Parliament must look again at the rules on donations to ensure fairness in future polls.

The possibility of a second referendum on the UK’s membership of the EU will be debated in the House of Commons today, following the signing of a petition by more than four million people. Owen Smith has also expressed support for a second referendum as part of his bid for the Labour leadership. 

The rules governing referendum campaigning are based on those that govern election campaigns. As became clear in the course of the referendum debate, those rules give the Electoral Commission and the courts little scope to regulate the content of campaign material, focusing instead on ensuring transparency and reasonable limitations on the use of money to influence polling outcomes. 

Also, the Advertising Standards Authority does not regulate political advertising, meaning that there is little scope to prevent the public dissemination of inaccurate campaign materials, even if deceitful. 

This ‘hands off’ approach to the regulation of campaign material assumes that even the most inaccurate political argument is best challenged by media scrutiny and counter-argument during a campaign and accountability afterwards, with the victor’s reputation and future electoral prospects damaged if campaign promises are not fulfilled.

But elections and referendums are very different, particularly where a referendum could result in profound and irreversible constitutional change. Whilst political parties and candidates are held to account at least every four years for their campaign promises, in a referendum on an issue which cuts across party lines, the electorate have little or no opportunity to hold the participants to account for false claims or abandoned promises.

Importantly, the system is also failing in its primary function of limiting the use of financial power to influence the outcome of a vote.

Election law requires any person spending more than £10,000 to influence the referendum outcome to register with the Electoral Commission as a ‘permitted participant ’. Permitted participants must report to the Electoral Commission on their spending, which is subject to an overall limit of £700,000. 

The two designated lead campaign organisations (in the EU referendum, Britain Stronger In Europe and Vote Leave) have a much higher spending limit of £7m. There are also limits on donations to a permitted participant, which must come from ‘permissible donors’ such as UK businesses and individuals on the UK electoral roll.

However, individual donors are not subject to any cap on the total amount of money they can donate. As there is also no limit on the number of permitted participants that can register on each side of the referendum debate, a single wealthy individual can contribute unlimited funding to their chosen cause, by funding a range of different permitted participants on their side of the debate, each spending up to their £700,000 limit.

Election law seeks to prevent an individual or group from setting up a number of connected organisations to circumvent the individual spending limits, providing that where a number of individuals or organisations incur referendum expenses together ‘in pursuance of a plan or other arrangement ’, then the total amount of money spent by all of the parties to that plan or arrangement must be counted towards each party’s spending limit.

But there is little clarity as to what constitutes a ‘plan or other arrangement ’. Common sense would suggest that the establishment by a single ‘controlling mind’ of a group of organisations which share common branding, staff and other back-office functions, should be an obvious example of joint working.

But the legislation and, as a result, the Electoral Commission guidance, is not clearcut, with the guidance suggesting that new organisations established to conduct referendum campaigning may be treated as being independent (with their own spending limit), even where the organisations that created the new body are part of its managing structure. 

The lack of clarity around the joint working controls, combined with the absence of any overall limits on the amount a donor can contribute to either side of the campaign, undermines the fairness of a regime intended to provide each side of the debate with a comparable public voice. 

In the case of the EU referendum, the ‘Leave’ side effectively had two lead campaign groups – Vote Leave as the designated lead, but also Grassroots Out or ‘Go’ as a close competitor for that designation. 

Although Grassroots Out failed to win designation and so was capable of spending no more than £700,000, the political donor Arron Banks said on referendum night that he had personally spent some £6m on the campaign. During the campaign, the Electoral Commission removed eleven co-branded entities, including Scotland GO, Left GO, LGBT GO and Business GO, from the Commission’s register of permitted participants,

But, perhaps because of the uncertainty in the legislation, they were removed because they were not properly constituted as unincorporated associations rather than because they may be working together in pursuance of a common plan.    

The lack of clarity in relation to these rules is exacerbated by election law sanctions, which typically comprise financial penalties and are imposed on campaigners only after the referendum. Where the referendum constitutes a winner-takes-all contest over an issue viewed by wealthy individuals as a moral crusade, the possibility of a sanction being imposed only after an irreversible victory may be insufficient to incentivise good behaviour. 

There is a need for parliament to take a fresh look at the rules governing referendum campaigning and think again about how we ensure that we can facilitate active democratic engagement, whilst recognising the limitations of referendums as a means of settling complex constitutional debates.

I hope that careful thought will be given to these rules before they are applied to any future poll of comparable significance.

Simon Steeden is a partner at Bates Wells Braithwaite, which advised Britain Stronger In Europe during the EU referendum campaign