The Independent View: Party funding: yes, another review really is necessary

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.

The Independent View‘ is a slot on Lib Dem Voice which allows those from beyond the party to contribute to debates we believe are of interest to LDV’s readers. Please email [email protected] if you are interested in contributing.

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7 Comments

  • 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.

    So cap spending instead of donations. Impoverish them all equally and nothing is lost except the big parties’ entrenched advantage over everyone else who might want to stand.

    Experts agree that political parties are essential to democracy because they perform a cluster of functions which link civil society to the state.

    Experts? What do they know…

  • Stuart Wilks-Heeg 20th Oct '10 - 2:38pm

    Iain:

    “So cap spending instead of donations. Impoverish them all equally and nothing is lost except the big parties’ entrenched advantage over everyone else who might want to stand”.

    Yes, one option would be to cap all spending by parties throughout a parliamentary cycle – this will become a far more realistic option with fixed-term Parliaments.

    But I’m really not persauded that impoverised parties can ever be the answer. Many local parties are already in a dreadful financial state and the result is simply a decline in campaigning – which only serves to feed voter disengagement, low turnouts, etc. National parties without adequate resources would be left highly exposed in today’s media culture and would run very poor campaigns indeed. That spectacle might be enjoyable for anyone subscribing to the philosophy of a ‘plague on all their houses’, but I’m not sure it would make for better democracy. Surely we want an election to be a bit more than three live TV debates?

    “Experts? What do they know…”

    Fair enough – don’t take anyone’s word for it, ‘expert’ or not! I’d say the evidence on this is pretty clear, however. There are good reasons why political parties are a universal feature of representative democracy. It’s possible to imagine models of participatory democracy which would function without them – and perhaps that is where we might be headed in the future, starting at a local level. But, as of yet, democracy without strong political parties has never lasted long in practice.

  • Stuart Wilks-Heeg 20th Oct '10 - 4:13pm

    ‘It’s not that easy to cap spending’ – true, there are all sorts of problems, especially if the caps relate to spending during election campaigns. The current regulations on spend are highly complex and full of loopholes. There are obvious grey areas about what counts as national party spending and local candidate spending, for instance, and the distinction (since 2009) between the ‘long’ and ‘short’ campaigns at a constituency level probably confuses more than it clarifies.

    One option would be to give the parties a ‘spending envelope’ – a total sum which they could spend during a parliamentary cycle (including all campaign expenditure). It would be a radical step, and I’m not sure we are ready for it. Doubtless there would be loopholes, issues about ‘third party’ spending and so on, but fixed-term Parliaments would help make it more workable.

    The US system is much more focussed on donation caps than expenditure caps and provides ample evidence of how donation caps can be circumvented. It’s almost certain that a donation cap at £50k would have least impact on the Conservatives – who are increasingly effective at sourcing large numbers of 5-figure donations from a relatively wide network of donors.

    To move towards a more level playing-field, it may therefore be necessary to combine donation and expenditure caps. But, as we suggest, this is really only a starting point – a medium-term reform package needs to go much further.

  • Stuart Wilks-Heeg 21st Oct '10 - 9:46am

    Oranjepan: yes, I’d agree that a ‘money per vote’ system has a lot of appeal, for the reasons you cite. This type of arrangement is very common across Europe and it has been suggested for the UK in various different forms. In 2007, the Phillips review suggested 50p per vote in a general election, plus 25p for each vote in devolved and European elections. Your nice and simple £1 per vote proposal would be inexpensive to administer. Based on turnout at the 2010 general election alone, would cost the taxpayer about £30 million over a 5 year period – probably about the same as the value of the ‘indirect’ subsidy of free postage for election communications.

    Whatever option might be chosen, it’s crucial that party funding reform establishes a route to higher levels of political engagement. The big question, which you are alert to, is whether it should be ‘new’ money or re-allocated money. Making a case for additional state funding is clearly going to be difficult in the short-term, and it may be counter-productive if the aim is greater voter engagement – many voters are clearly going to feel that political parties should share the pain of cuts.

    The largest government grant which the parties can currently receive in the UK (‘Short’ money) is determined according to representation of opposition parties in the Common. This works out well financially for Labour or the Conservatives when in opposition, but provides next to nothing for the smaller parties. The Lib Dems always got a share – but since they have joined the coalition, they have lost it all, resulting in redundancies at Cowley Street. Since coalition governments are becoming more likely at Westminster, there is a very strong case for looking closely at this, and other, aspects of state funding and asking whether they remain ‘fit for purpose’.

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