In the early 1980s, the Labour Party was criticised for its financial dependency on the trade unions.
A conscious decision was made to broaden the base of our financial support and, to show we were not hostile to business, we stepped up our efforts to gain financial support from that sector of the economy.

Following the sleaze allegations against the last Tory government we declared a policy of greater openness, which resulted in legislation forcing political parties to name contributors with donations above £5,000. Now we are hoist on our own petard as allegations
are made about businessmen giving donations for political favours. We have tried trade union sponsorship and we have tried wooing business and we are still in trouble. So what else is there?

State funding is one obvious option and it is not unprecedented in the British political system. Currently we have a free election address delivery, financial aid to opposition parties and financial assistance for policy development. So would the British public be prepared to fund political parties in a more overt way and, if it is, should we have a further cap on election expenditure and a cap, or a ban, on business and trade union contributions?

The public don’t like links with business or trade unions. They seem to acknowledge that political parties are necessary but, as in most other countries, they are reluctant to do the voluntary work and contribute in a way that makes the system workable. The time has come for the political parties and the media to engage the public in a mature debate about the issue. I believe the public can be persuaded. There are people in the three major political parties who have moved on this issue in the same way that I have.

It is a mistake to think that the public would be happy to see their taxes simply disappear into party coffers without an explanation of its use. We have to be a bit more specific about the proposals.

We should restrict still further the cap on election expenditure. £18 million is still too high and we have to decide whether, in exchange for state aid, we stop all business and trade union contributions. I have always placed a high value on the Labour Party’s trade union link, and I will continue to do so, but I believe the time has come to end the close financial link. It is not working for either the party or the unions. Trade unionists do feel that paying money to the party should result in sympathetic legislation, hence the recently expressed frustration by some on the issue of public services. To have some trade unionists threatening to cut funding if the Labour government pursues certain policies is not desirable, and yet union members have a right to rattle their cage if they feel they are not getting everything they want from Labour.

The way forward is for contributions by unions and business to be capped at a low level, perhaps around £10,000. The link then between political parties and unions can be centred on policy. Politically, there is no reason why Labour and the unions can’t keep other links. Indeed, it is possible that financial contributions by trade unions get in the way of a more mature relationship with party and government.

State aid may also be more palatable to the public if it was matched funding, that is, for every pound raised by the party, a pound would be contributed by the state. But the real key to this is to ask the public to fund specific activities by the parties. The costs of training and selecting candidates, policy development and policy conferences and public information systems. The latter would be
a development of the aid already given towards election addresses, for example. Activities of this type are generally understood by the public and seen as necessary for any party, whereas a general unspecified payment is seen as just funding party bureaucracy and contributing to a public slanging match.

In the autumn, both the Electoral Commission and the Institute of Public Policy Research are due to report on this issue and hopefully the debate can take place on an informed basis. It is not in the interests either of democracy or any of the political parties for us to go on denigrating the efforts of parties to raise money to pay for activities which, we all know, are necessary in a modern democracy.

I’m in no doubt that cabinet ministers have good reasons for giving consideration to the state funding of political parties. But they are misguided if they think it will stop sleaze allegations. State funding would be both unpopular and unworkable.

State funding will not stop private donations. In every country where funding is provided out of the public purse it is topped up by private donations. In France and Ireland parties are allowed to accept donations over and above what they receive from the state. In other countries matching funds are provided – a policy that is only likely to exacerbate the current problem as parties receive an even greater incentive to raise private funds. In every system private donations find a way through. There is always a loophole, and I can already see what it would be in English law.

When the government drafted the Political Parties, Elections and Referendums Act, which currently governs political donations, they attempted to cap party spending at a certain level and ensure that no group or individual could produce election material other than an official political party. They were advised that that would be illegal.

The European Convention on Human Rights, now incorporated into UK law, includes provisions relating to freedom of speech. The government was advised that banning an individual from producing a newsletter telling everyone what they thought of their MP would be a breach of that provision. Instead, the Act was drafted so that individuals or groups could spend up to £1 million on election material so long as it was not in collusion with a political party.

Full state funding would not be able to stop a company from launching a £1 million poster campaign in support of Labour. If that company then received assistance from the government, the media would cry foul.

There is no indication that the taxpayer is willing to stump up the cash for political campaigning. Given the media reaction to tax increases to pay for the NHS, one can only imagine the outcry at tax rises to pay for political parties. Many people may be prepared to pay more for better public services, but who wants to pay more tax so that they can get another election leaflet through their door?

The money will also be spent on staff at political parties’ headquarters. Given the wave of bad publicity over the costs of special advisers, I am not sure that voters would want to fund all of the apparatchiks working in Labour, Tory or Lib Dem HQ.

People would have no choice as to which ideology their money supported. As a lifelong Labour supporter I would not want my money to financially support Iain Duncan Smith’s election campaign. Even if people do not begrudge their money going on Conservative or Labour campaigns, they may be less happy about it being spent on the BNP. Spending taxes on racist leaflets is not in the public interest.

British politicians are faced with a serious problem. The public do not trust them. Recent allegations are little more than political muckraking and there is scant evidence of impropriety. I understand the Labour leadership’s frustration and belief that ‘something must be done’. However, state funding isn’t the answer.

The public must know that their representatives are open and honest. They must know that they are acting for the public good rather than for any interest group. Peter Mandelson’s idea of an independent ‘Ethics Commissioner’, who can report quickly on allegations of impropriety, has potential. It would keep donations and government decisions transparent and open.

Individuals engaging in politics by donating to parties is an important part of the democratic process. Political parties should raise money by putting forward policies and ideals that people want to support. Trade union members should vote on whether they want their money to go to a party. Shareholders should vote on whether they want their company to donate to a party. Individuals should be able to opt in and out of the political process. Parties that do not respond to the public mood struggle to raise funds. That, in turn, keeps parties responsive and representative.

If individuals and groups do not want to contribute to the political process then something has gone wrong. Labour should not look to the easy option of taking money from the taxpayer. They should get out there and remake the case for their policies.