Reforming Party Funding

Justin Fisher (Brunel University)

Background

• The development of party finance regulation has been characterized by pragmatic evolution

• Prior to the Political Parties, Elections and Referendums Act 2000 (PPERA), party funding was remarkably unregulated

• The level of genuine scandal and corruption surrounding British party finance has been surprisingly low.

Trends in Party Income

• Mid-1990s to 2005, Labour was the wealthy party

• At local level, Conservatives were still wealthier• Change in 2006 – back to the norm• Conservatives had a huge financial advantage in

the run-up to the 2010 election – between October 2009 and March 2010, they raised over £20m in declared donations

Sources of Central Income

• Labour’s reliance on trade union money has grown substantially since 2007

• Conservative income increasingly from individuals

• No real trend apparent for the Liberal Democrats

The position pre-PPERA• No declarations of donations required beyond details in

company reports (post-1967) and in trade union returns to the Certification Office. No declaration of individual donations.

• No limits on donation size• No prohibition of foreign donations • No limits on national spending• State support modest, largely in-kind, and mainly

directed at elections• No Electoral Commission• Principal legislation was passed in 1883 and reflected

nineteenth century electoral norms

The position since PPERA• Establishment of the Electoral Commission• All donations over £5k (£7.5k) nationally and £1k (£1.5k)

locally declared via the Electoral Commission• Loans declarable since 2006 (Electoral Administration Act)• No limits on donation size• Foreign donations banned• National campaign limits set (£30k per contested

constituency = max of £18.96m in 2010)• Campaign period for national campaigns set at 365 days

before election. Remains c.4 weeks locally for terms of less than 5 years. For five year terms, effectively 4 months (Long and Short Campaigns)

• Limited increase in direct state funding

Impact of PPERA

• Opportunity costs in campaign spending• More transparency – but more unease• More party regulation• Little impact in closing spending gap between

Lab/Cons and Lib Dems

Why another re-examination?

• Transparency arguably created more unease• Large contributions continued despite transparency• Failure to address the parties’ continuing financial needs • Heavy Conservative spending in marginal seats before

the regulated campaign period• Reviews by think-tanks, the Electoral Commission and

Phillips• Failure of all-party talks following Phillips review• Limited scope of Political Parties and Elections Act 2009

Committee on Standards in Public Life

• Began to review party finance again in 2010• Due to report in 2011• Broadly speaking the same issues as in the

Phillips review are being examined

Options for Reform

• Do Nothing – is there a genuine problem?• Caps on Contributions• Caps on Spending• Enhanced State Funding

Caps on Contributions - For

• The size of some contributions has consistently caused public disquiet, thus potentially undermining public confidence

• Large contributions are undesirable because they may lead to leverage within a party

• Large contributions upon which parties rely are problematic since they may be withdrawn. Caps could encourage a broader funding and supporter base.

• In an emerging multi-party system, parties that are not traditional recipients of large corporate or trade union contributions are disadvantaged

Caps on Contributions - Against

• Caps are an infringement upon liberty• Public disquiet is not a reason in itself to impose new rules• Limited evidence that large contributors enjoy leverage• Parties should not be hindered, just because they have

wealthier supporters• Transparency is a sufficient safeguard• Caps could threaten the internal structures of the Labour

party if applied to affiliation payments• Enforcement – the water principle

Further Caps on Spending - For

• The is an apparent consensus amongst the parties to reduce general election spending to at least £15m

• Will reduce the demand for income• A common (and untested) view is that much election

expenditure is ‘wasted’• Billboards (for no apparent reason) are singled out as a

particular waste• Regulation at constituency level fails to capture significant

pre-campaign spending

Further Caps on Spending - Against• Most central party spending is routine – normally 80% of

expenditure• Parties fight a major set of elections in almost every year• National spending cap already eroded by inflation to around £15m• Contributions driven by the general election cycle - ability of parties

to stockpile resources for non-election years is limited• Repercussions for political engagement - campaigns educate and

encourage political involvement• Targeting of even more scarce resources will increase - more

alienation amongst voters in safe seats • Would enfeeble parties in relation to unelected actors at elections• Excessive regulation at constituency level would discourage

participation

Enhanced State Funding

• If contribution caps are introduced, parties will need income from other sources.

• One alternative is to enhance state funding• This could be through a block grant, or

through an incentive-based approach

State Funding - Against

• Citizens should not be forced to pay for parties of whom they do not approve

• Market forces should apply – if parties cannot raise sufficient income, they should downsize their activities

• The public would be opposed, especially in the current economic circumstances

State Funding - For

• State funding already exists• The principle of paying for things of which we do not approve

already established with general taxation• Public opinion is remarkably inconsistent on the issue• The ‘free-market’ idea would be most likely to lead to parties

being replaced by organisations funded by rich benefactors• Parties provide public goods (policy alternatives, stimulate

debate, ensure democracy is not the preserve of those who can afford it), but there is a collective action problem in relation to their funding

Conclusions

• None of these proposed reforms is a panacea• None should be considered in isolation• If contribution caps are introduced, then three

possible options arise: enhanced state funding, the decline of parties, or an acceptance of clandestine funding

• Public opinion is a poor guide to effective policy in this area

• Will reform end the calls for further reform?