KELLY REPORT ON PARTY FUNDING –making a start on reform?

I was talking to a friend the other day about the Report of the Kelly Committee on political party funding. He wanted to know if the process of reform has stalled because the three political members of the Committee, including me, dissented: (Committee on Standards in Public Life, Thirteenth Report, Political Party Finance – Ending the big donor culture).

I certainly hope that a start can be made on a gradual process of reform supported by all main parties. The case for taking Big Money influence out of politics is strong. Rather than the current world of large donations from unions, companies and rich individuals, with the inevitable suspicion that the money is being paid for favours, it would be far better to move to a situation where donations are moderate and the result of individual decisions to donate. This means moving to a system with individual donors where donations are capped at a sensible level. We should see an end to corporate, institutional and trade union funding altogether, which have often led to suspicions of undue influence. Indeed trade unions boast of their influence over Labour.

The Kelly Committee Report moves in this direction with recommended strict rules on company giving and the recommendation that trade union affiliation fees should become truly individual donations.
Two issues are central to making progress: setting a sustainable donation cap and a plan to move to individual giving.

As I make clear in my Note of Dissent and as the Committee recommends, political party accounting standards need to be improved so that it is possible to “model” the effects on the main parties of a particular level of donation cap. No one would seriously want to implement changes which could put a major party out of business. The Committee considered caps of between £10,000 and £50,000 a year. Once the new accounting standards are implemented, it will be easier to fix on the right figure.

The position of trade unions is key to the way forward, because they are the predominant donors to Labour and have millions of members in their political funds. They could strengthen political engagement in the UK, if they were willing to give their members an individual choice of which political party received their donation through the political fund of the union.

The British Election Study 2010* suggests that about:

*40% of trade union members identified themselves with Labour,
*20% identified themselves with the Conservatives,
*10% identified themselves with the Liberal Democrats,
*10% identified themselves with another party, and
*the final 20% did not know or did not identify with a particular party.

Many of the trade union members who support Labour would tick a box to turn their affiliation fee into an individual donation, which would increase Labour’s funding. The Committee felt that any proposals should not unduly weaken or aid a particular Party. Allowing only Labour to benefit from affiliation fees does not satisfy this test.

Trade unions should be willing to allow their members to contribute to the political party of their choice through the union. This point was made to the Committee by a number of witnesses, including former Labour fundraiser Lord Levy. This would also encourage political engagement by all trade union members. At the heart of matter is the fact that these days as many union members vote for the other parties as for Labour.

It is widely thought that trade unions exercise undue influence on Labour through affiliation fees. If affiliation fees also benefitted other parties, this impression would be dispelled. It would also tackle the concern expressed by the Committee that trade unions might increase affiliation fees in order to off-set losses in Labour income caused by less trade union members opting to pay affiliation fees than are paid now.

Times have changed for the trade unions and their membership is not predominantly Labour. Unions should be campaigning for their members’ interests with all parties equally. Lord Alderdice, the Liberal Democrat Committee member and I argue that unions should be prepared to collect affiliation fees for all three main parties.
This approach would only work if Labour was prepared to agree. There are clear advantages for Ed Miliband in being less dependent on the unions, but if the change was made as a “Big Bang” affecting all union members, Labour would lose too large a part of its donation income. It is also difficult to see that any large amount of public money could be used currently to fill the gap.

But we could make a start on reform. What is needed is a gradual process of change over a period of time. Tax relief on small donations to the main political parties, similar to charities’ gift aid, could ease the way – without requiring public spending.

A modest start could be made with new trade union members being given the choice of political party for their donation and stopping new corporate donors. Labour would expect to receive 40 per cent of the new union members’ donations and with tax relief on top, whilst retaining the pre-existing affiliation fees and the benefit of tax relief on its small donations. Other qualifying parties would receive their supporters’ small donations with tax relief. This would start a process of individualisation of donations.

The lists of individual donors coming through the unions would also provide a treasure trove of opportunities for the parties to involve these supporters in their activities and policy making. All three parties would be connected to millions of newly found friends. This would greatly strengthen engagement in our democracy. All three parties may find new opportunities for income generation or to convert these contributors into full party members.
The advantage of a gradual process rather than a “Big Bang” is that it would be possible to keep the changes under review to ensure fairness.

The early implementation of trade union “choice” for new members with gift aid and of the accounting changes would mean that after two years experience, there would be solid information from which to “model” effects on parties of donation caps at particular levels and also of the behavioural changes likely if trade union members had “choice”.
After two years experience of the changes and in accordance with the principles of sustainability in the Kelly Report, it would be possible to set a donation cap, set a timetable for full individualisation of donations, including “choice of party” for all union members and the ending of other non-individual donations. It would also be possible to see the impact of gift aid and access to the lists of new union member donors.

This would enable a proper judgement to be made on the case for and against further public subsidy, bearing in mind that the lower the donation cap, the larger the income gap faced by the parties. Even if no timetable was set at that stage for full individualisation, a steady process of individualisation of donations would continue.

What we need is a start on reform – a gradual process not a “Big Bang”.

* British Election Study 2010, internet pre-campaign survey – analysis by House of Commons Library

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