Political Party Funding in the United Kingdom

Political Party Funding in the United Kingdom

In the United Kingdom, there is no provision for state aid for political parties to conduct election campaigns. Political parties do, however, receive public funds for their parliamentary work. Under the system, generally known as ‘Short Money’, the money allocated should be spent exclusively on the party’s parliamentary business, not for election expenses. A similar scheme operates in the House of Lords. Introduced in 1996 by the then Leader of the House of Lords, Viscount Cranborne, ‘Cranborne Money’ is paid to the first two opposition parties.

The Committee on Standards in Public Life has recommended that both the Commons and the Lords consider considerable increases of the amounts paid to opposition parties, In addition to financial support for parliamentary business, candidates at parliamentary elections or elections to the European Parliament are entitled to free postage for one election communication to every elector within the constituency.

Candidates are also entitled to the free use of publicly funded premises for an election meeting. Indirect state assistance is provided through political broadcasts during election campaigns.

For election purposes, parties are dependent upon the support of the membership and, more importantly, from companies and trades unions. Concerns over party political funding led to an examination of the matter by the Committee on Standards in Public Life.

In November 1997, the Labour Government extended the terms of reference of the Committee to include political party funding. Recognizing that ‘political parties are essential to democracy’, the Committee identified three of the seven ‘principles of public life’, namely, integrity, accountability and openness, as particularly relevant to the funding of political parties.

Increasing election spending by the two main parties, who between them spent some £54 million on the 1997 general election, and the issue of large donations to political parties by persons known or unknown, gave rise to the public perception that election results can be affected by spending and that wealthy organizations or individuals could effectively influence public policy. Undisclosed foreign donations to the Conservative Party also caused concern.

In the Committee’s view, it was ‘undesirable that a political party should be dependent for its financial survival on funds provided by a few well endowed individuals, corporations or organizations’, irrespective of ‘whether or not the suspicion [that he who pays the piper calls the tune] is justified’, The problem of public confidence in the political system was compounded when such donations came from undisclosed sources.

Part IV of the Political Parties, Elections and Referendums Act 2000 provides for the control of donations to registered parties and their members, defining permissible donors and providing rules regulating the acceptance or return of donations, and providing for forfeiture of donations by impermissible or unidentifiable donors, under a court order on an application of the Commission.

A person commits an offence if he or she knowingly enters into, or does any act in furtherance of, any arrangement which facilitates or is likely to facilitate the making of donations by any person or donor other than a permissible donor.

The Act provides for quarterly donation reports to be made, and, in the period of general elections, for weekly reports. Under section 69, the Commission is to maintain a register of donations.

Part V of the Act relates to campaign expenditure. No expenditure may be incurred by or on behalf of the registered party unless it is incurred with the authority of the treasurer or deputy treasurer of the party, or a person authorized by the treasurer or deputy treasurer. Section 74 and Schedule 8 impose limits on campaign expenditure in relation to parliamentary general elections and general elections to the European Parliament, Scottish Parliament, National Assembly for Wales and the Northern Ireland Assembly.

In relation to a general election, Part V of the Political Parties, Elections and Referendums Act 2000 provides that a political party may spend a specified sum per constituency it contests. The overall effect is that a party fielding candidates in every constituency is entitled to spend some £20 million. This figure is quite separate from the allowable expenditure that may be incurred by individual candidates in their constituencies.

In addition to expenditure by political parties, Part VI of the 2000 Act also regulates expenditure by bodies such as companies, trades unions and pressure groups. Section 85 of the Act allows such bodies to incur up to £10,000 in England and £5,000 in each of Northern Ireland, Scotland and Wales for the production of election material. Any proposed expenditure over these limits requires the body to register with the Electoral Commission as a ‘recognized third party’. Once registered, the body may expend prescribed amounts in England, Northern Ireland, Scotland and Wales. Following the election, details of expenditure must be submitted to the Commission.

Financial support and granting of honours

The link between financial donations to political parties and the granting of honours has been a matter of concern since the early twentieth century. In 2006 — in spite of the reforms effected under the Political Parties, Elections and Referendums Act 2000 — fresh allegations of political impropriety were made. The 2000 Act did not regulate the granting of loans to political parties, and accordingly these were not declared. The allegation that the Labour government has been granting peerages to those who have made donations and loans to the Party came to light when the independent Appointments Commission which scrutinizes nominations for life peerages blocked three nominees who allegedly made loans to the Party.

The Metropolitan Police investigated allegations that offences may have been committed under the Honours (Prevention of Abuse) Act 1925 which makes the granting of honours in exchange for financial support unlawful. In July 2007 it was announced that no charges would be brought under the Act. However, fresh concerns arose in November 2007 when it was disclosed that a wealthy donor to the Labour Party had disguised his identity by making donations under the names of other individuals.

The Electoral Administration Act 2006, section 61, amends the Political Parties, Elections and Referendums Act 2000 and now brings loans and other transactions formally within statutory regulation. Sections 71F to 71 W of the 2000 Act provide that the granting of a loan, or the provision of credit, or the offer of any form of security which supports a financial transaction are ‘regulated transactions’. Section 71G stipulates how regulated transactions are to be valued and with whom such transactions may be concluded.

The Electoral Administration Act 2006 introduces reporting requirements in relation to regulated transactions to bring them into line with the making of donations and specifies the frequency of reporting. During a general election period (between the dissolution of Parliament and polling day) weekly transaction reports must be made by political parties.

State funding of political parties

Any limitation on the rights of parties to accept funds, disclosed or undisclosed, increases the arguments in favour of state funding of political parties. State funding in Europe is an accepted commonplace. Austria, Denmark, France, Germany, Greece, Italy, Portugal and Spain all have publicly funded political parties. This issue is, however, contentious in the United Kingdom on a number of grounds.

First, it is argued that state funding potentially undermines the cohesiveness of the party, and introduces the possibility of politically inspired changes to the bases of funding.

Moreover, it is argued that state funding would encourage the formation and growth of extremist parties. Opposition is also voiced on the constitutional basis that, to compel citizens to finance political parties, through taxation, especially those with which they have no sympathy, would cause dissent. Set against these objections, however, are the benefits which would accrue from public funding.

First, depending on the method used to calculate entitlement, greater equality and fairness would be achieved among the political parties.

Secondly, party political finances would become most clearly a matter of open public record. Thirdly, the elimination of contributions from individuals and organizations would eradicate the public’s suspicions about the integrity of party political finance and thus enhance confidence in the political process. Fourthly, the ability of parties to conduct their official duties would be enhanced by improving the level of contributions made.

In 2007, following an enquiry chaired by Sir Hayden Phillips, the Party Funding Review a made a number of recommendations. These included:

• a cap on donations and loans of £50,000;
• spending controls with an overall single limit on expenditure of £150 million to be spread over the life of a Parliament™ and to include a £20 million general election ‘premium’;
• existing controls under the Representation of the People Acts to remain.

On the issue of public funding the Report recommended that political parties should be entitled to receive an amount of public funding equivalent to the sum donated by an individual in any one year: thus for every £10 donated, the party would receive £10 state funding. The Report also recommended that the Electoral Commission should play a more investigative and tougher role in enforcing the law.

Registration of political parties act 1998

This Act introduced or the first time a register of political parties. A political party is entitled to be entered on the Register of Political Parties if that party intends to have one or more candidates at parliamentary elections, elections to the European Parliament, Scottish Parliament, National Assembly for Wales, the Northern Ireland Assembly or local government elections. Registration is intended to clarify the identity of bona fide political parties and thereby make regulation more certain. Under section 14, no party political broadcast may be made by broadcasters other than on behalf of a registered political party. The responsibility for the register lies with the Electoral Commission.