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1. TULO welcomes the opportunity to participate in the NEC consultation on the future of party funding. TULO acknowledges the need for political parties to be adequately financed to enable them to perform their different constitutional obligations. TULO also believes that party funding should be wholly transparent and that party funding legislation should not be partisan in design or impact. To these ends, party funding legislation should
• ensure that parties are adequately funded without compromising the need to recruit, retain and involve members
• seek to create a level playing field in electoral spending between the principal parties and their candidates
• avoid a ‘one-size fits all’ regulatory solution that gives one party a funding advantage over its rivals
• respect the asymmetrical nature of party structure and the parties’ different membership structures and organisational forms
• require full transparency in all aspects of party funding and full transparency of all sources of funding
These underlying principles guide our response to the different pillars identified in the NEC Consultation document.
2. TULO agrees that there is a need for a greater investment in democracy. Steps need to be taken to encourage greater electoral turnout, higher levels of recruitment and retention of party members, and higher levels of participation in the internal affairs of political parties. A healthy citizenship requires full and active participation in all aspects of the democratic process. However, TULO does not support the State funding of political parties, which we believe would be unacceptable to taxpayers.
3. TULO believes that there is something deeply disturbing about conscripting taxpayers to fund organisations that electors are unwilling to pay for voluntarily. We are also concerned that State funding would undermine the voluntary nature of political parties and create disincentives for recruitment and retention of members. That said, TULO recognises that there will be a funding gap if, as is likely, the parties are increasingly unable to raise money from private sources because of the impact of transparency. It is acknowledged that this funding gap may have adverse consequences for parties’ ability to meet core needs and to serve the democratic expectations of the nation.
4. TULO believes that these problems could best be met by reducing the levels of permitted spending by parties, along the lines considered below. TULO also accepts that there may be a role for greater State support for parties to help with certain core activities that would be seen directly to benefit the electorate. Specifically, these include the costs of -
• training candidates, office-holders and officials
• policy development and conference security
• maintaining a national and regional party infrastructure
• supporting the parliamentary activities of all parliamentary parties
• complying with the regulatory burden imposed by PPERA and any additional measures proposed by Sir Hayden Phillips
TULO does not believe that there should be any major additional support for election campaigns: parties are already well supported with free broadcasting time and free mail-shots to every elector at most elections (though not local elections). There is, however, a case for exploring ways of providing comparable support for candidates at local elections. To this end, TULO welcomes the provisions of the Electoral Administration Act 2006 which impose a duty on local electoral officers to take such steps as they think fit to encourage the participation by electors in the electoral process, with costs to be reimbursed by the Secretary of State.
5. Any additional State support, even on these modest lines, would have to be subject to tight qualifications to ensure that (a) the parties do not become unduly dependent on such support, (b) the parties have incentives to recruit, retain and engage members, and (c) support is not provided for extremist parties which threaten the values of the democratic process. It will thus be necessary to limit the amount of state support to ensure that it does not become the dominant amount of income that a party receives, with an appropriate limit being perhaps no more than 25% of the annual income of any party that qualifies. If additional support is to be provided along these lines, it will be necessary to determine the method of the allocation of any such support. There are different ways whereby additional support could be allocated, whether on the basis of votes cast at the preceding general election, or on membership levels, or simply by limiting the total amount and the items to which parties can apply as detailed in the previous paragraph In addition, TULO believes –
• Any additional support should be confined to parliamentary parties with at least 2 MPs
• State support should be conditional on a party having rules guaranteeing prescribed minimum rights of participation to members.
6. TULO believes that it is essential that election spending limits be reduced. Indeed, TULO regards this as the principal way of addressing the funding problem, which should focus on reducing the demand for money by limiting the opportunity to spend it. Our concerns about high spending are reinforced by the high funding of local Conservative Associations. Some of this funding is provided by bodies such as Bearwood Corporate Services Ltd on the one hand, and Midlands Industrial Council on the other. Since 2001, Bearwood Corporate Services Ltd has donated £1,043,449 to the Conservative Party, mainly at local level. Another £1 million or so has been donated to local Conservative Associations by the obscure Midlands Industrial Council which has also donated another £1 million to another obscure Tory organisation called Constituency Campaigning Services Board.
7. But the support by these bodies alone does not account for the huge funding advantage that the Conservatives now enjoy at local level. Under PPERA, constituency parties must submit accounts to the Electoral Commission if their annual income or expenditure exceeds £25,000. In 2004, only 28 Constituency Labour Parties met this threshold, compared with 271 Conservative Associations, a figure that rose to over 300 in 2005. Some of these local Tory parties have a huge funding base. For example, in 2004
- City of London and Westminster CA raised £360,000
- Kensington and Chelsea CA raised £285,435
- Aylesbury CA raised £265,153
- South West Surrey CA raised £200,029
- Chichester CA raised £177,655
- Wealden CA raised £170,025
- Reigate CA raised £169,119
- Surrey Heath CA raised £154,400
- Folkestone CA raised £153,430
- and North Oxfordshire CA raised £139,771
It is a matter of particular concern that the current spending limits do not apply adequately to ensure that this disproportionate funding advantage is not exploited. There is a need for tight and low spending levels at three different levels of party organisation and electoral activity. These are respectively the national party campaign, the campaign in the constituencies, and the campaign by the candidates.
8. TULO believes that it is now necessary to examine the feasibility of annual spending caps on parties, both nationally and locally. There are, however, a number of questions that will need to be answered as part of the development of this strategy:
• Should the spending limit be a flat rate limit, which applies regardless of the number of members of the party, or should it be based on a formula relating to membership? A flat rate limit would not provide an incentive to recruit members once a party had reached a level of membership that guaranteed that its spending needs for the year would be met. On the other hand, spending according to membership levels would be difficult effectively to enforce.
• Should the spending limit be the same every year, or should there be variations according to whether there is an election in the year in question? If so, should the election premium be higher in the year of an election to the European Parliament than to the devolved bodies, and higher still in the year of a general election? Should the election premium be based on the number of seats contested so that it would be different for each party?
9. Although it ought to be possible satisfactorily to answer these and other questions, this could take a considerable period of time and involve extensive discussions. Until these matters are resolved, TULO believes, as a minimum, that it is necessary to apply tighter spending limits in election campaigns with immediate effect. This would mean, at least
• Reviewing (with a view to expanding) the matters to be counted as campaign expenditure for the purposes of PPERA, Schedule 8
• Reducing the level of permitted expenditure in PPERA, Schedule 9 to a maximum of £10 million
• Increasing from one year to the full electoral cycle the period to which the national campaign budget applies
• Introducing a spending cap of £5,000 limited to campaign expenditure by constituency parties
• Consistency of treatment of national and local spending, so that the constituency cap also applies to the full electoral cycle.
• Extending the period to which candidate election expenses apply from the current limit to the full electoral cycle.
10. TULO is opposed to a legally binding contribution cap that would apply to all parties regardless of their origins, membership structures or organisation. There is a real concern that a flat rate contribution cap, such as the £50,000 proposed by the Tories, could undermine trade union affiliation to the Labour Party as well as the relationship between the Labour Party and the Co-operative Party. TULO is concerned that however benign the intention, a legally imposed contribution cap would be the first step in the direction of severing the link between the Labour Party and other organisations. TULO notes, however, that the Tories have no benign intention and that they are openly seeking to cut the link between trade unions and the Labour Party, and to alter the nature and structure of the Labour Party.
11. This initiative of the Tories represents an unwarranted attack on the Labour Party, which is without parallel in any modern democracy. Never before has one political party contemplated using the power of the State to crush and destroy its opponents. Quite apart from the fact that the Tory proposal would cut trade union funding of the Labour Party, it would give them a huge electoral advantage. This is simply because, as a party of the wealthy, the Tories have three times as many personal donations than the Labour Party and twice as many corporate donations. If the Tories were ever to be elected to government, this advantage would grow even greater. Trade union support of the Labour Party is necessary to ensure that there is fair competition between the parties.
12. Quite apart from concerns about the dangers of a statutory contribution cap for party structure and electoral competition, there are real concerns that contribution caps do not work. TULO is mindful that this question was examined by the Neill Committee in 1998. The Neill Committee expressed deep scepticism about how a contribution cap would operate in practice:
“If there were a cap, say of £50,000 . . . , the individual or company wanting to give more might consider that the cap infringed a basic right and there would be a strong temptation to seek to evade the limit, perhaps by spreading rersources amongst friends and relations or by setting up subsidiary companies in order to legitimise any donation by sub – dividing it. There would be no easy way to detect such a strategem, nor to enforce the cap. In our view, the panoply of rules and bureaucracy which we believe would be required to enforce such a system would not be justified by the purposes of the cap.”
Nothing has happened since to suggest that this judgment is flawed. On the contrary, the different loopholes that have been identified and exploited in the transparency regime in PPERA reinforce the view that Neill was spot on.
13. So although TULO is not unsympathetic to the need to restrain large donations by wealthy individuals, we believe that this has to be done by means other than the blunt device of a statutory contributions cap. In our view, it can best be done by (i) transparency, (ii) spending limits to reduce the pressure for donations, and (iii) State support to reduce the need for large donations. TULO also believes, however, that PPERA should be amended so that each party is required to submit a donations policy with the Electoral Commission as part of the financial scheme that must be submitted under section 25 of the Act.
14. TULO believes that it should be a statutory requirement that a donations policy should be developed and agreed in consultation with party members (individual and affiliated). The donations policy would have to specify the maximum amount the party in question was prepared to accept from donors and affiliates falling within the definition of a permissible donor in PPERA, s 54(2). Thereafter, the following requirements would apply -
• The donations policy of each party would have to be approved by the Electoral Commission
• The donations policy could be reviewed and changed by the political parties on an annual, biennial or triennial basis
• Any changes to the donations policy would have to be approved by the Electoral Commission
• It would be a criminal offence to give and/or to receive any money in breach of a party’s donations policy
• The whole amount of any donation in excess of what is permitted in the donations policy of a party would be forfeited
15. TULO believes that it is essential that party funding reform is not used intentionally or unintentionally as a vehicle for transforming the organisation and structures of political parties. It is not the business of the State to tell political parties who their members may be or how they should be organised internally. Party funding legislation should be tailored to the nature and structure of political parties, and not vice versa. Moreover, party funding legislation must reflect the differences in political parties – differences in terms of origins, membership structure and internal organisation. Unlike some countries, British political parties are not the same, and they should not be treated as if they were. The asymmetrical nature of parties makes it impossible to impose symmetrical statutory solutions. This explains the nature of TULO’s proposals for donations outlined above. We recognise the case for a statutory response, but not the case for a statutory cap.
16. TULO believes that it is important to emphasise the nature of Labour Party organisation which distinguishes it from other parties, and which makes it impossible for us to accept legislation based on a model of Conservative Party organisation. For this purpose, the crucial and distinguishing feature of the Labour Party is that it is an association of organisations and individuals. These organisations – trade unions and socialist societies – are members of the Party in their organisational capacities, with rights and duties as such. This is a perfectly acceptable method of party organisation which enables the voice of working people to be heard in the political process. There is no reason why this arrangement should be challenged in any way, or why the State should prescribe model forms of political organisation with which all must comply.
17. It is an essential feature of the process of affiliation that larger organisations pay a higher affiliation fee than smaller organisations. It is the same principle that sees larger countries making a bigger contribution to the EU budget than smaller countries and larger countries having higher levels of representation and greater influence than smaller ones. Ultimately, however, party structure should be a matter for electors not governments. The Labour Party’s roots in the trade union movement are well known and have served the Party well. Although unique in the United Kingdom, the Labour Party structure finds parallels in other democratic countries, notably Australia and New Zealand where as a result there are no contribution limits. The challenge for the Labour Party is not to lose but to increase the number and range of affiliated organisations. This is a model for the future, providing opportunities for the renewal and possible growth of political parties.
18. TULO believes that that there should be no exceptions to the requirements of transparency, and welcomes the government’s initiative introduced by the Electoral Administration Act 2006 to extend the reporting and disclosure provisions of the PPERA to include loans as well as donations. There are, however, a number of areas where transparency needs to be extended still further. TULO is concerned about the fund-raising activities of the Conservative Party in particular, and by the supply of funds from unincorporated associations. The best known example of this is the Midlands Industrial Council which – as we have seen - has donated c £2 million to Conservative Party organisations.
19. There are, however, a number of other unincorporated associations which donate to the Conservative Party. Some of these are well-established clubs and political organisations, the principal purposes of which probably do not include raising money for the Conservative Party. But the purpose of others is uncertain, and there is a need for greater transparency and accountability. The same is true in relation to private companies which donate to the Conservative Party, of which Bearwood Corporate Services Ltd is the best but by no means the only example.
20. TULO believes that the PPERA should be amended as follows to deal with these organisations and others like them:
Any unincorporated association or private company –
(a) The principal purposes or activities of which include raising funds for or contributing to the funds of a registered political party or a registered third party;
(b) Should be required to register with the Electoral Commission the names and addresses of its officers, members and subscribers; and
(c) The names of officers, members and subscribers should be disclosed in the event of a donation to a political party or a registered third party in excess of £5,000 in any one calendar year.
21. The NEC Consultation Document proposes the setting up of a Foundation for Democracy modelled on the Westminster Foundation for Democracy. According to the website of the latter -
WFD is an independent political foundation, sponsored by the Foreign and Commonwealth Office (FCO). Its Board of Governors, which has 14 members, is constituted on a cross-party basis and is appointed by the Secretary of State for Foreign and Commonwealth Affairs.
There are six independent Governors appointed to reflect the range of WFD’s interests, while eight Governors are nominated by the Westminster political parties: three Labour, three Conservative, one Liberal Democrat, and one representative of the smaller parties.
WFD’s main source of income is the FCO, currently at the rate of £4.1 million per annum; and it raises additional funding from other sources such as the Department for International Development (DfID) and the Global Opportunities Fund (GOF) to support its programmes.
TULO has strong reservations about this proposal. We can see that an organisation with a budget similar to WFD would enable local parties to apply for funding for various activities designed to foster local party activities and local political engagement. We assume that the terms of reference of any such fund would exclude its use for campaign purposes, though that would be difficult to police.
22. Although such a fund may be attractive in principle, our reservations relate to the likely practical difficulties in its operation, and we are unaware of any comparable arrangement in any other advanced democracy. It is not clear to us why it would be necessary to create yet another organisation to administer any such fund. This is a matter that would fall within the competence of the Electoral Commission, which as an independent body would be better suited for this task than a body of party representatives, as the NEC document proposes. We are mindful that the Electoral Commission currently administers the policy development grant and that provision is made in PPERA, section 4 for a Political Parties Panel to act as a formal channel of communication between the parties and the Commission.
23. We would also express some reservation about any overlap between this idea and ideas for State support for political parties of the kind identified previously in this submission. If the latter are to be introduced, they should exist as a matter of statutory right rather than administrative discretion, and should exist on the basis of clear qualifying conditions being met. A discretionary scheme administered by party representatives will inevitably be controversial, and will lead to claims that the big parties have created a cartel to divide the money between themselves, or conversely that some parties are benefiting disproportionately at the expense of others. It is not easy to see what benefits would be gained by a discretionary scheme of this kind, and indeed parties may be reluctant to make applications to fund innovative proposals for fear of giving notice to rival parties about the nature of these innovations.
24. TULO has strong reservations about tax relief, in any form, for political donations, which we believe will give the Conservatives a further funding advantage. We acknowledge, however, that this is a device that has been used in other countries to stimulate small donations to political parties. It has been particularly successful in Canada where our sister party, the NDP, has used tax relief to stimulate a high number of small donations.
25. It is to be pointed out, however, that the tax system in Canada is very different from the tax system in the United Kingdom, so that the benefits that accrue there may not necessarily apply here. In Canada, political parties are authorised to issue tax receipts to donors, which the donor can then submit to have his or her tax reduced by an equivalent amount. The taxpayer can thus see some direct personal benefit in making a political donation in a way that has no equivalent in this country.
26. Given the nature of the British tax system, we are not convinced that tax relief would stimulate more small donations, though some argue that it would enable the parties to reclaim the income tax which has been paid on income donated, in the way that the gift aid scheme allows the same to be reclaimed in the case of charitable donations. But we are also mindful that a system of tax relief is likely to benefit those parties with more personal donors and with more personal donors who pay income tax. At the present time that is the Conservative Party, not the Labour Party.
27. On the question of charitable status, we would draw attention to the fact that it is a fundamental rule of charity law that charities may not engage in political activity. To turn political parties into charities is thus a curious idea. It is not clear in any event whether as a matter of principle political parties should enjoy the same privileges and immunities as charities. There is nothing more calculated to cause disquiet and disrespect than ill-judged privileges for political organisations which control the machinery of the State. There would also be an overlap of responsibility in the supervision of political parties by the Electoral Commission and the Charity Commissioners. It is not clear what purpose this would serve.
28. TULO believes that there are a number of important changes that need to be made to deal with the funding crisis that now besets some political parties. Our main concern is to emphasise that (a) it is not the business of the State to prescribe the organisation and structure of political parties, and (b) the role of affiliated trade unions within the Labour Party is both healthy and transparent, bringing considerable democratic value to the Party and the country. Our core recommendations are as follows:
• Each party should be required to submit a donations policy to the Electoral Commission setting out who it will receive donations from and how much
• Election spending limits should be reduced to £10 million for national parties and a new limit of £5,000 introduced for local parties, the limit to apply to all campaign spending incurred in a full electoral cycle
• Additional State support should be introduced for political parties to help meet prescribed core needs, but this should be limited in amount and should be subject to tight qualifying conditions.
We hope that these views will assist the NEC in its deliberations and we stand ready to provide any further assistance or advice should we be called upon to do so.
Click here to download a copy of this document.
Click here to download the original consultation paper.
Click here to visit the Labour Party page regarding the consultation.
Click here to visit the Hayden Phillips website and have your say on Party Funding.
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