It’s often hard for liberal socialist types like myself to remember, but the last Labour Prime Minister but one resigned in the midst of a party funding scandal. When most of us hear mention of Tony Blair, we think “war criminal”, so it is easy to forget that the rush into an illegal war happened four years before Tony Blair’s resignation, and that the disgrace that finally brought him down was the cash for honours scandal.
The bulk of the Labour Party’s £17.94 million spending on the 2005 election was paid for by cheap loans from very wealthy individuals. Many of these wealthy Labour supporters were nominated for peerages by Tony Blair. No guilt could be proven, but it was incredibly suspicious and painted the Labour hierarchy in a terrible light.
Party funding, and the financial gains available more broadly to politicians, are intimately tied up with some of their more disastrous policies. The Private Finance Initiative, or PFI, is just one policy that has been criticised by the Conservative Party and Labour in opposition, but carried out by both parties in government. This policy of off-balance-sheet expenditure leads to vastly over-inflated costs and is widely regarded as a complete waste of money. PFI has been opposed at various times from figures as diverse as Vince Cable, Philip Hammond, and even George Osborne.
Despite it being a terrible policy, my own former MP, Sir Malcolm Rifkind, was a long-time supporter of PFI. One of the companies he was a director of, Alliance Medical Holdings Ltd, won a PFI contract to refurbish a London hospital, despite offering a worse deal than the NHS itself. This is a widespread issue since many politicians from both the main parties go on to receive directorships and other non-executive positions in the companies that benefit from PFI. Companies bid to cream money from the public purse, and they are supported in this because they offer a cut to politicians. There are registers of interest, but all that means is that some of the corruption is visible to the public. Technically, politicians are supposed to face the electorate, but my constituency is a safe Tory seat – one that nobody bothered to campaign in at the last election. My beloved Sir Malcolm Rifkind was finally forced to resign after it was revealed that he and Jack Straw had been offering to sell political influence to what they thought was a Chinese company.
The Conservative Party sells itself more brazenly than the Labour Party. Those who donate more than £50,000 to the Tories are invited to the Leader’s Group, which gives them access to the Prime Minister. The Conservatives get almost all of their money from individual and corporate donations, which are regarded as less contentious than union donations for reasons that are entirely beyond me. The unions are where the Labour Party gets half of its funding from, and most of the rest from public funding.
So how should political parties be funded? Small donations of a few thousand pounds or less are not likely to sway parties a great deal, so are not a grave threat to democracy. The problem arises when large donations, like the half of Conservative Party funding that comes from the financial sector, lead to the capture of parties by these private interests. This is one of the reasons why there has been no effective regulation of finance by the Conservative-led coalition and why there is going to be another financial crisis.
This is also why the 2006 Hayden Phillips inquiry, 2008 Ministry of Justice report and 2011 Committee on Standards in Public Life report all proposed a cap on donations per party per year per person. No cap was actually put in place because Labour lacked the foresight when in office to vote through a fair and balanced reform that could have hit both main parties equally and settle the question for good. The current Conservative government is planning to exclusively limit donations to the Labour Party. They’re changing the law on Trade Union donations so that individual members have to opt-in for donations to be given, whilst there is no requirement for shareholders to even be consulted on donations made by the companies they own.
So what should have been done when Labour was in office and how can the system be reformed in future? I don’t see why corporate donations of any kind, whether from unions or companies, should be allowed. In the United States companies are regarded as legal persons, but that is not the case here. This is supposed to be government of the people, by the people, for the people, so it is only people who should be able to make donations and influence the system.
During a transition to a more democratic system, the law could be changed so that instead of unions and companies making block donations they can propose donations that individual members can allow or not allow, up to the maximum limit per person per party per year. Party spending should also be capped, and the remaining administrative costs of the parties that are not covered by small donations could be covered by a transparent system of public funding in which parties receive a fixed sum per vote in general elections, as recommended by the 2011 Committee on Standards in Public Life report.
Some people complain that public funding of political parties is unfair because it involves my taxes being spent on something that I don’t approve of. But my taxes are currently spent on things I don’t approve on based on the whims of private donors, and the amount of money that is misspent because of the wonky priorities of those at the top of our political pyramid is far greater than the cost of public funding ever would be.
This issue is especially pressing now because the Conservative government’s reforms will effectively defund the Labour Party and leave us with an even less pluralistic political landscape than we currently have. Party funding by private individuals should be limited, and now is the time for a debate on how that can be effectively and fairly achieved.