Funding - rules, controversies, reasons for reform and possible solutions

Party finance review post-1997 Ecclestone Affair

• Labour comissioned review of party finance by Committee on the Standards in Public Life

• Proposals adopted in the 2002 PPERA

2002 - Political Parties, Elections and Referenda Act - regulation, more money and establishment of EC

• Regulated donations and spending

  • Increased funding transparency

    • Donations >£500 have to be declared

    • Donations >£7,500 have to be placed on electoral register

  • Election spending capped at £30,000 per constituency to stop parties trying to outspend each other

  • Prevented foreign donations (those not on the UK electoral roll)

• More money:

  • Introduced Policy Development Grant

  • Increased amount of Short money (then decreased by £3.6bn and increased in transparency by 2016 Cons govt)

• Established Electoral Commission that oversees laws relating to party finance

Electoral Commission

• All parties must submit publicly available audited annual accounts

• All donations >£7,500 must be declared to the EC and made public

2009 - Political Parties and Elections Act

• Gave EC power to investigate and impose fines

• Restriction of donations from non-UK residents

• Tighter regulations in run-up to elections

2016 - Labour’s fining by the EC

• Labour Party fined £20,000 by EC for breaching finance rules

• Launched after £7614 missing from election returns for costs of Ed Miliband’s tombstone

  • Identified 24 other undeclared expenses - £109,777

• EC wanted to increase £20,000 penalty to be more inline with spending and donations of parties

2017 - Tory fining by EC

• Cons Party fined £70,000 by EC due to breaches in expenses reporting in 2015 GE

• EC found failure to report £104,765 of campaign expenses and incorrect reporting of £118,124

1994 - Cash for Questions

• Alleged that Ian Greer (lobbyist) and Mohammed Al-Fayed (owner of Harrods) paid cash to Tory MPs Hamilton and Smith to ask questions in the HoC on behalf of Al-Fayed

1997 - Ecclestone Affair

• Formula 1 Chief gave £1m to hte Labour party

• F1 was then the only sport to not be banned from advertising tobacco products

2006 - Cash for Honours

• Several Blair nominees for life peerage had recently made large donations to the Labour Party 

2020 - Johnson’s Mustique holiday

• Johnson’s Mustique holiday was allegedly funded by Ross (Carphone Warehouse owner)

• Ross’ private opera company was then given a furlough grant by the Arts Council

Bridgemere controversy

• Pre-2019 election - donated £1m to the Tory party

• Circle Health (which Bmere has a sig stake in) got a £346m Covid contract

• Govt and Hancock failed to declare the meeting took place to set up the contract

Gmail account controversy

• 2021 - companies who wanted Covid contracts who were linked to ministers were fast-tracked through contact process

  • Also directed to VIP lane gmail account

• Companies not necessarily Tory donors but raises qs about ‘chumocracy’ and govt transparency

Sir John Homes

• Failure to follow rules by the Tories ‘undermined voter convidence in our democratic processes’

Donations undermining public faith in the political system

• ‘Big money’ donations to political parties undermine public trust in the electoral process being democratic and working for them as well as the elite

Unaccountable political influence

• Large donors who donate to parties are both a hidden form of influence and unaccountable

• Parties cannot propose/change policies/leglisation due to a donation but donors do expect a return for their investment

  • E.g. trade unions for Labour, business interests for the Tories

Corruption

• Funding can be morally or legally corrupt

• Donors may expect an honour for their donation (peerage, knighthood) - ‘cash for honours’

  • No proof of existence but investigated by police in 2006-7

    • Not taken any further by CPS but suspicions linger

Influence of individuals and cash for honours/promo

• Wealthy and influential elites can donate when most people cannot afford to

• E.g. Lord Bamford donated £3.4m to the Conservatives during Brexit 

  • His company’s ‘Get Brexit Done’ digger was heavily featured in the campaign

  • Lord Bamford is a legislator in the HoL

Labour and unions

• Labour receive a lot of donations from trade unions

• Arguably, their policies are biased in favour of trade unions, especially the ones that donate a lot to them like Unite

• Union members’ subscription fees are often spent on donations to the Labour party

• Members are not given a clear enough as to if their subscriptions should be spent on this

2020 - Unite union and antisemitism payouts

• Reviewing donations to the party due to antisemitism crisis

• Starmer decided to pay 6 figure damages to ex-staffers who claimed lack of proper dealing with antisemtisim in the party

  • Unite union does not agree that member’s money should be spent in this way

Growing funding imbalance

• Conservatives are given more and more by donors, and smaller parties struggle to compete for funding, leading to an unequal political landscape

• Funding, both public and private, massively favours the two largest parties

  • This disadvantages smaller parties, who need the money to fight elections

• Political inequality and a two-party system are then created

2019 - Conservative fundraising

• Tories passed their £25m record (from 2017) of money raised in the run up to an election

2020 - number of top 100 political donors that supported the Conservative party

• 44 (44%)

Impact of decreasing membership on this issues

• Parties are more and more reliant on donors

• Therefore, there is more opportunity for buying political influence and corruption

4 basic solutions to solve the undemocratic funding of UK political parties

1. Impose individual donation caps (would have to be low to be effective)

2. Impose spending restrictions to make fundraising futile

3. Only allow individuals to donate (so no trade unions, businesses or pressure groups)

4. Replace all funding with state funding (e.g. expand pre-existing Short and Cranborne Money

2007 Phillips Report - ‘Strengthening Democracy: Fair and Sustainable Funding of Political Parties’

• Suggested state party funding based on vote share/membership size would make UK party politics fairer and more democratic

Positives of state funding - equality

• It is the only solution that would create more equality

  • As long as market forces determine funding, large parties will be at a significant advantage

Positives of state funding - cost to the taxpayer

• Parties only need roughly £25m/year to carry out their functions, which is very little in the grand scheme of things

Positives of state funding - reliance on donors

• State funding would reduce reliance on donors

  • Parties would focus more on responding to voter’s and member’s demands

    • This would increase public trust in politics

Positives of state funding - pre-existing regulation

• Although there is regulation that governs donations etc. it is deeply inadequate and 

Problems with Short money

• Favours large parties as is calculated based on party performance (votes and seats) in the previous election

2019 - Short money received by Labour

£8m+

2019 - Short money recieved by SNP

£825,589.25

2015 - UKIP and Short money

• Refused £500,000+ in Short money after they won 1 seat as the MP (Carswell) suggested it was corrupt and designed to favour established parties

Public opinion on state funding of political parties

• Taxpayers do not want their money going to parties because

1. They don’t want it going to parties they don’t support, especially extremist ones like the BNP

2. Parties are decreasing in importance in people’s lives and people are becoming disillusioned with politics

3. Public resources are stretched thin enough already without tens of millions of £ going to political parties

4. They don’t trust politicians to spend this money wisely, especially after the 2009 expenses scandal

Negatives of state funding - choice

• Reduces citizen’s right to choose if they want to donate to a cause they believe in, in this case political parties

• We have the right to support and sustain causes and interests important to us

• Political parties do not have financial support like charities/faiths/interest groups so forcing them to be only state funded flys in the face of basic principles of a pluralist liberal democracy

Negatives of state funding - pre-existing regulation

• Donations are heavily regulated by the Electoral Administration Act (2006) and the PPEA (2009)

• Individual donations are now declared and transparent

Negatives of state funding - independence

• State funding will mean parties are less independent

• They will become part of the larger apparatus of the state as opposed to alert, independent entities

  • They will be less likely to challenge the political system and the state as it now financially supports them

• Having a large range of income streams (as promoted by Blair and Corbyn) means parties have links to larger society, meaning they listen to more voices

  • This would be taken away if state funding was introduced

Negatives of state funding - multi-party system

• Established parties will want to prevent new parties coming into the picture as more parties = dilution of income stream for all parties

• There will be fewer choices for the electorate and major parties will dominate

• It may also still favour established parties if the calculation is made on previous election data

Ways to eliminate abuses instead of full state funding

• Full transparency

• Limits on donations from businesses and unions

• Break the link between ‘cash and honours’

• Limit individual donations

Main parties and their standing - LibDems and Greens

• Vocal advocates for full state funding (although this might change under Polanski 💚)

Main parties and their standing - Conservatives and Labour

• Don’t want to do anything as they benefit from the failing system

• May strike a deal with capping trade unions and capping businesses to take away both of their main sources of income as a compromise