Grasping the nettle: how to clean up party funding

There are simple solutions to the UK's party funding mess.

Josiah Mortimer
20 February 2015

Another week, another scandal. Party funding is back in the news again, and for many it sadly comes as little surprise.

We have grown used to allegations of tax-dodging donors, multi-million loans from wealthy backers that will never be repaid, paid access to ministers and more.

As party membership has tumbled in recent decades, reliance on a handful of big donors and organisations has increased. Donations over £250,000 accounted for over half of Labour’s, a quarter of Conservatives’ and a sixth of the Liberal Democrats’ donations income between 2001 and 2010. These donations are coming from just 60 ‘donor groups’, giving rise to justifiable suspicion that these groups have far too much influence on our politics. And this serves to reinforce the assumption that politics is increasingly something for a small number of people, and not something for everybody.

It’s clear that the public are fed up. Polling last year for the Electoral Reform Society showed that 75% of the public believe big donors have too much influence on our political parties, 65% believe party donors can effectively buy knighthoods and other honours, and 61% believe the system of party funding is corrupt and should be changed. ‘Corrupt’ is a strong word, so it says a lot that this is how the public feel.

The question is: what to do about it?

Looking for solutions

The problems are pretty clear to most – we have a party funding system where individuals or businesses can effectively ‘buy’ a party, pumping as much money into it as they desire. Parties then have to spend much less time trying to win the financial backing of millions of ordinary people. The lack of a donations cap, then, is a serious impediment to democracy. Many developed economies have donations caps in place. It’s time the UK followed suit.

The presence of big money in our politics is particularly damaging at election time. One thing driving the dash-for-cash is the lack of a proper spending cap in the UK. The fact that the limit has just been increased by 23%, with the Conservatives building up a £78m ‘war chest’, suggests that this May could be a particularly high-spending election, particularly with the surge in smaller parties. This race to outspend each other destabilises our politics. Parties, with their highly volatile sources of income, could be left exposed by a lack of funds compared to their rivals, which in turn increases the incentive to be less than pure about what they provide in return for cash. A proper spending cap would end this arms race and put parties on a much more sustainable footing.

Needless to say, parties do need money to function. We live in a modern democracy with millions of people whom the parties need to reach. But the source of the funding needs to change – from big donors to cleaner and more democratic sources of income.

One part of the solution is for parties to shift to being funded by their millions of supporters. Many are pointing to online funding and supporter engagement as the new panaceas. But let’s not kid ourselves. Disillusionment with politics and parties runs very deep indeed, and people aren’t rushing to donate just to take the place of hedge-fund managers or union leaders.

There are promising developments, it’s true – for example the use of crowdfunding by parties – but these still don’t remove the incentives for parties to accept multi-million pound contributions. Nor do they deal with the arms-race in campaign expenditure. They are, unfortunately, a democratic trickle of funds amid a deluge of undemocratic cash.

So what else is needed?

A not-so-radical idea

Mention state funding of parties in the UK and it can be hard to get past the barrage of instant booing. And not without reason: the idea of giving taxpayers’ money to some of the country’s least trusted institutions does, understandably, cause some discomfort.

But it’s not as controversial an idea as it seems. In the UK, we already publicly fund our political parties. Opposition parties receive ‘Short’ money to pay for parliamentary activities (£7.5m in 2014/15 alone), travel and the Leader of the Opposition’s office, in order to ensure proper scrutiny of the government can take place. ‘Cranborne’ money is the equivalent in the Lords, at nearly £650,000. In addition to direct funding, parties do not pay for political broadcasts (paid broadcasts are prohibited), and are entitled to free postage for one leaflet in both General and European elections.

But we don’t invest enough, with the UK spending just a tenth per voter on political parties as the rest of Europe – 36p a year to £3.25. It’s a shocking indictment of how we treat our democracy in the ‘Mother of all Parliaments’, leaving it to the whim of benefactors. Some 91% of European countries publicly fund their political parties – they understand the need to avoid parties luring wealthy backers with peerages or policy commitments.

The question of where the money will come from to replace the estimated £30m lost by parties if a £10,000 donation cap was put in place is a valid one. But there’s a very simple answer. A cross-party report in 2013 found that £47 million could be saved by replacing the freepost leaflet system with a joint election address booklet (copying the Mayoral and GLA election practice) – more than enough to cover the lost £30m. And if a donations cap and public funding is combined with a lower spending cap, parties won’t need as much money in the first place.

Next steps

Reforming our party funding system is completely achievable. There’s strong public support for doing some deep-cleaning of party finance, while the latest scandals show the need for change is more urgent than ever. We can’t go on stumbling from crisis to crisis and headline to headline, with public trust continuing to plummet. If we’re serious about democracy, it’s time to clean up this mess before it’s too late. The stakes are too high not to act.

The past few years have seen cross-party reports on this with no action. Waiting years for another report or further deadlocked party negotiations isn’t the only option. There are gains to be made by any party or parties that go ahead with funding reform after May.

Let’s hope, whoever gets to power, that they do.

Read the Electoral Reform Society’s new report, ‘Deal or No Deal: How to put an end to party funding scandals’, released today.

Who is bankrolling Britain's democracy? Which groups shape the stories we see in the press; which voices are silenced, and why? Sign up here to find out.


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