Reforming Party Funding: No Silver Bullets

By: Ed Selkirk Ford

The starting gun on the next general election has yet to be fired, but party apparatchiks have already spent years fighting a hidden campaign: not over votes, but cold, hard cash. As party HQs woo the wealthy, party members across the country have had their inboxes flooded with requests for smaller donations. The next general election will be the most expensive general election ever. Now, then, is a good time to consider whether the current regulations need reform.

The principles guiding the regulation of party finances were set by the Corrupt and Illegal Practices Act 1883. This Act introduced hard spending limits for individual candidates, varying according to the size and type of constituency. These rules form the basis for our current regulations, with the Political Parties, Elections and Referendums Act 2000 (PPERA) introducing national expenditure limits for the first time.

Unlike in many other countries, the focus of UK regulation has been on limiting parties’ expenditure, not their sources of income. The PPERA did introduce some restrictions, such as a ban on overseas donors and transparency requirements for larger donations. But so long as these requirements are met, there is no limit to the amounts that individuals, trade unions, and companies can donate to political parties. 

This approach has been the subject of criticism over the years on the grounds that our politics is (or is in danger of becoming) too influenced by super-wealthy donors. Proposals for how to rethink regulation have focussed on two main proposals: to widen state financing of political parties, and to impose limits on donations. The Commission on Standards in Public Life (CSPL) called for an overhaul of PPERA on this basis in 2011. Similar calls have been made by the Electoral Reform Society and the Green Party. In the aftermath of a row over racist comments made by Conservative donor Frank Hester, the leader of the Liberal Democrats, Sir Ed Davey, also expressed support for limits on donations.

A survey of international regulatory frameworks, however, suggests that neither of these proposals entirely avoid the criticisms that are levelled at the current system. Rather than devoting time and resources to any fundamental shift in the principles of British party finance regulation, the challenge for governments is how to make the current system work better. 

State funding of parties

At present, political parties with parliamentary representation receive a substantial subsidy from the government.[i] The first of these funding systems to be established was Short Money, introduced in 1974 and replacing previous temporary funding provisions. This money is intended to support opposition parties in ‘performing their parliamentary duties’ and provides a valuable counter to the benefits a ruling party gains from access to civil servants and special advisers. Sinn Féin, who by refusing to take their seats in the Commons are prevented from accessing Short Money, have received equivalent ‘Representative Money’ to subsidise party expenses since 2006. This has not been without criticism, particularly from the DUP, on the basis that parties which do not perform parliamentary duties can hardly be in need of subsidies to carry them out. 

Another fund, Cranbourne Money, subsidises the equivalent party costs in the upper house and was introduced in 1996.  This is substantially smaller than Short Money but is nonetheless valuable in allowing opposition parties in the Lords to effectively scrutinise the government. There are also similar mechanisms to Cranbourne and Short Money (though on a smaller scale) for parties represented in the Scottish Parliament and Northern Ireland Assembly.

In addition to this core funding, Policy Development Grants were introduced by PPERA ‘to assist [parties] with the development of policies for inclusion in any manifesto’.[ii] The distribution of this money is in the hands of the Electoral Commission and particularly benefits smaller parties. 

In 2011, the CSPL argued that the existence of these funding mechanisms meant that their proposal to give £3 per vote to political parties was merely an extension of existing systems, rather than a substantial change of principle. But the logic behind the existing public funding mechanisms has been to support opposition parties to mitigate the incumbent advantages of a ruling party with access to the resources of government. The same justifications cannot be advanced for state funding of party campaigns. This would be a radical change not only in scale but also in substance. 

There is no guarantee that such a change would do much to stem the influence of money. In Australian federal politics, parties are given set amount of funding which reimburses some election expenses. This funding is in addition to a separate fund that is akin to Short Money. This subsidy of election expenses imposes a considerable public cost (nearly $76 million in the 2022 election), yet major donors are no less influential than in the UK. Mining magnate Clive Palmer’s sizeable donations to the United Australia Party (which he founded) have been vital in allowing that party to mount large (albeit not particularly successful) campaigns over the past decade. If state funding of parties was combined with strong restrictions on donations, this would hugely advantage established parties at the expense of parties without representation.

Whether public opinion would be amenable to what would be seen (not entirely incorrectly) as yet more public money being lavished on politicians, is far from certain. Opposition would be particularly acute when public funding is used to promote the messages of extremist parties. In some countries, such as Germany, this problem is avoided by excluding such parties from public funding. Earlier this year the far-right Die Heimat had its public funding cut by the Federal Constitutional Court for ‘disdain for the basic democratic order’. In Belgium, the ability of the state to take such actions, combined with an effective ban on private financing of political parties, means that parties can be effectively shut down by cutting off public funds (as happened to Vlaams Blok in 2004). 

State funding which achieves the goal of curtailing the influence of private money, whilst gaining public support and not curtailing the freedom of political parties to make their cases to the electorate, is difficult to envisage. 

Limits on donations

A cap on donations is the most popular, and at first glance the simplest, change, which appears to work well in comparable countries. In France, individuals are limited to donating €7,500 per annum, and business and trade unions are entirely banned from donating. Similar restrictions apply in Canada, with a limit of $10,000. In Ireland corporate donors are permitted, though they too must keep to the much lower limit of €2,500. In all these countries, parties are funded by a combination of membership dues, small donations, and considerable state funding. 

Without the introduction of state funding for election campaigns, it is likely that any donation limits would significantly reduce party income and expenditure. Whilst this would reduce the influence of money on politics, it would also present profound dangers for the democratic process. Well-funded and effective parties, that are able to make their case effectively to the electorate and hold governments to account, are good for democracy. 

Historically, the differing funding sources of parties in Britain have made progress in this area rather difficult. In particular the historical reliance of the Labour Party on trade union donations has made it difficult to limit individual and corporate donations (the main target of attacks on money in politics) without also limiting trade union donations. Under Sir Keir Starmer’s leadership, a concerted effort to raise money from alternative sources has meant that wealthy donors now comprise a larger proportion of Labour Party income than trade unions. Even so, the final breaking of these funding arrangements would be major transformations to the structures of the Party. Whether separating parties from the civil society on which they are founded would serve the interests of democracy is not clear.

The greatest danger from such restrictions is that the movement of money into politics will end up in places where it is far less transparent. The role of private funding in the media, think tanks, and the proliferating non-party ‘campaigns’ which are not required to declare their funding or their governance, is far more pernicious than properly declared party donations. 

Looking to the future

The best defences that we have against the outsized influence of money are spending limits, which should assure a relatively even playing field for political parties, and transparency, which allows voters to be the ultimate judges of whether certain donations are unacceptable. An effective public debate would make large donations from morally dubious sources of detriment to parties, not of benefit.  

To argue against a fundamental shift in the principles of British party funding is not to disagree that reforms are needed. Last year saw huge increases in the limits on spending and anonymous donations (these levels had not been increased in line with inflation since 2000) which has made politics more susceptible to the influence by wealthy donors.[iii] Reducing these limits again and handing control over any future increases to a strengthened Electoral Commission would be a sensible way to make the system effective and increase public trust in party finance regulation.

Loopholes in the current regulations also need to be addressed. The lack of transparency for the sources of donations from unincorporated associations is, as reporting by Politico has demonstrated, a particularly urgent area for reform. The regulation and scrutiny of donations to individual politicians, both for campaigns and to fund staff and travel in their parliamentary offices, is also a concern. 

The seismic changes in technology and social behaviour since 2000 present profound challenges to our democratic system. Hugely complicated and controversial changes to the basic structures of party finance regulation come with a huge opportunity cost for tighter and more forward-looking regulation. The international lessons are clear: there is no silver bullet for the regulation of party finances. The approach first adopted in 1883 remains the best basis on which to build. 

Ed Selkirk Ford. 

Ed Selkirk Ford is a PhD candidate and postgraduate teaching associate in history at the University of Exeter. He researches debates about parliaments and representation in Britain and British settler colonies in the late nineteenth and early twentieth centuries.

The Constitution Society is committed to the promotion of informed debate and is politically impartial. Any views expressed in this article are the personal views of the author and not those of The Constitution Society.

[i] The Institute for Government have created an excellent guide to this funding here:  

[ii] Political Parties, Elections and Referendums Act 2000, s 12(1)(a)

[iii] The Representation of the People (Variation of Election Expenses, Expenditure Limits and Donation etc. Thresholds) Order 2023 (SI 2023/1235)