19 December 2006
The Review of the Funding of Political Parties - Statement by Sir Hayden Phillips
I was appointed to review the funding of political parties by the Prime Minister in March of this year. I have consulted widely and received a wide range of views from members of the public, both directly to the Review, and through other organisations, such as the Electoral Commission. I have met all the parties represented in the devolved administrations, the European Parliament and Westminster that have requested a meeting. In October, I published an Interim Assessment to set out what I regarded as the main issues and potential areas of reform.
In meeting the parties I have been exploring the potential for achieving a consensus between them on the best way forward, as set out in the Terms of Reference given to me by the Prime Minister. I strongly believe that it is in the public interest, and the interests of the parties themselves, for there to be a general agreement on reforming party political funding.
Reaching a consensus has not been and will not be easy. Yet I do believe that one is possible if there is a willingness on all sides to achieve it. In the interest of trying to reach an agreement, I am therefore delaying my final report until the end of January.
As I move towards the conclusion of the Review, I want to keep a clear focus on three points, which I mentioned in the Interim Assessment.
The first is that the reform of party funding is not an end in itself, but a means to improve the quality of public engagement with Parliamentary democracy through political parties. A system that can contribute towards restoring trust in politics, and that can assist parties to organise their financial arrangements in a more disciplined manner, would be, I believe, a worthwhile outcome.
Second, I want to ensure that we don't construct a system which, inadvertently, builds in a material, long-term, particular funding advantage to one party over another.
Third, any new system should take account of the interests of smaller parties, particularly in the light of the changes that devolution has brought, and the consequent increased representation for these parties. It should not put obstacles in the way of enabling new parties to emerge.
In a number of areas there is a clear prospect of common ground: on increased transparency in the income and expenditure of parties; in reducing the amount of campaign expenditure in a General Election year; in refreshed and reformed regulation (on which the Committee on Standards in Public Life is conducting a separate but related inquiry); and on additional public funding (although the degree to which I can recommend this is contingent on the degree to which there is a consensus on an overall reform package).
However, there are two key issues which need more work: the need for, and design of, a cap on donations to political parties; and whether campaign expenditure should be further limited in every year, not just in a General Election year, especially at a local level.
By the end of January, I aim to recommend to the Prime Minister a package of measures to reform the system of political party funding.
As I have said, the extent and nature of any additional public funding for parties will depend on the overall package. While there is some public scepticism about additional public funding, solvent political parties are essential to our Parliamentary democracy. I believe that if there can be agreement on a sensible way forward on the overall reform of party funding there is a strong public interest, and some public support, in using public funding to help provide the stability which the present system lacks.
I believe that an agreement on a future system of party funding would be clearly in the public interest. The challenge is now for me and the parties to make a final push to achieve an agreement on the way forward.
Background to the issues that need more time
1. Should there be a cap on donations?
The main reason for introducing a cap on donations would be to stop political parties relying too heavily either on large organisational donations or on a small number of high net-worth individuals. It would have the additional effect of making smaller donations more important to parties.
There are concerns that in practice donors would find ways to evade the cap. Measures would need to be agreed to limit avoidance, including increasing the capability of the regulator.
A cap on donations would affect the various political parties differently, depending on their circumstances. The financial impact would be greater on parties that currently receive a small number of large donations.
Of the parties the Review has consulted, all but UKIP favour a cap on donations. The majority favours a cap on organisations and individuals at a level set in legislation, which has yet to be negotiated. Some favour the cap on organisations being reduced over time to zero. An alternative proposal put to me is for each party to produce a donations policy, including setting the level of a cap on donations, which would then be approved by the Electoral Commission and enforceable in law. Further work needs to be done to see whether these positions can be reconciled.
Differences exist over how and whether a cap on donations should apply to affiliation fees from trade unions and socialist societies to the Labour Party. Affiliation is a collective decision by a trade union or socialist society. Under the current legislation the total affiliation fee from the union counts as one donation, and so, were a cap to be introduced, affiliation fees would be limited to the level of the cap. An alternative possibility would be to treat the contributions each individual makes towards the affiliation fee as if they were separate donations, which would then fall below any cap.
2. Are further controls on campaign spending needed?
There have long been limits on the amount that can be spent on campaigning in General Elections to reduce the pressure on candidates and parties to outspend each other and ensure that money does not unduly influence the result of the election. However, extension of the length of campaigning may now mean that these limits do not work now as originally intended.
A balance has to be struck between wishing to encourage engagement and participation in politics, particularly at a local level, with the need to avoid excessive expenditure which may be seen to undermine the fairness of an election. Campaigning is integral to the democratic process and should not in itself be denigrated.
A specific concern that has been put to me is that the existing limits allow significant amounts of money to be spent at a local level prior to the current controlled periods coming into force. Such expenditure is not therefore subject to a cap at a local level. This money has been perceived by some as distorting the results of the political process where some parties have been able significantly to outspend their opponents in individual constituencies.
The contrary view is that a cap on donations combined with a reduction in the national election spending limit would mean that further controls on campaign spending would be unnecessary; that further controls are likely to be complex and disproportionate; and that it would be wrong to limit local initiatives to communicate with the electorate outside election periods.
HP-005-06
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