The next 12 months will be crucial to the coalition’s promise to reform party funding and ‘take big money out of politics’. An inquiry, to be conducted under the auspices of the Committee on Standards in Public Life, is already underway and will report in spring 2011, to be followed by inter-party talks.
It could be asked whether we need yet another review. Between 2005 and 2007, three separate reviews highlighted the need for reform, with the inter-party talks which followed the Hayden Phillips review in late 2007 coming close to securing agreement. Some, including Phillips himself, have argued that re-convening inter-party talks may be all that is required.
The Phillips review provides a helpful starting point, but is by no means the final word on the subject. Party finance is a complex field, new research has been published since 2007, since when a number of changes to the legal framework have also been made. In a Democratic Audit report published last week, we summarise where the debate is today.
The core problem is very simple indeed. Experts agree that political parties are essential to democracy because they perform a cluster of functions which link civil society to the state. The trouble with organisations operating at this interface, however, is that it is not obvious who should pay for their indispensability – particularly if they are profoundly unpopular.
International comparisons reveal two distinct approaches to party funding. In the Anglo-Saxon realm, it is generally held that parties should be financed by civil society – via membership fees, fund-raising and voluntary donations. In Western Europe, the dominant view is that the state should foot the bill, or at least the lion’s share of it.
The UK is one of few established democracies with a genuine ‘mixed economy’ of party financing. Donations are overwhelmingly the single largest source of party income in the UK, but direct government grants and a variety of ‘indirect’ state subsidies also play a significant role. There is diversity among the parties too. For instance, Labour obtains around one quarter of its income from fees paid by members of 30 affiliated organisations (trade unions and socialist societies).
The UK approach is hardly a model for others. Our funding regime represents a ‘muddling through’ rather than a ‘middle way’, and is riddled with problems and tensions. It is generally agreed that the parties are over-reliant on big donations and that this, more than anything else, is the cause of the funding controversies which impact so negatively on public confidence. Concerns about the ‘big donor culture’, highly evident during the 2010 election campaign, lie behind the coalition’s commitment ‘to take big money out of politics’.
‘Big money’ in politics is a genuine democratic problem, but removing it carries obvious risks. As Phillips identified in 2007, if donations were to be capped, there is no evidence that the parties could instead generate income from other sources. Even if it were possible to return to an age of mass party membership, the parties have always relied on large donations to fund their operations and election campaigns. The promise of Obama-style fund-raising seems superficially attractive, but every party fundraiser would dread the challenge of having to generate every £1 million from 20,000 donations with an average value of £50.
The two main parties probably could manage with smaller budgets for general election campaigns, since there is no real evidence that any party gains much by spending more (unless that money is targeted at marginal seats).
But campaign spending is not the major problem; the parties spend far more between general election campaigns than they do during them. Starving them of funds would render them highly vulnerable in a 24/7 news culture – particularly if they have relatively few friends in the media – and even less able to engage with the electors in local, devolved and European elections. Embattled and emasculated political parties are not good for democracy.
The conclusion reached by Phillips was that, if donations are to be capped, then additional forms of state funding will be required to compensate. The problem with re-stating this conclusion in the current fiscal environment is obvious – although it is not one which the Committee on Standards in Public Life will be able to ignore.
In our report, we suggest that a way forward based on a package of reforms which, together, could ‘nudge’ the mixed economy of party funding towards a more healthy balance over the course of three parliaments.
Our ‘pathway to reform’ involves a staggered, closely monitored, introduction of donation caps, a progressive lowering of the general election expenditure cap, and the introduction of ‘gift aid’ provisions for donations to political parties. But it will also require a fundamental re-appraisal of the state’s role in supporting 21st century political parties, including a serious look at whether existing subsidies – direct and indirect – remain ‘fit for purpose’.
The distortions created by ‘big money’ in our politics can be ignored no longer – but we will need to proceed carefully if removing it is to enrich our democracy, rather than impoverish it.
Dr Stuart Wilks-Heeg is Director of Democratic Audit, and co-author (with Stephen Crone) of Funding Political Parties in Great Britain: A Pathway to Reform. The report was commissioned by the Joseph Rowntree Reform Trust Ltd.
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