UK party funding: no cash, no democracy

Proposed reforms to party funding would help to remove 'big money' from British politics. But they won't address the underlying problem: the gulf between Westminster and the public.
Oliver Huitson
24 November 2011

On Tuesday, the Kelly report proposed a major shake-up of party funding, something all three main parties made commitments to in their 2010 manifestos. Though largely sensible, moderate and bipartisan, the critical question remains – why are our political parties unable to fund themselves respectably?

In the wake of numerous scandals the need to remove 'big money' from politics is hardly controversial, but not so the means of doing so. To address the sources of Tory and Labour money, the report suggests firstly a cap on individual donations of £10,000 a year to be applied to individual and company donations - a major hit to Conservative funding.


BIJ research revealed financier David Rowland had given the Tories £4m in 2 years. Photo: Derek Bennett 

But, infuriating Labour, it also applies to union donations. For unions, rather than an opt-out system for fees, the report suggests an opt-in system: individual members would have to explicitly agree to the £3 a year affiliation fee. Making up the overall funding shortfall would be a state subsidy of £3 per vote cast - costing an estimated £100m over the five years of a parliamentary term - and a reduced cap on overall election spending is also proposed. So far, so reasonable. Naturally, Westminster disagrees.

For the Conservatives, so reliant on the donations of fellow millionaires, the cap on individual donations would be a fatal blow. However generous and accommodating the 1% may be, they are still only 1%: cap their donations and in the funding arena they are politically neutered. The Tories have instead demanded a cap of £50,000, a proposal justified, so far, only on grounds of open self interest.

Oliver Heald, the Conservative committee member, has also insisted on a “recognition from Labour and the unions that trade union donations should be capped equally with other donations”. Yet this makes little sense. A union is not the same as a company or a wealthy individual, it is a mass democratic organization for workers. Donations from individuals or companies are typically made with very narrow interests in mind, interests that rarely coincide with those of the public. In comparison, funding from a group of individuals levied and dispersed via a union constitutes a collective donation from a sizable chunk of the working public. It is that public mass, surely, that confers democratic legitimacy rather than the lightly taxed gains of the Lord Ashcrofts of the world. The Conservative insistence last year on 'one person one vote' doesn’t sit well with 'one exile, a million votes'.

The final Tory objection, voiced by Baroness Warsi, is that the public have “no appetite” for state funding in these times of austerity – austerity, that is, imposed by the political class and the financiers who fund their parties. Despite the Lib Dems standing to gain most from the funding reforms they are standing firmly with their government partners. Nick Clegg has stated that, though reform remains a priority, “the case cannot be made for greater state funding of political parties at a time when budgets are being squeezed and economic recovery remains the highest priority”.

For some this may be a little hard to swallow. While £100m cannot be spared for democratic probity, the coalition has just made a loss of £400m of taxpayers' money by selling Northern Rock for substantially less than it was bought for. The bank, with its toxic debts socialized as is now de rigeur, sits primed and ready for asset stripping - and all at a knock-down price. This, and not the democratic funding of politics, is George Osborne’s idea of “value for money”.

Labour, for their part, are rejecting any reform of union levy rules, particularly the switch from opt-out to opt-in. The move would cripple Labour financially whilst encroaching on internal union policy. Responding to the report, Margaret Beckett said that, “Fixing the level of subscription that an organisation may charge its members is an unacceptable intrusion into the internal workings of a political party, which the committee had sought to avoid." On fixing levy rates Beckett may have a point. But the move to an opt-in system is a reasonable step for any democratic funding structure.

The case for funding reform has rarely been stronger. In a survey for the inquiry at the end of last year, 81% of the public believed donations of over £100,000 were most commonly given for “special favours in return for gaining access to those taking decisions”. Are their fears well founded?

Last year, over a quarter of donations to the Conservatives came from hedge funds, financiers and private equity groups. Donations from the City as a whole made up 51.4% of the Tories’ £12.2m receipts. In terms of policy the coalition could scarcely have been softer on finance, which still remains almost entirely unreformed; bonuses still flow even from state-owned banks, the sector received a subsidy worth an estimated £46bn last year and a Tobin-tax on financial transactions is being strongly resisted. Elsewhere, since David Cameron took over the leadership of the Conservative party over, £750,000 in donations have come from firms and individuals in the health industry. This month saw the first NHS hospital handed over to a private company, Circle. Despite their denials, the NHS is being privatized before our eyes. In both health and finance, political donations appear to be very sound investments indeed.

That large donations from wealthy firms and individuals are an unhealthy method of funding political parties is largely accepted and the proposed reforms, if state funding is to be the answer, are largely on the right track. But there is a wider crisis here, that of legitimacy and representation. In the last thirty years membership of political parties has declined rapidly leading to a major fall in membership funding. In 1975-9, the major parties received around 49% of income from membership. By 2005, membership fees accounted for only 10% of Labour income, and a miniscule 3.5% for the Conservatives. The majority of party funding now comes from wealthy individuals and companies making large donations. Between 2001 and 2005, for instance, over 43% of Tory donations came from payments of over £100,000.

Coinciding with this shift has been a stark increase in inequality, large scale privatization, tax cuts and a long standing assault on the public sector. As politics has been increasingly funded by the few, so it has come to operate for the few; the top 0.1% of the population are expected to own 14% of national wealth by 2030. It stands to reason that those benefiting are the ones paying, as explained in Thomas Ferguson’s ‘investment theory of politics’: policy is increasingly bought and those who donate see the fruits of their investment carved into the statute books. And herein lies the danger.

By compensating for donations lost due to the proposed caps, via state handouts, the underlying reasons for membership and funding decline go unaddressed, thereby removing the need for parties to return to their proper democratic function: representing the majority rather than the emerging plutocracy. The cap on donations is welcome but over time should be reduced much further still to the level attainable by the average citizen, probably no higher than £150 a year (£12.50 a month), tied to inflation. Having identified the problem, the solution proposed by Sir Christopher Kelly risks crystallising it, leaving workers in the worst of all possible worlds: they will be forced, under PAYE, to fund political parties who have worked consistently against their interests for decades, and continue to do so. Capping donations and making union fees opt-in are both sensible proposals pushing Westminster back towards the public, but to gift them public money is to give the green light to business as usual: policy for the few, paid for by the many.

The shortfall in revenues should be the responsibility of the parties to make up in membership fees, an aim easily achievable for a party committed to the material interests and desires of the general public. To raise £20m, the sort of level envisaged, would require less than 140,000 members paying £12.50 a month, or 280,000 paying around £6 a month, all from a population of over 60m. Representation begets membership begets funding. To use an analogy well understood by the political class; instead of subsidising those who fail – namely, themselves - let the democratic market rip. 

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