Donor inquiry can break status quo

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Donor inquiry can break status quo

Party funding has been the subject of endless reports, but the latest cross-party talks offer an opportunity for real reform

Nick Clegg has shown how seriously he takes talks on funding by appointing David Laws and Tim Gordon to represent his party. Photograph: Peter Macdiarmid/Getty

"The shelves of libraries groan with unimplemented reports on party funding", the Cabinet Office minister Francis Maude admitted on Monday, and judging by the 85-minute partisan Commons shouting match between the parties in the wake of the Peter Cruddas affair, the prospects for the next inquiry look little better.

The three main parties have each appointed two nominees for a fresh round of cross-party talks, as requested by Nick Clegg last month, and Maude made it clear to MPs the coalition will not impose a solution, but continue the Labour habit in government of looking for a cross-party consensus. In a bid to exploit the momentum created by the weekend sleaze, he wants an interim update on progress to be ready soon after Easter.

Clegg also insisted extra state funding will not be on the agenda, even though the last inquiry conducted by Sir Christopher Kelly, the standards in public life chairman, made a large dollop of state funding the centrepiece of its package.

Clegg's aides hope a new consensus may be possible because for the first time in a generation there may an equivalence of mutual self-interest in tearing up the current arrangements, and in making compromises. The status quo for all three parties may be worse than reform. Until Saturday night, the Tories, vastly better funded than Labour, were pretty happy to leave the current arrangements undisturbed.

In a sign of Clegg's seriousness he has appointed David Laws and his party's new chief executive, Tim Gordon, to represent his party at the talks. The Tories late last week appointed Maude, a veteran of previous inter-party talks, and Lord Feldman, who gave evidence to the Kelly inquiry, to represent them.

Ed Miliband has appointed his parliamentary aide John Denham and a former party general secretary, Ray Collins.

The Labour government-commissioned inquiry conducted by the former civil servant Sir Hayden Phillips reported in March 2007 and suggested a £50,000 individual donations cap, a £25m-a-year rise in state funding and a £20m cut in party spending between elections. He largely left unresolved the issue of how to treat union donations.

A Ministry of Justice paper in June 2008 discussed the issues without conclusion. Phillips subsequently claimed to have got within touching distance of brokering a deal between the parties, but all sides even today blame one another for those talks collapsing. David Heath, the Liberal Democrat on the committee and now deputy leader of the house, claimed the Conservative's reasons for rejecting a deal had been bogus. Peter Watt, the then Labour party general secretary, criticised the unions' refusal to let Labour do more to require union leaders to give its levy payers the clear option of opting out of paying the political levy, the bedrock of Labour funding.

After the general election, the committee on standards in public life, chaired by Kelly, put together a fresh package, reporting last November. Kelly'steam proposed a lower £10,000 donor cap on individuals and organisations, a system of contracting in for individual union levy-payer donations, and a 30% reduction in the cap on campaign spending.

Kelly was frank about the hole in party finances blown by even a £50,000 cap. If the £50,000 figure was chosen, and nothing else changed, the Conservative party would have lost an average of around £8m a year, equivalent to around 48% of its reported donations. Labour would have lost around £13m (81%) or £6m (36%) depending on the treatment of affiliation fees and the Liberal Democrats around £1.1m (38%).

If the cap is reduced to £10,000 the Conservatives would lose 76% of their funding or £12.7m a year and Labour would lose £14.7m or 91% of its central funding.

Kelly said this hole should be filled by increased state funding based on a parties vote at the previous general election.

The report was still born when all three parties, including Clegg, said they could not accept an increase in state funding, even in reality the charge was an extra 50p per taxpayer. Yesterday, some Lib Dem MPs seemed to want to reopen the issue, and urged Maude to implement Kelly in full, but that is not the official Lib Dem position.

The unions will not shift to levy payers contracting into paying the political levy, and if Labour does not offer that, the Conservatives will not back a £50,000 cap on its donors, and no one backs state funding. So the poisoned chalice has now been handed to Laws. His allies remain optimistic that a package can be rescured form the rubble of Kelly and Phillips, repeatedly stressing there is no need for a further fact finding report, or fresh look from first principles.

Specifically, they point to other proposals in Sir Christopher's report on tightening definitions of permissable donors, limiting campaign expenditure, redefining campaign expenditure and tax relief for donors. It would also require the unions at the minimum to be more transparent about the option of contracting out of the political levy, and the pupose of the political fund. That in turns requires Ed Miliband to make a wider deal with the unions on their place in the party.

But Liberal Democrats remain the eternal optimists and point out if it was possible to put together a coaliiton agreement in five or so days, it should be possible to have got a deal on party funding in five or so more months.