Guide to party funding
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Citizens guide to party funding
Ever since Lloyd George fixed his tariff for donors in search of a peerage or knighthood, the funding of political parties has been an almost constant source of scandal and intrigue.
During the Seventies and Eighties, Labour was repeatedly described as "in hock to the unions" and the Conservative Party benefited from large corporate donations and contributions from foreign supporters. Neither party was forthcoming about precise amounts received from each donor.
During the Major years, "Tory sleaze" and the decline of the culture of deference led to demands for greater openness. Labour in 1996, followed by the other parties, voluntarily published lists of donors who had given a total of £5,000 or more during the year, but without the specific amounts.
Following on from a report by the Neill Committee on Standards in Public Life the Political Parties, Elections and Referendums Act 2000 introduced the regulation of donations. Foreign donations were effectively banned and it became compulsory to publish not only the identity of donors over £5000 but also the exact amount of their gifts.
Parties must now send quarterly returns of donations to the Electoral Commission. Their data is the basis for our "Who Funds Who?" database.
Labour hopes that making party funding transparent would prevent allegations of sleaze continuing under the new government have been disappointed. Controversy has surrounded donations by pornographer Richard Desmond, medical millionaire Paul Drayson and Indian steel baron Lakshmi Mittal.
Now Labour is once again increasingly reliant on the unions. For its part, the lion's share of Conservative party funding comes either directly from the state, or from Eurosceptic millionaires, compromising the party's independence.
Party funding is rarely out of the news. The Labour Party is conducting its own consultation, and the Electoral Commission begins its review of the issue later this year. Consideration of radical reform of the way political parties are financed has never been more on the agenda.
Many organisations, like the IPPR, Hansard Society,Charter88, COPOV and this site, hope that reform is complete and not a fudge.
Below is a list of some of the solutions people have proposed. Click on the links to get a summary of the arguments for and against each one. We have come to our own conclusions, which you can see by visiting the petition section of the site.
The Case for Change
Less trust
Openness about who funds who has failed to restore trust. Give £100,000 to charity and you will be praised for your generosity. Give the same sum to a political party and cynics will ask "What's in it for you?"
The funding of political parties in the UK is more transparent and less open to corruption than ever before.
The UK does well in international surveys of political probity - our system has been considered as a model by other parliaments.
Despite this, 81 per cent of the population think the system makes people suspicious of politicians (ICM).
Fewer members
Party memberships continue to decline. Subscription income is shrinking: the RSPB has more members than all parties combined. Funding scandals help keep memberships low.
In the 1950s, some 4 million people made an annual subscription to one of the parties. That figure has declined to less than 600,000.
Membership among the young is even lower: the average Labour Party member is 50 plus, for the Conservatives, the figure of 67 is suggested.
Controversy surrounding big donations puts people off of politics and makes recovery in memberships even less likely.
Fewer donors
A shrinking pool of donors have growing influence. Fewer donors wish to court the controversy of donating, leaving the parties dependent on a shrinking base of multimillionaires, companies and unions.
In 2001, six donors provided more funding than all the party membership subscriptions combined.
In the last decade, 9 donors are believed to have given over £40 million to Labour and the Conservatives.
The personal wealth of Lord Sainsbury and John Paul Getty could fund the parties for decades if all other sources of income dried up.
Conflicting interests
Conflicts of interest are inevitable. Anyone in a position to make a large donation will have interests that are sensitive to government policy. Opposition parties store up the same conflicts for future terms of office.
Governments of all colours increasingly contract out operations to companies and organisations who may be donors.
Since Labour came to power, over £25 million has passed through the Union Learning Funding, which provides government funding for training schemes administered by unions for their members and others.
Under the Conservatives, some 42% of the millions allocated under the 'aid and trade provision' went to companies that had donated to the party. 40% of all knighthoods and peerages went to directors of donor companies.
Subsidy by stealth
State funding is increasing by stealth. With more money for the Opposition, more political advisers for government and a £2 million policy development fund, state funding is up from £1.5 million in 1997 to some £9 million in 2002.
The state is the largest single source of funds for the Conservative Party.
State funding increased 300 per cent during the same period turnout dropped by 12 per cent.
All current state funding is fixed by Parliament according to the shares of votes cast at the General Election but with no reference to the total number of people voting.
Clean money
If donations are capped, what will make up the shortfall? Simply adding to the blocks of public funding the parties already receive will not bring them closer to the people. A surge in membership and small donations is too much to hope for, even if tax relief or matched funding is introduced.
The New Politics Network believes the best solution is to set up a new level of political participation, a halfway house between just voting for a party and becoming a full member. These 'registered supporters' or 'sponsors' would not have to pay to register, but would sign a form stating their support and that they wanted a sum of 'Clean Money' from public funds to go to the party on their behalf.
The amount would be small, somewhere between £10 and £25. Registered supporters could have a say in party affairs, perhaps voting in primary elections for MPs or for the party leader.
It would mean that party fundraising would be about creating the largest possible number of two-way relationships with ordinary voters, instead of courting special interest groups and millionaires.
Options for Reform
What controls should there be?
Stop the arms race - reduce the amount parties are allowed to spend
Political parties expend much of their resources trying to put over their message. As party organisations shrink, fewer footsoldiers are available for door-to-door canvassing at election time. Parties turn to commercial channels and media management to get superficial messages across.
Some evidence suggests that political advertising has little effect - but the perceived need to match their opponents advert for advert, billboard for billboard has created a fundraising and spending arms race.
Both Labour and the Conservatives have at times run-up huge overdrafts to pay for their campaigns. The PPERA set limits of £20 million on the amount any party could spend during the period of the general election campaign. It could be argued that this is still far too high, and should be reduced.
| For | Against |
|---|---|
| Parties should have to engage with the electorate intelligently, instead of relying on slick advertising techniques to get superficial messages across.
Only the largest parties can afford expensive campaigns, so smaller parties without backing from big business are unfairly disadvantaged. If the limit were set low enough that it could be met without raising funds from big donors, parties would find it easier to turn down such donations. | When voter turnouts are already low, should we be reducing the resources political parties can use to get their message across?
By international standards UK politics is quite inexpensive - more was spent in 2000 by candidates seeking election as judges in the US than by Labour and the Conservatives at the general election. |
Ban donations from companies and organisations
Donations from companies must be approved by shareholders and details must be included in the annual report. In most unions, members can ask that no contributions are made to the Labour Party on their behalf, although this doesn't necessarily reduce the dues they have to pay.
Although shareholders and union members have a say in where the donations are given, in practice the decision rests with a limited number of directors or union delegates.
Companies and unions represent special interests and the suspicion is always that their importance as funders of political parties gives them a special position of power. Government contracts are sometimes awarded to companies that have made donations. Unions can use the threat of withdrawal of funds as an additional lever on government policy above and beyond the merits of their case alone.
As it is individuals who vote in election, there is an argument that only individuals should be permitted to finance parties.
| For | Against |
|---|---|
| IThe most controversial donations are often those where the company has made donations to the governing party and subsequently received a contract for government work, or favourable legislation. Parties should serve the interests of the public as a whole, not the special interests of big business or union backers.
There will be nothing stopping shareholders, directors or union members from supporting parties in their own right. The only effect would be that over aggregated donations would not be concentrated in the hands of a few. | Wealthy directors whose interests are identical to those of a company could make donations in their own name, but still be accused of purchasing favour for their companies (see Paul Drayson)
If the company of organisation thinks that one political party will create a better environment for its activities than another, it should be free to support that party. Unions are a fundamental part of the Labour movement. Banning them from making political contributions is politically biased. |
Limit the size of donations
It would be simple to cap the amount that any company, and union or individual could donate to a party during a calendar year.
| For | Against |
|---|---|
| Big donations always arouse suspicion about what the donor expects in return. If donations were limited to a maximum of £5,000 or £10,000 a year, no single donor would be so important to a party that they would appear to be in a position to demand special favours.
Parties would be forced to draw donations from a wider range of supporters. The funds at parties disposal would be a fair reflection of their support in the country: "striking gold" by finding a sympathetic millionaire would not have such a distorting effect. | Parties are now so reliant on their major donors that without their contributions, a huge shortfall in party finances would have to be filled by state funding.
If super-rich individuals are prepared to pay for our politics, why should we stop them? We already know who is giving and how much. Donations are subject to such media scrutiny that special favours are all but impossible. People could cheat and split donations up between their family members and associates. |
How should public funding be distributed?
Tax relief or match funding of donations
Political parties are not allowed to have charitable status, so they cannot benefit from tax relief on donations. The rules could be changed so that political parties did qualify as charities. Or match funding could be introduced, so that for every £1 donated to a party, £1 of public funds would be added. A limit would be set for the maximum amount that would qualify, for instance the first £100 of any donation.
| For | Against |
|---|---|
| The onus is still on political parties to raise money themselves: they cannot just sit back and enjoy state funding.
The public funds would be genuine reflection of the support a party enjoyed. Only parties with supporters dedicated enough to dip into their own pockets would benefit. | The system would be biased in favour of parties with wealthier supporters, as the more they donated, the greater the public subsidy per individual. Even with a threshold fixed as low as £100, poorer supporters of a party would lose out.
It would be bureaucratic. If the government will double my contributions to a political party, why not my contributions to a religious or other campaigning organisation? People could get round with the limit on match funding by splitting their donation up among different family members, each giving up to the maximum. |
Public funds for each vote won
Public funds could be allocated to the parties on the basis of the vote won at the general election. At the last election 32 million people voted, so a subsidy of 50p per year for each vote cast replace large donations.
| For | Against |
|---|---|
| BIt would be very easy to administer: no forms to fill in, and the figures for votes cast are already carefully audited.
It would give people and extra incentive to vote, especially in seats where the result is a foregone conclusion. The public funds would very closely reflect a party support in the whole country. Every vote would carry the same financial weight, so it has democratic appeal. | Just because someone has voted for a party doesn't always mean they strongly support it. They might like the particular candidate but disagree with the party's policies. Or they could be voting tactically, to keep out a candidate they want to lose. So this system would mean contributions being made on behalf of voters to parties that they did not really support.
It would encourage parties to be lazy, as they would not need to do any more to engage with people than they do at present. |
Public funds for each supporter
Individuals who wanted a contribution to be made from public funds on their behalf, to the party of their choice, could take a box on a tax return or fill in a form provided by the party. Everybody would be entitled to the same contribution.
| For | Against |
|---|---|
| Parties would have an incentive to get more people involved.
It could lead to increased membership of parties, improving the vitality of political life in the long-term. Unions and other organisations that currently make large donations could still have a role to play in encouraging their members to sign up. | If this system were reliant on people ticking a box on their tax return it would discriminate against large swathes of the electorate.
It would only require a very superficial level of support: just taking a box on a form would not indicate that someone actively supported a party. People are so cynical about politics, too few would be prepared to sign up to replace the big donations. |
Public funds for each member
A fixed amount of public funds could be given to a party for every member registered and audited as genuine.
| For | Against |
|---|---|
| Parties would have an incentive to recruit new members.
It would reflect the real strength of support for parties in the country as people do not join a political party lightly. | It would reflect the number of hardcore supporters a party had, rather than its wider support among less politically minded voters. In the future, extremist parties with large memberships but few other supporters could benefit disproportionately.
The parties are all organised in different ways. Setting a single standard by which memberships had to be audited would inevitably be biased against one of them. Politics is a hobby like any other. If the state is going to support one membership organisation, why shouldn't it subsidise my membership of the local bridge club? |
Give parties free advertising - reduce the amount they need to spend
All parties fielding candidates at the general election are entitled to party political broadcasts on terrestrial television. Providing airtime for these broadcasts is one of the conditions of the broadcast license.
In an election year, these broadcasts are thought to be worth up to £54 million. Parties are also entitled to a free mailing to all households, estimated to be worth £17.6 million in 2001. Extending free advertising to include newspapers and billboard sites would reduce the pressure on parties to take money from controversial sources.
| For | Against |
|---|---|
| It would ensure that parties could get their message across using modern media channels, without making the ability to pay for advertising a crucial part of the election process. | Unless the owners of the media were properly compensated, compelling them to hand over advertising space to political parties would be tantamount to theft
Political parties should be able to decide how to campaign, including which media to use. Introducing government regulation to the process would be inefficient and would stifle innovation. |
How big should a party have to be to qualify?
Qualification by votes cast
Either an absolute figure, say 500,000 votes, or a percentage of the total votes cast.
| For | Against |
|---|---|
| It would be straightforward and a threshold could be fixed at a level that ensured parties had significant support and were not just local, charismatic movements. | It would discriminate against parties with focused, local support, which have just as much right to representation as larger but more diffuse movements.
Which elections would count? Some parties may be focused on local or regional issues and not fare well in national elections. It could allow extremist groups with very shallow levels of support across the country to gain excessive prominence It would distort the core purpose of voting, which is to elect a MP or representative, and could lead to any increase in protest votes for frivolous candidates. |
Qualification by number of members
arties would need audited membership figures over, say, 20,000 in order to qualify.
| For | Against |
|---|---|
| It would encourage greater activism. Any party with such a membership deserves to be taken seriously.
A substantial party with proper democratic procedures is more likely to make good use of public money than a small, charismatic movement with popular support but little organisational depth. | Single issue and extremist groups with a hardcore supporters but lacking wider popular support could set up as parties by migrating their existing memberships, giving them a publicly funded platform.
With the memberships of the major parties in decline, setting a substantial membership threshold for new parties would be an effective bar on their qualifying. |
Qualification by Number of Registered Supporters
| For | Against |
|---|---|
| Parties would have to persuade a set number of people to register as supporters of the party, rather like getting up signatures for a petition. Only if a sufficient number of supporters could be registered with the party qualify for public funding. | Getting people to sign declarations of support is meaningless: they neither have to have voted for the party, nor dip into their own pockets to provide funding. |
Qualification by having a democratic structure
arties would have to meet the set of criteria about their governments procedures and internal democracy. Transparent accounting practices would obviously be needed, and other qualifications such as "one member one vote" elections to the leadership, or meeting diversity criteria for candidates could be included. Parties could be obliged to spend a proportion of their funding on public consultations or educational initiatives, to ensure that genuinely intact with public sentiment.
| For | Against |
|---|---|
| It would ensure that state funds never went to narrow, personality based parties which were anti-democratic.
It would encourage parties to be progressive and forward-looking. | The government should not interfere in the internal affairs of political parties.
It is biased against right-wing, authoritarian types of party and is politically correct. |
Qualification by number of elected representatives
Parties would have to prove that they were a serious political force by winning a set number of seats in the House of Commons, Scottish parliament, the Welsh assembly, European Parliament or on local councils.
| For | Against |
|---|---|
| To win a seat, and party usually has to have sons of the organisation, so I had the structure to channel public funds productively.
Electoral success is the ultimate yardstick by which political parties are judged: so it makes sense for public funding to follow suit. Extremist parties might face a united front from mainstream opponents if they looked likely to win seats and qualify. | Stuart Drummond aka h'Angus the monkey was elected mayor of Hartlepool with 20,000 votes. Although he takes his job seriously, turnouts are now so low, and politics held in such low esteem that it would be possible for joke parties to win seats and qualify for funding.
If the threshold was set in terms of Westminster MPs, it would be biased against parties which do not thrive under the first party post system. If it took into account or the other types of elections, it would be confusing make it easy for parties to qualify on the strength of freak results in poorly attended elections. |
Further Reading
- Strong Parties, Clean Politics, New Politics Network, 2003
- Life Support for Local Parties, New Politics Network, 2004
- Parliamentary Briefing on Party Funding, New Politics Network, 2005 (PDF)
