Political funding in Britain: what can we learn from history?
Michael Pinto-Duschinsky is the latest contributor to our History & Policy series. Here he considers the past and future of political funding
What is the problem with political funding today?
Over the past three years, it seems that barely a month has gone by without a political financing storm hitting the headlines in Britain.
Here are the five main scandals to have rocked Westminster since 2006:
1. The ‘Loans for Lordships’ affair of 2006, which was sparked by revelations that Labour’s election campaign had been financed by large loans from individuals, some of whom had then been nominated for peerages. Scotland Yard conducted a 16‑month enquiry but no charges were brought.
2. The ongoing Abrahams affair, which triggered a political furore when it emerged in 2007 that David Abrahams’ identity as donor of some £600,000 to Labour had not been properly declared. Labour’s general secretary resigned as a result of the scandal.
3. Peter Hain’s resignation from the Cabinet in January this year over the non-revelation of donations to his Labour deputy leadership campaign.
4. The withdrawal of the Conservative whip from Derek Conway (also in January this year) when it was revealed that he had made controversial payments to his children out of his parliamentary allowance.
5. A Liberal Democrat MEP’s reported secret dossier on abuses by MEPs of their expenses and allowances (which made the news in February).
According to the minister of justice, Jack Straw, the root of the funding crisis is the “arms race” in political spending. This, he says, “is the central driver of the other problems that we face”.
Stung by the negative publicity that has accompanied the scandals, the Government has promised to introduce rapid new legislation to bring the “arms race” to an end. Its preferred solution is a limit on overall spending by each party during an entire electoral cycle. Such legislation would include routine as well as campaign spending at local and national level, a cap on the amount that each donor may give, and a radical increase in public subsidy to parties.
However, talks with the opposition parties about an agreed package have broken down.
Is there really an “arms race” in political spending?
The 1980s and 90s saw a steep rise in the amount that parties spent on their central election campaigns. However, the Government brought this to a halt in 2000, when it enforced a limit on such campaigning of about £19 million per party. Today, the cost of central campaigning accounts for only one seventh of overall spending and, as such, is no longer considered a real problem.
In fact, the Conservatives, the highest spenders of the three main parties, spent about 10 per cent less in the electoral cycle 2001–5 than 1966–70 when measuring inflation by the Retail Prices Index (RPI). Using the Average Earnings Index (AEI), their spending halved.
Meanwhile, in that same 37‑year period, combined Labour and Conservative spending increased by less than one per cent per year (RPI) – and has fallen if inflation is calculated by the AEI.
Spending by constituency organisations has declined, especially in Labour’s case. In 2003, spending by constituency Labour parties was 40 per cent lower than 34 years earlier (RPI) and over 60 per cent lower if inflation is measured by the AEI.
In other words, the “arms race” is a convenient myth.
What is the root cause of the parties’ financial problems?
It is expedient for politicians to blame their parties’ financial woes on rising costs, and then use these to justify more public money for themselves. Yet the actual root cause of the problem comes from a very different source – their steeply declining membership.
Why? Well, instead of counting on the support of volunteer members, MPs now have to employ professional staff. In fact, MPs alone account for about 2,000 paid employees. And all this comes at a cost: members of local government authorities now receive over £200 million in salaries and allowances.
Is the public funding of parties as modest as is often believed?
It’s true that direct financial grants to parties – such as the ‘Short Money’ given annually to opposition parties in the House of Commons to help them meet their costs – are relatively small.
However, the parties receive handsome subsidies-in-kind such as free political and election broadcasts on radio and television. What’s more, salaries and allowances to elected officials have ballooned and are due to increase still further. Officially, this money helps politicians carry out their public duties. In practice, the allowances allow them to employ the professional staff mentioned above.
Are concerns over the probity of political funding a new phenomenon?
The costs of politics were as high in the 19th century as they are today when measured by RPI (and far higher when gauged by AEI). As a result, the problems caused by money in politics are less severe now than in the past.
Scandal too is nothing new. After the First World War, the sales of peerages by the main parties were far more vulnerable to corruption than today.
Nor is this the first time that the Government has decided to take action. In 1883, the Corrupt Practices Act introduced a surprisingly effective limit on spending by parliamentary candidates. Over a century later, in 2000, Labour enacted the Political Parties, Elections and Referendums Act, which regulated central campaign expenditure and obliged parties to reveal donations of at least £1,000 to a constituency party or £5,000 to a central party organisation.
What does history teach us?
History tells us that political finance is crucial for three reasons. First, it affects political recruitment. Until the early 20th century, the costs of contesting parliamentary elections were so high that only the rich – or those with wealthy patrons – could aspire to pursuing a political career. In fact, the formation of the Labour party was shaped by the need to provide election expenses for working class politicians through trade union levies.
Second, money influences election results (though it can be hard to disentangle the effects of high spending from other factors). Rich parties can afford to campaign and advertise on a larger scale than poor ones.
Third, political funding is a potential source of corruption. Donors often demand rewards in the form of favoured access to political leaders, business benefits from the government, or political honours. In 1922, the justified suspicion that some of the crooks appointed as peers by Lloyd George had paid for the honour, played a significant role in his demise. In 1997, perceptions of the ‘sleazy’ activities of Conservative MPs contributed to the defeat of John Major’s government.
It’s therefore easy to establish that the financing of parties, election campaigns and the activities of individual politicians should be a matter of importance to historians. But drawing clear conclusions from history for future policy is a far harder task.
This is chiefly because historians’ views on the legal reforms of political financing are often coloured by their own political ideology – for example, the public funding of parties is likely to appeal more to Left-leaning scholars than those on the Right.
What’s more, historians and politicians often support measures purely for reasons of party advantage – as seen in the tit-for-tat changes in rules about trade union political funds that have kept our law-makers busy since 1927. While governments down the years have attracted criticism for ‘dubious’ activities, opposing parties have tended to promote their mutual interests by calling for ever more money from public coffers. This has led political scientists such as Richard Katz and Peter Mair to write of the rise of cartel parties.
My personal conclusions are that legal reforms may sometimes work (for example, the Corrupt Practices Act of 1883) but frequently prove to be problem-laden. The 2000 Act certainly appears to fall into the latter category. Its rules about disclosure of donations and spending limits have forced central party organs to tighten their control over local associations – thus affecting parties’ internal structures.
Meanwhile, the increasing allowances to MPs and councillors have merely served to benefit those already in power: during an electoral cycle, a sitting MP receives over half a million pounds in allowances; a challenger is limited to a campaign budget of some £10,000.
As indicated above, a closer look at the history of governments’ efforts to regulate political financing, both in Britain and abroad, reveals that new legislation is, more often than not,
beset by pitfalls. For example, unexpected difficulties often arise through the wording of obscure parts of a new Act; when one channel of funding is banned, money flows into political life through other channels; and restrictions on party funding lead to the growth of lobby groups as offshore islands of parties.
Yet, above all, laws are of little value if they are not enforced – and the enforcement of many of Britain’s electoral laws has been minimal.
The financing crisis faced by British parties today reflects the public’s rapidly diminishing confidence in, and support of those who hold political offices. There is a real danger that, by increasing public funding, the Government will simply exacerbate the problem, causing greater disillusionment and, in doing so, making parties even less relevant and effective. The gravy train of payments to what the author and commentator Peter Oborne correctly calls the “political class” is unpopular – and rightly so.
Three lessons from history
1. The political spending “arms race” is a myth. The highest spenders (the Conservatives), spent about 10 per cent less in the period 2001–5 than in 1966–70. If average wages (rather than retail prices) are used to measure inflation, the 1966–70 figure dropped by a half.
2. State aid to party politics is now huge because of the growth of indirect forms of public funding, such as allowances to MPs – which equate to over £100 million a year and are growing – and to councillors (over £200 million).
3. The root problem of British party politics is the precipitous fall in party membership. Further state aid will simply exacerbate this problem.
Michael Pinto-Duschinsky is president of the International Political Science Association’s research committee on political finance and political corruption. He is the author of British Political Finance 1830–1980 (American Enterprise Institute for Public Policy Research, 1981)