject to double taxation relief, is not taxed in the UK.

The non-dom status may have saved Lord Ashcroft an estimated £127 million in tax over the last 10 years, equivalent to the cost of building over twenty new schools. The non-dom status fatally undermines the moral authority to make laws for others and to play a key role in the Conservative Party's election strategy, but does not stop him from meddling. Since 2005, the year in which David Cameron became the Party leader, Lord Ashcroft's company Bearwood Corporate Services Limited (more below) has provided £4.13 million, making him the biggest single donor to the Conservative Party during the last five years.

The Conservative Party has admitted that around 10% of the funds aimed at 150 battleground parliamentary seats are provided by Lord Ashcroft. Lord Ashcroft's donations have been the subject of considerable press comments for the last 18 months and show that the Political Parties, Elections and Referendums Act (PPERA) 2000 has failed in its main objective of banning foreign donations to UK political parties. PPERA restricts political donations to what it calls ‘permissible donors'. These include an individual registered on an electoral register, a trade union, a building society, a limited liability partnership, a friendly, industrial or provident society, and a company. To be a permissible donor, a company must be registered under the Companies Act, incorporated within the UK or another EU member state, and be carrying on business in the UK.

There have been questions about whether Lord Ashcroft is on the UK electoral register. After the implementation of PPERA, Lord Ashcroft's donations flowed through Bearwood Corporate Services Limited, a UK registered company. Since 2003, at least £5,137,785 has passed from this company to the Conservative Party. The company's most recent accounts for year to September 2008 show a further cash mountain of £6,708,647, possibly being used right now to influence the outcome in marginal seats.

Anonymity

Lord Ashcroft's donations have passed through a web of companies before ending up with the Conservative Party. The key idea must have been to provide anonymity, but in 2003 the Electoral Commission published details of donations received by political parties and thus the amounts paid by Bearwood Corporate services received considerable press attention. My investigations have showed that large amount of monies originating from Stargate Holdings Limited, a Belize-based company, passed through UK registered companies named Astraporta (UK) Limited and Bearwood Holdings Limited and then to Bearwood Corporate Services Limited, which then paid them to the Conservative Party. The cash was transferred via share issues which seem to have little economic substance. For example, Stargate paid £2 million to Astraporta (UK) Limited on 28 October 2005 with each share priced at £1. On 29 March 2006, this is followed by another payment of £4 million – this time 5,206,977 shares are bought at £0.7682 each.  These monies have then been passed down the line to Bearwood Corporate Services Limited via further share issues.

Astraporta (UK) Limited and Bearwood Holdings Limited did not undertake any trading but millions of pounds passed through their bank accounts. Both have now been liquidated. Bearwood Corporate Services Limited has some UK trade but its extent is not clear as the company's legally compliant accounts do not provide the relevant information. The company's profits appear to have been boosted by trade with other companies controlled by Lord Ashcroft. For instance, the 2008 annual accounts of BB holdings Limited, another company controlled by Lord Ashcroft, say that “During the year the Group utilized the consultancy services of Bearwood Services Limited (“Bearwood”), a United Kingdom company in which Lord Ashcroft has an interest. The aggregate fees paid to Bearwood by the Company for the year ended March 31, 2008 amounted to $0.9 million (2007 – $0.4 million)”. The same company's 2009 accounts show that another $0.3 million was paid to Bearwood for utilisation of its services. The net result of such trade is to boost the profits reported by Bearwood Corporate Services. Despite the above transactions, Bearwood Corporate Services' annual audited accounts show that since 2005 it has been making losses. It also made losses during the financial years ended on 31 March 2000, 2001 and 2002. At 30 September 2008, its accumulated losses stood at £3,928,665. 

It is clear that Bearwood Corporate Services did not have sufficient profits to make the donations. The making of donations to the Conservative Party is the biggest single cause of its losses and without cash injection from the series of companies identified above it would not be in a position to make its donations. According The Times newspaper it is only in early March 2010 that Lord Ashcroft declared in the House of Lords register of interests that he controls Bearwood Corporate Services Limited.

Disappointing

After some 18 months, the Electoral Commission finally adjudicated on the donations through Bearwood Corporate Services, but its report published last month is disappointing. By its own admission the Commission was unable to interview key staff from the Conservative Party. It requested sight of relevant documents relating to control, ownership and provision of funding for Bearwood Corporate Services, but was told that Lord Ashcroft did not have in his possession any such documents, and that many had been destroyed. It does not seem to have requested any information from accountancy firms associated with Lord Ashcroft's business empire. A more honest conclusion would have been to say that in the absence of information and co-operation the Commission was unable to reach any meaningful conclusion. Such a statement may well have exerted pressure on some parties to co-operate. Instead, the Commission cleared the donations made through Bearwood Corporate Services.

The Commission's conclusion is an open invitation to any billionaire living in a tax haven to meddle in the UK elections. All that s/he needs to is to form a company in the UK with fairly minimal trade and then use that corporate structure to fund political parties and shape the outcome of UK elections. These companies can make huge losses but that need not constrain their ability to make donations.

Hijacked

The billionaires pulling strings from distant lands will, of course, be insulated from the effects of cuts in public expenditure, erosion of welfare rights and the day-to-day realities or trying to resuscitate the economy. PPERA has clearly failed in its objective of banning foreign political donations and will need to be revised. There will inevitably be debate about the state funding of political parties.

The UK general election is being hijacked and the electorate are treated as playthings by billionaires living in tax havens. The appropriate response should be a two-fingered salute to the parties funded by non-doms. People can also give a bloody nose to the Murdoch empire by refusing to be swayed by the one-sided coverage in its newspapers.