Next month sees the publication of a new report on political party funding by the Committee on Standards in Public Life. In the coalition agreement, the Government promised to ‘remove big money from politics’ by ‘limiting donations and reforming party funding’.  The forthcoming CSPL report could represent an initial step towards this goal. So what can we expect to see: real reform, as promised, or a continuation of the increasingly divisive status quo?

Whilst we have come a long way since the rotten boroughs of the early nineteenth century, contemporary political history is littered with examples of politicians and parties seduced by money. Cash for questions, cash for honours, secret loans and various other scandals have reaffirmed its destructive influence. Earlier this month, concerns were raised when an oil firm, whose chief executive had donated more than £200,000 to the Tory party, was given exclusive rights to trade with the rebels in Libya.

The debate around party political funding has fallen off the radar slightly in recent years. Minimal discussion took place during last year's elections, although that was possibly due to commentators being preoccupied with Gordon Brown's calamitous PR disasters and the anticlimactic ‘leaders debates’. The topic of party funding was also largely absent from the debate over voting reform earlier this year, despite arguably being of equal importance to the functioning of our democracy.

The first serious attempt to place limits on election expenditure was the 1883 Corrupt and Illegal Practices Prevention Act. At that time almost all campaigning was conducted in constituencies and the Act did not envisage elections conducted primarily at a national level. A 1952 court case involving Tronoh Mines Ltd (who had placed an advert in The Times, urging people to vote against the Labour party) reaffirmed that the Act could only be applied to candidate spending in local constituencies. The judge ruled that since the Tronoh advert omitted to mention a specific constituency candidate, the case should be abandoned. Since then we have witnessed an explosive increase in the role of national political parties during elections. The amount of money a party can raise to fight a campaign has become key to success, with Labour and the Conservatives spending a total of £90m during the 2005 elections.^[1]

Slow progress

There is a lengthy history of unsuccessful attempts to fix the broken political donations system and a number of reports have been produced.

In 1997, the Neill Committee highlighted the emergence of a 'spending arms race' and a later Constitutional Affairs Committee report noted that between 1983 and 1997 Labour party campaign expenditure increased five fold in real terms. Likewise, Conservative party spending increased by three times during the same period.

The Neill report of 1998 formed the basis for the Political Parties, Elections and Referendums Act (PPERA) 2000 and the formation of the Electoral Commission. It also led to the establishment of a spending limit during the 356 days prior to a general election, along with the requirement for all donations over £5,000 to be publicly declared. However, the Neill Committee explicitly opposed a cap on donations.^[2]

Skip forward ten years from the Neill Committee and the attitudes of political elites appears to have changed. In 2007 a report by Sir Hayden Phillips proposed a cap on donations and also sought various ways to reduce spending at both a local and national level.

This was followed by a 2008 Ministry of Justice report which concedes that the PPERA 'did not succeed in the intended objective of ending the spending arms race'. It also quoted criticism of the Electoral Commission, who are seen by some as an ineffective regulator, suggesting that the commission needed to better pursue breaches of the rules.^[3] Like Phillips, the MoJ report also concluded that a cap on donations was desirable.

The left are quick to acknowledge the potentially corrupting influence of large campaign contributions, particularly from corporations. The investment theory of party competition, put forward by American academic Thomas Ferguson, posits that it is unions and business elites – rather than voters – who have the greatest influence on party policy. Yet major parties have appeared slow in their efforts to reform the system. This begs the question: to what extent does the current situation benefit the three main parties?

Alternatives marginalised

As far as the smaller political parties are concerned, raising the kind of money required to compete at a national level can prove exceedingly difficult, particularly with the absence of corporate or union funding. Even taking into account their smaller size and support base, smaller parties remain wildly outmanoeuvred.

Loz Kaye, leader of Pirate Party UK, who campaign on an agenda of digital rights and civil liberties (the Swedish arm of which are represented in the European Parliament) suggests that although discussion on party donations is to be welcomed, this fails to get to the root of the problems facing the electoral system:

Thanks to expenses scandals and an out of touch elite ordinary people already dislike politicians and politics enough as it is without asking for any more of their money. It is time to reopen negotiations on a donations cap again, but there must be no to secure the advantage the big three parties already have.

Until we have serious reform, the main parties will continue to swing elections focusing on just a few electors, leaving marginalised communities out in the cold.^[4]

In the Green Party response to a 2010 CSPL survey, they raised the following concerns about the financial impact of the current system on smaller parties:

The ideal would be to construct a system that was the same for all parties and also had fair outcomes for all parties. For example, the system for reporting donations creates an administrative overhead that has a proportionately greater impact on smaller parties. A  simpler system would reduce this overhead and so reduce a current unfairness on smaller parties. Similarly, the requirement for a deposit of £500 per Westminster constituency is a very heavy financial burden on smaller parties and a significant barrier to the creation of new parties. Reforming the deposit requirement – as has already proposed by the Electoral Commission – would be the most effective single way of reducing the disadvantages faces by smaller and newly-formed parties.^[5]

In previous discussions with my local Green Party branch, they have consistently complained of the difficulties they experience raising deposit money. Despite their best efforts, they were able to field a candidate in just one of three local parliamentary seats during 2010.

Options for reform

By far the most popular reform option is a cap on party donations, usually tied to an increase in public funding. This has been supported by the three main parties, but is perhaps now less politically feasible in the aftermath of the financial crisis, with some citing a lack of public support for taxes being utilised in this way. However, a 2006 Electoral Commission study found that as the public were educated on the relationship between donations and public funding, their views tended to shift, with many overcoming their initial ‘knee jerk’ hostility to public subsidy.^[6]

Additionally, the costs involved are not necessarily as large as some opponents might expect. Lord Sainsbury suggested back in January that if parties were to become 85% publicly funded, this would cost taxpayers an estimated £50-60m a year, which is certainly not unreasonable.

Public funding can provide an important opportunity to those who would normally be dissuaded from running for public office by the high costs involved. Therefore, the knee-jerk reaction to immediately dismiss anything which costs money is to be avoided at all costs.

Moreover, public subsidies already exist in the form of short money for those opposition parties who gain at least 150,000 votes at a general election.^[7] It is also represented in free television time in the form of party political broadcasts and in election postage, worth around £121m according to the Ministry of Justice.^[8]

Assuming all major parties still agree on the need for a cap on party donations, there are a multitude of ways in which it could be introduced .  This is inevitably where any potential reform may stumble. Previous reports have proposed caps in conjunction with one, or a combination of, the following options:^[9]

• A pence-per-vote scheme, where public funding is closely linked to popularity.
• An incentivisation scheme, whereby the value of donations is matched by the government.
• Grant funding, currently restricted for use in developing policy only.

A further hurdle to introducing a cap – one which prompted the withdrawal of the Conservative party from talks chaired by Sir Hayden Phillips in 2007 – is the categorisation of donations. Labour is clearly going to fight hard against any cap which treats large numbers of individual union contributions as a single donation. The Telegraph reported that Labour had relied on union funding for 56% of income during Gordon Brown’s leadership of the party and since the election of Ed Miliband it is reported that this figure had risen to 87%. The Conservatives on the other hand will surely resist any proposals which threaten their increasing reliance on financial sector and other corporate donations, which is reported to have grown to 50% following David Cameron’s election as leader of the party in 2005.

There is also a strongly expressed argument that reform must not be rushed, coming both from the parties themselves - who worry about a large hole suddenly opening up in their balance sheets - and others such as Stuart Wilks-Heeg and Stephen Crone, who argue that a 'big bang' approach would impact not only party finances, but also their immediate ability to engage with the electorate.

Elsewhere

This might be a good point at which we can attempt to learn some lessons, including some potential pitfalls, from other western democracies.

In the United States, as in Britain, a certain level of public funding is available to parties if they wish to accept it. At present, all parties are eligible for public funds, although if they choose to accept them no other donations are permitted. If however a party refuses to accept public funds, as the Republican and Democratic parties do, they are permitted an unlimited level of donations and spending.^[10]

Nevertheless, many politicians in US do appear to recognise the important of enacting reform extending public subsidy. A 2007 US government report looking at funding of congressional elections cited political scientists Donald A. Gross and Robert K. Goidel, who argue:

Public subsidies to candidates, whether in the form of direct grants or matching funds, are seen as a way to minimize the undue influence and corruption often ascribed to contributors and partisan fundraising.^[11]

Canada seems to provide an example of electoral finance reform which was until recently moving in a more progressive direction. A ban on corporate funding, along with a per-vote-subsidy, was introduced in the Federal Accountability Act of 2006.

Unfortunately, the present arrangement has come under attack from the Canadian Conservative party, who declared their intention to eliminate the per-vote-subsidy. The NDP leader Jack Layton spoke out against this prior to his death last month, calling it 'wrong' and stating that it would 'open the door for big money to come back into politics'. Even the present system potentially remains open to abuse, as shown by the actions of the pharmaceutical firm Apotex, who used members of staff and their families - including children as young as eleven - as a proxy in order to avoid the ban.

Increasing public funding also throws up some new freedom of speech dilemmas. In Belgium, a court ruled in 2004 that funding for the far-right party Vlaams Blok was to be cut following accusations of racism in their party material. This naturally prompted accusations of a campaign to stifle debate and to exclude certain objectionable views from being aired.

Solutions

So, assuming that party politics will be with us for the foreseeable future, what would a progressive solution, acceptable to the major political parties, involve? Whilst no level of reform will ever eliminate corruption entirely, the situation could be markedly improved in several ways.

In my opinion, reform should involve something along these lines: greater transparency in donations, a cap of around £20,000 on individuals, a ban on corporate donations to reaffirm public confidence in the electoral system; and an expansion of state facilities (television time, public billboards, etc) for those who gain a certain percentage of the vote, in an attempt to alleviate the financial pressure caused by the introduction of the cap.

With regard to trade union donations specifically; whilst I would agree that these should be treated as individual donations from members, I also believe the current rules will require some amendment to justify the continuation of the current process. If a system was introduced whereby members could choose which party to donate to, or if the donation became opt-in, this might perhaps placate concerns of those opposed to the union levy altogether.

With many on the left and in the public at large disillusioned with the whole idea of party politics, might giving the public that little extra influence perhaps help make our electoral system slightly more democratic? Do we currently fail to donate because we have come to assume that unions and corporations will do the job for us? When an MP or election candidate speaks publicly or makes a concerted effort to support an issue close to your heart, might this prompt you to make a donation? These are all questions we should be asking ourselves when we consider these issues.

Perhaps most importantly, I would like to see a re-localisation of our politics, whereby prospective parliamentary candidates would seek funding and support from within their own community. We appear to have entered an era in which a poorly-attended husting at a local church hall is the only opportunity many constituents get to connect with candidates. We urgently need a re-engagement of citizens with the political process, the decline in which the shift to national campaigning has no doubt assisted in.

I think it's also important to question why, despite few disagreements in principle between the parties involved, previous moves to reform the system have proved unsuccessful. This may be because parties have yet to feel obliged or pressured into reaching a compromise. Any changes made will inevitably represent a difficult balancing act and as with the alternative vote and other  proposed amendments to our democratic system, these can frequently be perceived to provide an advantage to the one party over another. This may explain some of the hesitation and why negotiations have stalled in the past.

It is frequently said that politics is too important to be left to politicians, so I would make the final suggestion that a strong case exists for party funding reform to be decided by the general public, in the same manner in which voting reform was earlier this year. Of course, it appears increasingly unlikely that a referendum on major changes to the system of party funding will take place in the absence of public pressure, so it would be important for supporters to apply this effectively through petitions and other forms of lobbying.

The CSPL report could represent the watershed moment in which politicians from all parties take collective and decisive action to change our democratic system for the better. However, I fear we shouldn't hold our breath.

Jonathan Davis is editor of Passing Nightmare