Reforming Party Funding

1. Reforming Party Funding Justin Fisher (Brunel University)

2. 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.

3. 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

6. 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

10. 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

11. 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

12. 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

14. 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

15. 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

16. Options for Reform • Do Nothing – is there a genuine problem? • Caps on Contributions • Caps on Spending • Enhanced State Funding

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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?