The funding of political parties · Public funding of political parties We have further examined arguments and options surrounding the public funding of political parties. Political

December 2004

The funding ofpolitical partiesReport and recommendations

1071 Party Funding.qxd 30/11/04 11:32 Page a3

Translations and other formats

For information on obtaining thispublication in another language or ina large-print or Braille version pleasecontact The Electoral Commission:

Tel: 020 7271 0500

The Electoral Commission

We are an independent body that was set up by the UK Parliament. We aim to gain publicconfidence and encourage people to take part in the democratic process within the UK bymodernising the electoral process, promotingpublic awareness of electoral matters andregulating political parties.

The funding of political parties Report and recommendations

Copyright © The Electoral Commission 2004

ISBN: 1-904363-54-7

Email: [email protected]


Contents

Executive summary 3

1 Introduction 7Political parties 7Review process 9Priorities 10Scope 10

2 Attitudes towards the funding of political parties 13Research 13Public opinion 14Party activists 20Attitudes towards implementation 23

3 Party income and expenditure 25The costs of democracy 25Party income 26Party statements of accounts 27

4 National and candidate spending limits 47Political Parties, Elections and Referendums Act 2000 (PPERA) 47National spending limits 48National spending at recent elections 50Candidate spending limits 55Issues 57Commission position 61

5 Political donations 65Background 65Donations under PPERA 66Donations since 2001 67Arguments for a limit on donations 79Arguments against a limit on donations 80Proposed levels of donation limit 82

Financial implications of limiting donations 84Commission position 86

6 Public funding of political parties 89Background 89Direct public funding 90Indirect public funding 92Stakeholders’ views 94Commission position 97Reforming the policy developmentgrant scheme 97New forms of public funding 98

7 The way forward 103The importance of political parties 103The way forward 104

Appendices

Appendix 1Respondents to our issues paper 107

Appendix 2Programme of public hearings 109

Appendix 3Programme of public debates 111

Appendix 4Programme of study tours 112

Appendix 5Fringe meetings at 2003 party conferences 115

Appendix 6Funded research 116

1

1071 Party Funding.qxd 30/11/04 11:32 Page 1


Executive summary

Political partiesPolitical parties have a vital role to play in ourdemocratic system. They cannot carry out thatrole unless they are adequately funded. As wellas generating sufficient income to fight electioncampaigns, parties must ensure that they havethe necessary resources to fund their activitiesbetween elections. Political parties have tomaintain their day-to-day business and thenecessary infrastructure to ensure that they can undertake the role expected of them in our political system.

Party income and expenditureUnder the Political Parties, Elections andReferendums Act 2000 (PPERA), registeredpolitical parties are required to submit anannual statement of accounts to theCommission. The statements of accounts showthat the main parties are having difficultiesraising sufficient funds to meet their day-to-daycosts let alone the additional burden of fundingmajor election campaigns. It appears that someparties rely heavily on borrowing to fund theiroperations.

Key conclusions and recommendationsNational and candidate spending limits

As part of our review we undertook to examineafresh the relationship between local andnational campaign expenditure. We believe thatlimits on campaign expenditure by politicalparties are in the public interest. We alsobelieve that the electorate is better served bycampaigns that engage directly with voters,

The funding of political parties: executive summary

3

Among The Electoral Commission’sgeneral statutory functions is a dutyto keep under review a range ofelectoral and political matters. In ourreport on the 2001 general electionwe stated that a review of the publicfunding of political parties was along-term aim. The Commission’sCorporate plan 2002/03 to 2006/07also identified the need to reviewthe arguments for public fundingand the related issue of a cap onpolitical donations.


4


and that the balance between national partyand candidate spending limits should betterreflect that principle. In particular:

• We recommend that the national spendinglimit applying to Westminster generalelections should be reviewed following thenext general election with the aim of reducingthe limit to £15m.

• Alongside this, we recommend a significantincrease in candidate spending limits toencourage more activity at the local level.

• We recommend that a similar rebalancing ofnational and candidate spending limits shouldthen take place for all other relevant elections.

• We recommend that any increase incandidates’ expenditure limits should beaccompanied by greater transparency,allowing opponents and electors to moreeasily review election expenses.

Political donations

Political donations constitute the primarysource of income for many political parties. It is clear that a small number of largedonations constitute an important contributionto the total donation income received by someparties. Despite the transparency regimeintroduced under PPERA there is still publicunease about the size of some donations and a perception that donations may buy eitherinfluence over policy or access to decisionmakers. We share that unease whilerecognising that capping donations would itself raise some fundamental issues.

Any donation cap would need to be set at avery low level (perhaps in the region of £10,000per donor per annum) if the public were to bepersuaded that its likely effect would be toeliminate the risk of corporate, trade union orindividual interests buying influence. Such acap would have a significant impact on thefunding of parties, raise questions about theacceptability of compensating public funding,about the rights of individuals to spend theirmoney in the way they choose, and about theindependence of parties from the state.

We do not believe that the introduction of adonation cap can be justified at the presenttime. However, the Commission would beprepared to undertake further work on thepracticability and implementation of such a cap, as well as more detailed modelling of associated public funding options.

Public funding of political parties

We have further examined arguments andoptions surrounding the public funding ofpolitical parties. Political parties already receivevarying degrees of direct and indirect statesupport for their activities.

Our deliberations on this issue have beenguided by the principle that any additionalforms of direct or indirect funding should act as an incentive to parties to develop broaderbased streams of income through moreeffective engagement with the electorate.

The policy development grant scheme hasbeen of positive benefit, particularly to the


5


smaller parties who are least able to devotefunds to this activity.

• We recommend a modest expansion of thepolicy development grant scheme so thatparties with at least two members elected to either the House of Commons, EuropeanParliament, Scottish Parliament, NationalAssembly for Wales or Northern IrelandAssembly would be eligible to receive a shareof such funding. In order not to disadvantageexisting recipients we recommend that thesum available should be increased to £3m.

• We recommend that a system of income taxrelief should be introduced for donations toeligible political parties up to the value of£200. We also recommend that the benefits ofsuch a scheme should be extended to includenon-taxpayers.

• We see value in the freepost facility that iscurrently available to candidates contestingnational elections in England, Scotland andWales being extended to local elections tofacilitate greater engagement. We thereforerecommend that further work be undertakento see how such a scheme might operate and cost.

• Beyond these measures, any furthersignificant increase in public funding must in our view be contingent on acceptance of a cap on donations.



71 Introduction

The Electoral Commission is apublic body established on 30November 2000 under the PoliticalParties, Elections and ReferendumsAct 2000 (PPERA). TheCommission is independent ofGovernment and political parties,and is directly accountable toParliament. Among theCommission’s general statutoryfunctions is a duty to keep underreview a range of electoral andpolitical matters.1

Political parties1.1 Political parties have a vital role to play in our democratic system. Political partiescrystallise political, economic and socialinterests in society and offer voters alternativepolicies from which to choose at elections. Asvan Biezen2 has argued, in this respect theyserve as a channel through which individualsand groups are integrated into the politicalsystem. In addition, political parties organisecampaigns in order to mobilise voters toparticipate in elections and make possible theconduct of effective government. Politicalparties also play an important role in recruitingpolitical players by selecting and nominatingcandidates who stand for public office atelections. They further fulfil an importantfunction in relation to public policy by makingand implementing political decisions.3 Indeed, it is difficult to visualise a parliamentarydemocracy such as ours without the role played by political parties.

1.2 In order to carry out effectively theirdemocratic functions, political parties requireappropriate funding. As well as generatingsufficient income to fight election campaigns,parties must ensure that they have adequateresources to fund their activities betweenelections. Parties have to maintain their day-to-day business and the necessary infrastructureto ensure that they can undertake the roleexpected of them in our political system.

1 Section 6 of the Political Parties, Elections andReferendums Act 2000.

2 Ingrid van Biezen (2003) Financing political parties andelection campaigns – guidelines, Council of Europe.3 Ibid.

The funding of political parties: introduction


8

1.3 During the post-war period UK politicalparties have been funded mainly through thevoluntary donations made by their membersand supporters. They also receive varyingdegrees of direct and indirect state support fortheir activities. These range from the free use ofcivic premises for election purposes, mail shotsof literature and party broadcasts duringelections to financial support for oppositionfront benches in the form of Short andCranborne monies. Similar party fundingarrangements are in place in the devolvedlegislatures. More recently Parliament hasinitiated a scheme to provide policydevelopment grants to parties sitting atWestminster.4

1.4 Recent years have seen the publication ofseveral reports on the funding of politicalparties. All of these have considered thefinancing of political parties or specific issuesrelating to donations, party expenditure andpublic funding. In 1998 the Committee onStandards in Public Life (The Neill Committee)published its report The Funding of PoliticalParties in the United Kingdom.5 Almost all of thereport’s recommendations were adopted by theGovernment and enacted under PPERA. ThatAct, which established The ElectoralCommission, requires political parties to

register with the Commission, to disclose thesource of large donations, to observe newcampaign expenditure limits and to submitannual accounts. The Act also established the policy development grant scheme, whichdistributes the sum of £2m annually to eligiblepolitical parties.

1.5 Among those organisations that haveproduced more recent reports are the HansardSociety,6 the institute for public policy research(ippr),7 The Catalyst Forum8 and the NewPolitics Network.9 At the international level, theInternational Institute for Democracy andElectoral Assistance recently published ahandbook on the funding of political parties,10

while the Council of Europe produced a reportcontaining guidelines to member states onfinancing political parties and election campaigns.11

1.6 Despite enhanced levels of public scrutinyof party finances since the introduction of


4 For further information about existing forms of publicfunding in the UK see The Electoral Commission (2003)The funding of political parties: Background paper,available at www.electoralcommission.org.uk/files/dms/FundingBackgroundPaper_edited_9766–7955__E__N__S__W__.pdf and chapter 6 of this report.5 The Committee on Standards in Public Life (The NeillCommittee) (1998) Fifth Report: The Funding of PoliticalParties in the United Kingdom Cmnd. 4057, October.

6 Hansard Society (2002) Paying for politics: Theprinciples of funding political parties, discussion paper.7 Matt Cain with Matthew Taylor (2002) keeping it clean:the way forward for state funding of political parties, ippr.8 K. D. Ewing (2002) Trade Unions, the Labour Party andPolitical Funding: The next step: reform with restraint, TheCatalyst Forum.9 New Politics Network (2003) Strong Parties, CleanPolitics: The case for party funding reform, discussionpaper; Alexandra Runswick with Peter Facey & EmilyRobinson and Dr David Denver & Dr Justin Fisher (2004)Life Support for Local Parties: An analysis of the decline oflocal political parties and the case for state support oflocal activism, New Politics Network.10 The International Institute for Democracy and ElectoralAssistance (2004) Funding of Political Parties and ElectionCampaigns, Stockholm.11 Ingrid van Biezen (2003) Financing political parties andelection campaigns – guidelines, Council of Europe.


9

PPERA, there is continuing public unease aboutthe possible influence of large donations on thepolitical process. While there is no evidence ofimproper influence in connection with any ofthese donations, the concentration on theseissues by the media has impacted upon publicconfidence and, according to some partysources, resulted in businesses and wealthyindividuals being less willing to makecontributions. Alongside this, recent years havewitnessed a general decline in levels of partymembership.12 These developments haveplaced increasing pressure on parties to seekout and accept large donations, and stimulatedinterest in the regulation of party income andexpenditure, and the public funding of political parties.

1.7 Our report on the 2001 general electionstated that a review of the case for increasedpublic funding of political parties was a long-

term aim.13 The Commission’s Corporate plan2002/03 to 2006/07 also identified the need toreview the arguments for public funding and therelated issue of a cap on political donations.

Review process1.8 This report sets out the views andrecommendations of the Commission. Thereview has been managed by Commission staff under the guidance of a project boardcomposed of Electoral Commissioners.

1.9 In May 2003 we published an issues paper.The paper was sent to registered politicalparties, trade unions, members of the businesscommunity (including party donors), electedrepresentatives, academics, think-tanks andlocal authority representatives. In addition, thepaper was, and remains, available for the publicto download from our website.14 The paperprovided information about the review andinvited responses to some questions relating to the issues. We provided 15 weeks forresponses to the issues to be submitted to us,and received a total of 80 responses. A list ofrespondents is included in Appendix 1, andresponses are available to view in person at theCommission, except where confidentiality wasrequested.

1.10 To accompany our issues paper wepublished a background paper, providingdetails of existing public funding, the argumentsfor and against public funding and examples of


12 A recent study by the New Politics Network indicatesthat Labour Party membership in 1997 was 405,238. TheLabour Party’s annual statements of accounts show thatby the end of 2001 its membership was 272,000. By theend of 2002 Labour Party membership stood at 248,294and at the end of 2003 it was 214,952. The New PoliticsNetwork study states that Liberal Democrat membershipwas estimated to be 100,000 in 1997. The party’sstatements of accounts show that this had declined to73,276 in 2001 and 71,636 in 2002. By the end of 2003membership levels had recovered slightly to 73,305. The Conservative Party’s membership levels have alsodeclined in recent years, from an estimated 400,000 in1997 to 318,000 in 2001 (source: New Politics Network).At the end of 2003 the party’s membership stood at320,000 (source: The Conservative Party). For furtherinformation on party membership trends see New PoliticsNetwork (2003) Broadening Participation: ThinkingBeyond Party Membership, discussion paper, and PeterMair and Ingrid van Biezen (2001) ‘Party Membership inTwenty European Democracies, 1980-2000’, Party PoliticsVol. 7, pp. 5-21.

13 The Electoral Commission (2001) Election 2001 – The Official Results, London: Politicos.14 www.electoralcommission.org.uk/templates/search/document.cfm/7954.


10

international practice. The paper is alsoavailable to download from our website.

1.11 During the early part of 2004 theCommission held public hearings in Belfast,Cardiff, Edinburgh and London. The hearings,which were open to the public, gave politicalparties, trade unions, major donors, think-tanksand others an opportunity to present oralevidence to Commissioners. Details of thepublic hearings are included in Appendix 2. In addition, we organised a series of publicdebates, giving members of the public anopportunity to get their views across. Details are provided in Appendix 3.

1.12 Commissioners and staff also undertookstudy tours to Canada, Germany, Republic ofIreland, The Netherlands and the United Statesof America to learn about party fundingsystems in other countries. Details of the toursare included in Appendix 4.

1.13 The Commission organised a series offringe meetings on party funding at the 2003Conservative, Labour, Liberal Democrat,Scottish National Party and Plaid Cymruconferences. The meetings provided grassroots party activists with an opportunity todebate the issues. Details of panel members at those meetings are included in Appendix 5.

1.14 We also commissioned quantitative andqualitative research exploring attitudes towardsthe funding of political parties. The quantitativeresearch was conducted by MORI during May2003 and was part of a larger research projectfocusing on key issues around voting and

elections. The qualitative research, carried outby Cragg Ross Dawson in November 2003,consisted of in-depth interviews with grassroots party activists and focus groups with a cross-section of the general public. Furtherdetails are provided in Appendix 6.

Priorities1.15 The Commission aims to promote andmaintain openness and transparency in thefinancial affairs of political parties and othersinvolved with elections. We also aim toencourage greater participation in, andincreased understanding of, the democraticprocess. In considering any changes to the UK system of party funding we have beenconscious of the need to examine how thiswould help or hinder political parties in fulfillingtheir democratic functions, engaging moreeffectively with the electorate and ensuring thehealth of our democracy. Democracy is bestserved through greater participation andincreased confidence in the political process.

1.16 Any system of party funding should beunderstandable, transparent and easy toadminister. It also needs to be available on anequitable basis, regardless of the ideological or policy stances of particular political parties.

Scope1.17 This review has focused largely on thoseparties that have elected representatives abovelocal government level. Nonetheless we havealso examined issues relating to smaller partiesseeking to establish themselves as majorplayers, as well as the role of candidates.



11

1.18 The project has not examined theoperation of the donation-reporting regime,which was the subject of a separateCommission review focusing on PPERA, which reported in June 2003.

1.19 This report has been submitted to theSecretary of State for Constitutional Affairs inaccordance with Section 6 of PPERA. It hasalso been distributed to stakeholders andpublished on the Commission’s website.




132 Attitudes towards the funding ofpolitical partiesDuring our review we receivedevidence from a wide range ofstakeholders. The arguments and views put forward by thosestakeholders are detailed later inour report. We also considered it important to find out what the public thought about party fundingin the UK, as well as local partyactivists, and their views are set out in this chapter.

Research2.1 As part of our review we commissioned twopieces of research to inform our understandingof attitudes towards the funding of politicalparties. The two projects were designed tocomplement each other: collectively, providingboth a measurement and exploration of publicopinion and a rounded evidence-base. Thischapter summarises the main findings from the two projects. Further information about themethodology used can be found in Appendix 6.

2.2 In May 2003, MORI conducted quantitativesurvey research among the general public tomeasure their knowledge of the current systemof party funding and their attitudes towards theway this might develop in the future.15

2.3 In November 2003, the Commissionretained Cragg Ross Dawson (CRD) to conductqualitative public opinion research to furtherexplore awareness of, and attitudes towards,party funding arrangements and potentialchanges to the current system. This researchused a programme of focus groups to follow upin more depth some of the themes identified byMORI’s previous polling for us.16

The funding of political parties: attitudes towards the funding of political parties

15 MORI (2003) Attitudes towards voting and the politicalprocess in 2003 – available atwww.electoralcommission.org.uk/templates/search/document.cfm/8510.16 Cragg Ross Dawson (2004) Attitudes towards thefunding of political parties – available atwww.electoralcommission.org.uk/elections/research.


14

2.4 CRD’s research also included depthinterviews among grass roots local partyactivists who were asked to provide their ownperspectives, not necessarily those of theirparty. This exercise was designed tocomplement the Commission’s consultationexercise seeking parties’ official responses tothe matters under review. We also wanted togauge the views of a sample of activistsrepresenting parties without a presence atWestminster, parties reliant on voluntarysupport and/or tending to focus exclusively on local issues.

2.5 The two projects sometimes reacheddifferent conclusions with respect to publicattitudes towards the funding of political parties.In considering these, it is worth rememberingthat both projects were based on differentmethodologies and designed for differentpurposes. While the MORI survey collected‘top-of-mind’ attitudes, CRD’s focus groupdiscussions provided a more deliberative forum and gave the public an opportunity to learn about and debate the issues aroundparty funding.

Public opinionQuantitative research findings

2.6 MORI’s survey for us found that mostpeople did not feel informed about how politicalparties are funded at the moment. Just over aquarter (27%) of those asked said they knew ‘agreat deal’ or a ‘fair amount’, including 5% whosaid they knew a ‘great deal’. Most (61%) saidthey knew ‘just a little’ or ‘hardly anything at all’.

2.7 Reflecting this low level of awareness (andalso perhaps that most people are unlikely tohave considered such issues before), MORIfound that views on public funding of politicalparties were somewhat ‘confused andcontradictory’.17 As shown in Figure 1 opposite,although the public is strongly supportive of theprinciple that people should have the right tomake donations to parties (79% agree), thiswas tempered by a majority view (70%) that thisis unfair as it risks the buying of influence. Thesame proportion (70%) believed that thereshould be a limit on how much people candonate to political parties.

2.8 Also, even though there was strong supportfor the principle that people should have theright to make voluntary donations, the publichad misgivings about inequality in partyspending at election time. Three-quarters feltthat elections are unfair if one party can spendmore than others.


17 MORI (2003) Attitudes towards voting and the politicalprocess in 2003.


15


Figure 1: Public attitudes towards the funding of political parties

Q. I am going to read out a number of statements some people have made. For each one,please tell me whether you agree or disagree...

Disagree Agree

People should have the right to makedonations to the parties they support

14% 79%

It is better that parties should be financedby their own fundraising, rather thanbeing subsidised by taxpayers 16% 76%

It makes elections unfair if one partycan afford to spend more than others

18% 74%

Funding parties by voluntary donations is unfair because there is a risk that wealthy individuals, businesses and 22% 70%trade unions can buy influence over parties

Source: MORI.

Base: 1,500 UK adults 18+, 2-11 May 2003.


16

2.9 One of the main themes that emerged fromour survey was the public’s instinctive hostilitytowards the idea of political parties beingfunded by taxpayers’ money. Three-quarters(76%) considered it preferable that partiesshould be financed by their own fundraising(53% strongly agreed), rather than beingsubsidised by taxpayers’ money, with 16%disagreeing. A majority (56%) did not believe that the political process would be more honest if parties were funded through taxes.

2.10 The belief that parties should stand ontheir own financial feet is underlined further bythe third of voters who felt it would not harm thedemocratic process if political parties wereallowed to go bankrupt.

2.11 When presented with a series of optionsfor funding and having been given a reminderof the current situation and a brief introductionto the main arguments for and against differentfunding options,18 just 7% of the electoratebelieved that taxpayers should foot the total billfor party financing (shown in Figure 2).


18 The full question preamble, developed with MORI,was as follows: ‘At the moment, political parties aremainly funded by voluntary donations – they raise moneyfrom party members, businesses, trade unions and fromindividual people. They receive some limited fundingfrom taxes for their activities in Parliament and for someactivities at elections. Some people say that politicalparties should be funded through taxes, to prevent therisk of money being used to buy political power andparties with wealthy supporters having an unfairadvantage. Others say that parties should depend onbeing able to raise money from their own supportersrather than automatically receiving money from taxes.Which of the following best reflects your view?…’.


17


Figure 2: Public views on how parties should be funded

Q. Which of the following best reflects your view?

Source: MORI.

Base: 1,500 UK adults 18+, 2-11 May 2003.

3% 7%

9%

17% Equally by taxesand voluntarydonations

Mainly by taxes, some voluntarydonations allowed

Totally by taxes, voluntarydonations bannedDon’t know

Mainly by voluntary donations,with some funding fromtaxpayers

Totally by voluntarydonations, with no funding fromtaxpayers

26%

37%


2.12 Views were found to be consistent acrosssubgroups of the population, and were notdependent on, for example, levels of knowledgeabout Parliament or the registration process.However, those who were interested in politicswere more likely to favour total or partial publicfunding of political parties (20%), comparedwith those who were not interested in politics(12% of whom favour public funding).

2.13 Despite the vast majority of the publicbeing against the funding of political parties bytaxpayers’ money, 70% in the MORI survey didconsider the voluntary system to be unfair, as it presented a risk that wealthy donors may buyinfluence. Such a sentiment was similarly foundin the recent Joseph Rowntree Reform TrustState of the Nation survey,19 and people in thatsurvey were supportive of ‘public funds’20

being used to reduce parties’ ‘dependency ondonations from wealthy individuals, businessesand trade unions’.

Qualitative research findings

2.14 On our behalf, CRD conducted aprogramme of twelve focus groups amongmembers of the public in November 2003. The research was designed to complement the MORI survey and explore public attitudes in more depth. The focus groups involved

discussions of two hours and in their report to us, CRD pointed out that ‘the discussiongroups required participants to consider theissues in a calm and relatively rational manner… [with] background discussion … not thecontext in which the great majority of usencounter potentially contentious or difficultissues’.21

2.15 Consistent with MORI’s findings, the focusgroup discussions revealed very low levels ofunderstanding among the public about howpolitical parties are funded currently. They alsodemonstrated low levels of awareness withrespect to the role and functions of politicalparties. CRD’s researchers found that fundingpolitical parties was a topic that most peoplehad rarely, if ever, considered in any detailbefore, other than in association with mediastories of ‘sleaze’ and ‘backhanders’. Despitethese sorts of stories often causing deepconcern and anger, there was very little interestin issues of party funding.

2.16 The research also found that there wasconsiderable uncertainty as to whether any sortof public funding was currently available topolitical parties. Some, including many of theleast engaged, assumed that it was, or at leastwere unsurprised when told that some publicmoney was available. CRD reported that thisapparent familiarity might have reflectedconfusion between the funding of politicalparties and public expenditure in general.Indeed, the research showed that often the

18


19 ICM Research conducted 2,371 interviews during thelocal and European election campaign, 26 May-4 June2004. The Joseph Rowntree Reform Trust has beenconducting State of the Nation surveys since 1991. Fulldetails of the 2004 survey are available at www.jrrt.org.uk.20 It is worth noting that the ICM/Joseph RowntreeReform Trust survey question used this term, rather than‘taxes’ as used in the MORI/The Electoral Commissionsurvey.

21 Cragg Ross Dawson (2004) Attitudes towards thefunding of political parties – available to download atwww.electoralcommission.org.uk/elections/research.


19


22 C2DE denotes social grades including ‘blue collar’skilled and unskilled manual occupation groups andthose on long-term state benefit, while BC1 includesmanagers, professionals and other ‘white collar’occupation groups.

more engaged were surprised that politicalparties received any public money.

2.17 On the whole, CRD found that the publicwere accepting of political parties being givenmoney to help cover the costs of playing a rolein Parliament, although the public struggled toimagine what these costs might be. Donationsfrom businesses and individuals were verymuch expected to form the bulk of partyincome and the assumption was widespreadthat the only possible reason these donorscould have for making a donation was in orderto gain influence:

If someone gives money to a party theyare looking for a return and something isobviously going to get paid back.

Group 9: 23-30 years, C2DE,22

Wolverhampton

You can’t tell me that Bernie Ecclestoneput money into it and didn’t derive anybenefit from it. You do not give a millionpounds to a political party and not derivesome benefit.

Group 6: 45-55 years, BC1, Belfast

2.18 The public rarely, if ever, regardeddonations from trade unions to parties asproblematic. A good proportion of the publichad not even registered the relationship of thetrade unions to political parties, and even when

brought up for discussion, seldom thought thattrade unions might be buying influence throughdonations in the way it was assumedindividuals and businesses would be. Smalldonations, i.e. those that ‘an average personcould afford’ were certainly not seen by thepublic to pose a problem, in the manner ofdonations from businesses or wealthyindividuals.

2.19 Membership was also seldom brought up spontaneously as a source of party income.Once raised by the researchers, membershipfees were expected to be only a very smallproportion of parties’ total income.

2.20 The research also showed there to besome very low-level awareness that majordonations to political parties need to beregistered. While some viewed this in broadlypositive terms, others were highly scepticalabout how effective this system might be inpreventing big donors or politicians fromengaging in ‘sleaze’.

2.21 CRD found the public, after deliberation, to be broadly in favour of increased or totalpublic funding of political parties, even if thiswould necessarily be funded through the taxsystem. The reasons given included:

• Less ‘sleaze’: primarily the public anticipatedand hoped that increased public fundingwould create a cleaner, more transparent andmore responsive system.


20


• Low cost for taxpayers: when people wereinformed of an estimate23 as to how muchpublic funding of political parties mightactually cost each taxpayer they felt that thiswas a small price to pay for the benefits thiswould result.

• A fairer system: for a good number, thedesire to give parties an equal chance and to ensure that none are disadvantaged by having fewer resources was a convincingargument in favour of increased publicfunding.

2.22 Although support for public funding,informed on the whole by these arguments, was found to be robust, it was not whollyunconditional. In particular, focus groupparticipants wanted to learn how such a systemmight be implemented, and were keen toarticulate their expectations for the practicalitiesof funding arrangements. In other words, thepublic struggled to discuss public funding in the abstract. Their understanding of, and supportfor, the idea were often entirely dependent onhow it might be put into practice, as thisprovided the assurance that greater publicfunding would address the problems they identifiedwith the current system. Indeed, those who didnot want to see the current system changedtended to cite problems with implementation as a major reason for their opposition.

2.23 Those opposed to change expressed theview that corruption would always be present,and that no funding arrangements could createa clean system, as there would always beloopholes. They also felt that other problemswith implementation – for example, decidinghow levels of funding for each of the partiescould be fairly arrived at – were too complexand that it was therefore best to leave thesystem as it was, as this probably reflected the fairest approach possible.

2.24 Those against change were in the minority,while an even smaller minority wanted to see ahalt to public funding of any sort. These werethe people in the sample for whom politics heldthe least interest and who wanted to see theirtaxes spent on areas that held greater priorityand relevance for them, such as the NationalHealth Service and education.

Party activists2.25 In addition to focus groups with membersof the public, CRD conducted thirteen paireddepth interviews with party activists from arange of political parties in terms of size, roleand policy focus (Appendix 6 includes furtherdetails of the research methodology and theclassification of parties used). The objective ofthis research was to explore the views of grassroots local party activists towards the currentsystem of party funding and the possibility ofincreased public funding of political parties.

2.26 The research found that activists had a range of levels of understanding of, andattitudes towards, current fundingarrangements. For example, activists belonging

23 Estimates of the cost of an extension of state fundingtend to fall within the range of £30m to £50m per annumand ippr estimate that the system they have proposedwould cost in the region of £3 per taxpayer per year or0.001 per cent of total government spending (Matt Cainwith Matthew Taylor (2002), keeping it clean: the wayforward for state funding of political parties, ippr).


21


to major national parties were largely unawarethat public funding was available, perhapsbecause they tended to be somewhat removedfrom their party’s central organisation.

2.27 On the other hand, activists belonging to local and regional parties, who were likely to be in closer contact with their parties’headquarters, were frequently betteracquainted with the funding options and with the state of their own parties’ finances.Often they were irked that their party did notreceive public funds, or received only minimalamounts, but at the same time acknowledgedthat their party did not bear the same financialburden as the major parties in needing to fulfilparliamentary and other duties.

2.28 Awareness of the legislation brought inunder PPERA also differed according to thetype of party represented. While major nationalparty activists showed very low awareness,local and regional party activists had oftenpersonally dealt with its effects and withensuring that their party met its requirements.Responses to the legislation were found tovary:

• Smaller parties complained that the impacton them was unfair, particularly theaccounting and administrative requirementswhich, in their case, had to be met byvolunteers, while major parties could afford to employ professional accountants.

• Overall, most welcomed the move towardsgreater openness.

• A few suggested that registration ofdonations might actually fuel scepticism by

making public the level of donating that doestake place.

2.29 A good proportion of the activistsinterviewed had previously been exposed to thedebate surrounding the issue of public fundingof political parties. This tended to be in line withtheir role in their party structure, and the extentto which they were aware of funding as an issuefor their party.

2.30 Thus activists belonging to regional andminor national parties, who reported having to work hard to raise the money they neededlocally, and were aware of the challenges facedby their party at a central level, had in the mainalready encountered the debate around publicfunding. As a result, CRD found that many ofthese activists were able to articulate a numberof pros and cons for increased public fundingwithout any prompting. Local party activistswere also aware of the issue of public funding,but to a lesser degree, while major nationalparty activists were unlikely to have consideredthe issue before and were perhaps closest tothe public in the way they thought the issuethrough.

2.31 In essence, CRD found that the argumentsfor or against public funding employed by partyactivists could be characterised in one of twoways (set out in Table 1 overleaf):

• The theoretical approach: activists weregenerally more able than the public to discuss public funding in principle and voiced support/antipathy according to party ideology and/or personal philosophy.


22

• The pragmatic approach: activists clearlyconsidered whether public funding wouldhelp or hinder their particular party; in the end this tended to be the more influentialfactor in determining activists’ final positionson the issue.


Table 1: Theoretical and practical arguments for and against public funding24

For

Theoretical

‘Would create a fairer system’ Major national Minor national Regional

‘Would restore public confidence’ Minor national Regional

Pragmatic

‘More money would help us’ Minor national Regional

Against

Theoretical

‘Parties should raise their own funds’ Regional Local

‘Don’t want HQ to lose touch with grass roots’ Major national

‘Wary of control of party/individual’ Minor national Regional Local

Pragmatic

‘Taxpayers would be against it’ Major national Minor national Regional Local

‘Our finances are fine’ Major national Local

Source: Cragg Ross Dawson (2004) Attitudes towards the funding of political parties.

24 See Appendix 6 for further details concerning thepolitical party classification system used in Table 1.


23


Attitudes towards implementation2.32 As part of their research for theCommission, CRD asked members of thepublic and party activists about their views inrelation to a number of possibilities with respectto how increased public funding might beimplemented.

2.33 Restricting the size of donations, andperhaps banning some, was widely regardedas a minimum starting point and the option ofcapping campaign expenditure had strongsupport, even from those opposed to publicfunding.

2.34 Discussion about how levels of funding for the parties should be decided threw upconcerns around what might constitute the‘fairest’ system. But in the end no focus groupwas able to agree on a system of apportioningfunds that was entirely satisfactory, althoughthe general feeling was that funding shouldreflect levels of support or popularity, as well asa party’s role in governing, while also allowingsmaller parties a chance to grow and increasetheir ‘exposure’.

2.35 Activists (particularly from the smallerparties) were keen to point out that, in order to avoid reinforcing the status quo, any systemmust reflect levels of support rather than currentlevels of income/donations or number of seatsin Parliament. Many activists also highlightedthe need to consider their levels of supportrelative to other parties within the region ordevolved area and not just across the countryas a whole. Concurrent with this, theyanticipated that at least some portion of public

funding would need to be diverted to local or branch level organisations within the parties.Indeed, there was concern expressed aboutany additional funding going to partyheadquarters and not reaching grass roots activists.



253 Party income and expenditureThis chapter provides an overviewof the financial health of the mainpolitical parties that won seats at the 2001 general election. The analysis is based upon theparties’ 2002 and 2003 statementsof accounts submitted to theCommission.

The costs of democracy3.1 Party election campaigns have become apermanent and costly feature of British politics.Historically, political parties have tended tofocus the bulk of their campaigning efforts andresources on Westminster elections and haveusually generated higher levels of income andincurred more expenditure during generalelection years. More recent decades have seendirect elections to the European Parliament,Scottish Parliament, National Assembly forWales and Northern Ireland Assembly, whichhave resulted in the major parties incurringsignificant levels of additional campaignexpenditure and experiencing greater pressureto raise income. Parties also, of course, contestlocal government elections.

3.2 In addition to elections, parties also requireconsiderable resources to cover the costs ofrunning their organisations; that is, to coverstaff salaries, the cost of renting premises,office equipment, telephone charges, postageand so on. A 1999 study by Justin Fisher foundthat such ‘routine’ expenditure comprisedapproximately 80% of the Labour andConservative parties’ central expenditure.Political parties are also engaged in a constantbattle to gain the support of public opinion,which involves the incurring of additionalexpenditure on research and inter-electioncampaigns.25

3.3 Apart from spending by parties at a nationalor regional level their candidates also incur

The funding of political parties: party income and expenditure

25 Justin Fisher (1999) ‘Party expenditure and electoralprospects: a national level analysis of Britain’, ElectoralStudies 18, pp. 519-32.


26

expenses at a local level during the course of their election campaigns. These expensesinclude payments for agents, clerks, printingand publicity and public meetings. Candidatesplay an essential role in the democraticprocess, providing a vital link between politicalparties and the electorate.

Party income3.4 All of this means that parties require aregular flow of income in order to operate andto perform their democratic functionseffectively. For much of the post-war period, thepatterns of funding British political parties wererelatively straightforward. The ConservativeParty tended to rely on local constituencyassociations and corporate donations for muchof its income, while The Labour Party’shistorical links to the trade unions meant thatthe bulk of its income came from the latter inthe form of affiliation fees and donations.Political parties also relied on membership fees,which brought in significant sums of income.

3.5 In recent decades, declining levels of partymembership26 have brought about changes inthe patterns of party fundraising. TheConservative Party has relied increasingly onlarge individual donations to fund its activitiesand entrepreneurial forms of income, while theproportion generated from constituency quotaincome has declined.27 Since being in

opposition the party has found it increasinglydifficult to attract individual and companydonations and, in 2003, reported that close to a third of its income came in the form ofpublic funding, that is, ‘Short money’, policydevelopment grants and Scottish Parliamentgrants.28

3.6 Historically trade unions have contributedsignificantly to The Labour Party’s finances. Aswell as making affiliation payments, grants anddonations, the trade unions have traditionallysponsored party candidates and MPs andprovided advertising (through partypublications) and party conference revenue.However, Justin Fisher highlights the extent towhich Labour has diversified its income base inrecent years, noting that while the trade unionscontinue to play a significant role, the party hasattracted significant income from wealthyindividuals and through activities connectedwith its business plan.29

3.7 The Liberal Democrats have never receivedfunding on the scale of the Labour andConservative parties. In recent years, the partyhas received significant and regular fundingfrom a few sources, notably the JosephRowntree Reform Trust. Other parties, includingthe Scottish National Party and Plaid Cymru,


26 See, for example, New Politics Network (2003)Broadening Participation: Thinking Beyond PartyMembership.27 Justin Fisher (2000) ‘Economic performance orelectoral necessity? Evaluating the system of voluntaryincome to political parties’, The British Journal of Politics& International Relations, Vol. 2, No.2, pp. 179-204.

28 The Conservative Central Office (2004) Annual Reportand Financial Statements for the year ended 31December 2003. Available atwww.electoralcommission.org.uk/files/dms/Conservativeandunionist_14188–10729__E__N__S__W__.PDF.29 Justin Fisher (2000) ‘Economic performance orelectoral necessity? Evaluating the system of voluntaryincome to political parties’, The British Journal of Politics& International Relations, Vol. 2, No.2, pp. 179-204.


27

have tended to receive their income via a mixtureof membership subscriptions, bequests,personal donations and public funding. Theincome of the four Northern Ireland parties thatwon seats at the 2001 general election – theUlster Unionist Party, Democratic Unionist Party,SDLP (Social Democratic & Labour Party) andSinn Féin – has been a similar mixture ofmembership subscriptions, donations andpublic funding.

Party statements of accounts3.8 More information on the income andexpenditure of UK political parties is nowavailable in the parties’ annual statements ofaccounts. Under PPERA, registered politicalparties are required to submit such statementsto the Commission. For those parties that haveelected representatives above local authoritylevel the Commission has imposed a common,calendar, accounting year. Accounts have beenreceived for 2002 and 2003. The Commissionhas also received some party accounts for2001, and these are referred to below, althoughparties were not required to submit these bylaw. As 2001 was a general election year thesefigures provide interesting comparisons withlater years although it is too soon to draw anyfirm conclusions. The statements of accounts

referred to in this section, and for otherregistered political parties, are available todownload from the Commission’s website.30

All numbers have been rounded to the nearestthousand pounds.

3.9 Statement of account details are providedfor the following parties:

• The Labour Party;

• The Conservative and Unionist Party;

• Liberal Democrats;

• Scottish National Party;

• Plaid Cymru – The Party of Wales;

• Ulster Unionist Party;

• Democratic Unionist Party;

• Sinn Féin; and

• SDLP (Social Democratic & Labour Party).

The Labour Party

3.10 Details of The Labour Party’s income andexpenditure are shown in Table 2. During thegeneral election year of 2001, The Labour Party generated just over £35.5m in income,compared to almost £21.2m in 2002 and£26.94m in 2003. Of the amount received in2001, the largest proportion (45%) came fromdonations, with 10% derived from membershipsubscriptions and 18% from trade unionaffiliation fees.

3.11 Party running costs in 2001 amounted to just over £25.6m, approximately 58% of


30 www.electoralcommission.org.uk/regulatory–issues/soayearend2002.cfm. It should be noted that thecomposition of the ‘grants’ item under the ‘income’heading for each party is not always consistent andcomparable – for example, some parties have notspecified the extent of income received through ‘Shortmoney’ or the exact breakdown of income received under‘other grants’. The sources of income received under‘grants’ are indicated and are based on the statements of accounts submitted by political parties.


28

The Labour Party’s total expenditure for thatyear. These costs included staff-relatedexpenditure, the cost of building and premises,political activities, administration andpublishing, and the cost of finance, IT andtelecommunications. The party ended the yearwith an operating deficit of almost £9m, which it attributed largely to running an £11m generalelection campaign.

3.12 The proportion of Labour Party incomereceived from donations dropped to 22% in2002, with the largest share of its income – 30% – coming through affiliation fees. In termsof party expenditure, The Labour Party incurredjust over £17.5m – or almost 80% of its totalexpenditure – on running costs. The partyended the year with an operating deficit of£901,000.

3.13 Of the £26.94m received by The LabourParty in 2003, 34% came from donations, 25%from affiliation fees and 13% from membershipsubscriptions. The cost of running the party was £17.3m, representing 71% of its totalexpenditure for the year. The party spent£982,000 on its campaigns for the election tothe Scottish Parliament and National Assemblyfor Wales. At the end of 2003 the party had an operating surplus of approximately £2.7m.



29


Table 2: The Labour Party income and expenditure

2003 2003 % 2002 2002 % 2001 2001 %£’000 of total £’000 of total £’000 of total

Income

Donations 9,058 34 4,602 22 16,097 45

Membership 3,452 13 3,093 15 3,399 10

Affiliation 6,762 25 6,356 30 6,270 18

Grants* 439 2 448 2 492 1

Notional** 264 1 60 0 110 0

Conference – – – – – –

Fundraising 858 3 1,086 5 638 2

Other 6,107 23 5,539 26 8,528 24

Total 26,940 21,184 35,534

Expenditure

Donations – – – – – –

Grants 1,142 5 1,040 5 988 2


Notional** 239 1 60 0 39 0

Cost of fundraising 647 3 493 2 1,225 3

Campaign expenditure 982 4 – – 11,076 25

Other† 21,271 88 20,492 93 31,127 70

Total 24,281 22,085 44,455

Surplus (deficit) 2,659 (901) (8,921)

Notes: * Public funds in the form of PPERA start-up grants and policy development grants.

** Where an organisation or individual bears the cost of goods/services that a party would otherwise have been liable for, that cost is referred to as notional expenditure and conversely the party is deemed to have received notional income.

† Includes party running costs and, where applicable, other items of expenditure.


30


The Conservative and Unionist Party

3.14 Details of The Conservative and UnionistParty’s income and expenditure are shown inTable 3. As can be seen, the party generatedalmost £23.3m in income in 2001, of which 75%came from donations. Only 4% came frommembership subscriptions and 17% fromgrants. The Conservatives spent £25m during2001, of which £11.67m (47%) was campaignexpenditure. Just over £10.5m – 42% of thetotal – was spent on other items of expendituresuch as running costs. The party recorded anoperating deficit of approximately £1.7m at the end of 2001.

3.15 The Conservatives’ income dropped tobelow £10m in 2002. As in 2001, the majority of its income – 58% – came from donations,although the share was down on 2001. A further29% was received through grants and 7% frommembership subscriptions. The party recordeda reduced operating deficit of £558,000 in 2002.

3.16 The Conservatives’ income increased to just over £13.6m in 2003. Of that total, 56%came from donations, 30% from grants and 6%from membership subscriptions. A further 7%was notional income. The cost of running theparty increased to almost £13.6m, representing85% of its total expenditure. A further £436,000was spent on the party’s 2003 electioncampaigns. The Conservatives reported anoperating deficit of approximately £2.4m for 2003.


31


Table 3: The Conservative and Unionist Party income and expenditure*


Income

Donations 7,647 56 5,761 58 17,495 75

Membership 814 6 665 7 849 4

Affiliation – – – – – –

Grants** 4,144 30 2,909 29 3,910 17

Notional 918 7 521 5 973 4


Fundraising – – – – – –

Other 96 1 72 1 67 0

Total 13,619 9,928 23,294

Expenditure


Grants – – – – – –

Conference 107 1 170 2 256 1

Notional 918 6 521 5 973 4

Cost of fundraising 550 3 1,757 17 1,557 6

Campaign expenditure 436 3 – – 11,670 47

Other† 14,023 87 8,038 77 10,567 42

Total 16,034 10,486 25,023

Surplus (deficit) (2,415) (558) (1,729)

Notes: * Figures for 2002 cover nine-month period to 31 December 2002 as reported in The Conservative and Unionist Party’s statement of accounts. Figures for 2001 cover the 12 months to March 2002.

** Public funds in the form of ‘Short money’, policy development grants and Scottish Parliament grants.

† Includes party running costs and, where applicable, other items of expenditure.


32

Liberal Democrats

3.17 The income and expenditure figures of theLiberal Democrats are shown in Table 4. Theparty generated considerably less income thanLabour and the Conservatives in 2001, 2002and 2003. Of the total amount received in 2001 – just over £5m – 53% came fromdonations, 12% from its membership, 12% fromconferences and 5% from grants. The partyspent almost £1.84m on campaigning during2001, representing 36% of its total expenditurefor the year. Just over £2.4m – 47% of the total –was spent on other items, including staff costs,premises and office costs. The party recordedan operating deficit of £138,000 for 2001.

3.18 The Liberal Democrats raised just under£3.7m in 2002, of which 28% came fromdonations, 18% from membershipsubscriptions, 18% from conferences and 12%from grants. The party spent just over £2.1m onstaff costs, premises and office costs in 2002,representing 63% of its total expenditure. The party ended 2002 with an operating surplus of £308,000.

3.19 Party income increased to approximately£4m in 2003, largely owing to increased levelsof donations. The Liberal Democrats reportedspending £667,000 on campaigning in 2003 –17% of the overall total – and just over £2.1m(54% of total expenditure) on staff costs,premises and office costs. The party recorded an operating surplus of £91,000 for the period.



33


Table 4: Liberal Democrats’ income and expenditure


Income

Donations 1,406 34 1,020 28 2,689 53

Membership 680 17 680 18 590 12


Grants* 445 11 456 12 254 5

Notional 27 1 8 – 68 1

Conference 660 16 674 18 628 12

Fundraising – – – – – –

Other 878 21 857 23 804 16

Total 4,096 3,695 5,033

Expenditure


Grants 467 12 427 13 370 7

Conference 332 8 317 9 309 6

Notional 27 1 8 0 68 1

Cost of fundraising 63 2 77 2 164 3

Campaign expenditure 667 17 201 6 1,836 36

Other** 2,449 61 2,357 70 2,425 47

Total 4,005 3,387 5,171

Surplus (deficit) 91 308 (138)

Note: * Public funds in the form of PPERA start-up grants and policy development grants.

** Includes party running costs and, where applicable, other items of expenditure.


34


Scottish National Party

3.20 Details of the income and expenditure ofthe Scottish National Party (SNP) in 2002 and2003 are shown in Table 5. No comparativeinformation was available for 2001. Analysis ofthe party’s statement of accounts shows that it generated income of £973,000 in 2002. Theparty received 29% of that income in the form of grants, 17% from donations, 17% fromconferences and 14% through its membership.The SNP spent £337,000 on campaigning in2002 and a further £618,000 on other items ofexpenditure. Of that amount, £463,500 – 44.5%of its total expenditure – was used to fund staff,management and administration costs. TheSNP ended 2002 with an operating deficit of£66,000.

3.21 By the end of 2003 the SNP’s operatingdeficit had increased to £486,000. The partygenerated less income that year, which totalled£908,000, but incurred higher levels ofcampaign expenditure arising from the ScottishParliament and local government elections andspent a significantly greater amount on staffcosts.


35


Table 5: Scottish National Party income and expenditure

2003 2003 % 2002 2002 %£’000 of total £’000 of total

Income

Donations 228 25 164 17

Membership 126 14 136 14

Affiliation – – – –

Grants* 124 14 280 29

Notional 10 1 10 1

Conference 91 10 112 17

Fundraising 159 18 170 11

Other 170 19 102 10

Total 908 973

Expenditure

Donations – – – –

Grants – – – –


Notional 10 1 10 1

Cost of fundraising 8 1 11 1

Campaign expenditure 521 37 337 32

Other** 734 53 618 59

Total 1,394 1,040

Surplus (deficit) (486) (66)

Note: * Public funding in the form of policy development grants.



36

Plaid Cymru – The Party of Wales

3.22 As shown in Table 6, Plaid Cymrugenerated income of £310,000 in 2001. Of this, 41% came from donations, 30% from fundraising and 5% from membershipsubscriptions. A further 23% came from othersources including trading activities, legaciesand bequests, investment and sundry income.Plaid Cymru spent £79,000 on campaigning,representing 23% of its total expenditure and£45,000 on fundraising. The largest items ofexpenditure – recorded as ‘other’ in Table 6 and comprising 63% of party expenditure –consisted of running costs. The party ended2001 with an operating deficit of £27,000.

3.23 The party’s income increased significantlyin 2002 to £579,000, owing largely to its receiptof policy development grants worth £221,123. A further 23% of Plaid Cymru’s income camefrom donations, 16% from fundraising, 7% frommembership and subscription fees and 15%from other sources. The vast majority of partyexpenditure was used to cover the costs ofrunning the party organisation. The party ended2002 with an operating surplus of £42,000.

3.24 Plaid Cymru’s income fell slightly in 2003to £534,000. The party received approximatelya quarter of its income from donations, with thesame proportions coming from grants andfundraising. Ten per cent of party income was inthe form of membership and subscription fees.With respect to expenditure, 16% was used tocover the cost of fundraising, 12% forcampaigning for the 2003 National Assemblyfor Wales election and 72% for running theparty organisation. The party reported anoperating deficit of £47,000 at the end of 2003.



37


Table 6: Plaid Cymru – The Party of Wales income and expenditure*


Income

Donations 127 24 136 23 128 41

Membership 53 10 42 7 15 5


Grants** 136 25 225 40 – –

Notional – – – – – –


Fundraising 136 25 90 16 94 30

Other 82 15 86 15 73 23

Total 534 579 310

Expenditure


Grants – – – – – –



Cost of fundraising 92 16 73 14 45 13

Campaign expenditure 71 12 11 2 79 23

Other† 418 72 453 84 214 63

Total 581 537 337

Surplus (deficit)‡ (47) 42 (27)

Notes: * Figures for 2001 cover nine-month period to 31 December 2001 as reported in Plaid Cymru’s statement of accounts.

** Public funding in the form of policy development and other grants.† Includes party running costs and, where applicable, other items of expenditure.‡ To allow consistent comparison between parties we have not included a written-off loan totalling £65,948 that is listed in Plaid Cymru’s statement of accounts for 2001. The party included this in its balance sheet, bringing itsreported deficit for 2001 to just over £93,000.


38


Ulster Unionist Party

3.25 As shown in Table 7 the Ulster UnionistParty’s income for 2002 was £563,000, with anexpenditure of £509,000. This left the party withan operating surplus of £54,000. The bulk of theparty’s income came from membership fees(39%) and grants (42%), including policydevelopment grants worth £237,317. Theparty’s running costs amounted to £356,000 in 2002, representing 70% of total partyexpenditure.

3.26 Income generated in 2003 totalled£726,000. Of this amount, 36% came fromdonations, 26% from membership and 18%from grants. Seventeen per cent of partyincome in 2003 was derived from othersources, including office services andpublications, and travel income. The UUPincurred £322,000 of campaign expenditure,representing 33% of its total expenditure for2003. Sixty-two per cent of expenditure wasspent on other items, including running costs,which amounted to £453,000, or 47% of its totalexpenditure for that year. The party’s end of year operating deficit was £239,000.


39


Table 7: Ulster Unionist Party income and expenditure

2003 2003 % 2002 2002 %£’000 of total £’000 of total

Income

Donations 258 36 – –



Grants* 130 18 237 42

Notional – – 4 1


Fundraising – – – –

Other 123 17 75 13

Total 726 563

Expenditure


Grants – – –


Notional – – 4 1

Cost of fundraising – – – –

Campaign expenditure 322 33 – –

Other** 601 62 473 93

Total 965 509

Surplus (deficit) (239) 54




40

Democratic Unionist Party

3.27 The income and expenditure of theDemocratic Unionist Party (DUP) for 2002 and 2003 is shown in Table 8. Of the £285,000income generated in 2002, 39% came frompolicy development grants, with 10% comingfrom donations and 8% through membershipsubscriptions. A further 40% came in the formof other sources, such as Northern IrelandAssembly funding and Short money. The DUPspent £14,000 on conferences and a further£240,000 on other items of expenditure,including administrative expenses, whichamounted to £141,000. The DUP ended 2002with an operating surplus of £31,000.

3.28 In 2003 the DUP saw its income fall to£192,000. The party reported a drop in theamount of income received from donations and membership subscriptions and receivedthe bulk of its income from policy developmentgrants and Northern Ireland Assembly funding.Eighty-six per cent of the party’s expenditurecovered the costs of running the party, with 1%allocated to campaign expenditure. The DUPended 2003 with an operating deficit of£77,000.



41


Table 8: Democratic Unionist Party income and expenditure

2003 2003 % 2002 2002 %£’000 of total £’000 of total

Income

Donations 6 3 27 10



Grants* 144 75 111 39

Notional – – – –

Conference 2 1 11 4

Fundraising – – 1 0

Other 24 13 113 40

Total 192 285

Expenditure


Grants – – – –

Conference – – 14 10

Notional – – – –


Campaign expenditure 4** 1 – –

Other† 265 99 240 90

Total 269 254

Surplus (deficit) (77) 31


** This figure is quoted in the DUP’s general party account. It should be noted that a further £195,478 is included under ‘election expenses’ in the party’s election fundstatement of accounts for 2003.† Includes party running costs and, where applicable, other items of expenditure.


42

Sinn Féin

3.29 Sinn Féin’s income and expenditureamounts are shown in Table 9. As can be seen,the party’s income amounted to £521,000 in2002 of which 19% came from donations, 18%from grants and a further 62% from othersources, principally Member of LegislativeAssembly (MLA) contributions to the party.Eighty-eight per cent of the party’s totalexpenditure is classified as ‘other’ items inTable 9. Of this, significant amounts were spenton wages, establishment and administrativeexpenses, travel, political and internationaldevelopment, security costs and contributionsand grants to its head office in Dublin andvarious accounting units. The party reported a£100,000 operating surplus for the period.

3.30 In 2003 Sinn Féin received £750,000 inincome, 32% of which came from donationsand 20% from grants, including £82,000 in theform of the party’s Northern Ireland Assemblyallowance. The party’s running costs – notablywages and related costs – increasedconsiderably in 2003, and these account for a significant amount of the party’s increasedexpenditure. A further £18,000 was spent oncampaigning. The party also gave £92,000 ingrants to its accounting units. In total Sinn Féinspent £594,000 and reported an end of yearoperating surplus of £156,000.



43


Table 9: Sinn Féin income and expenditure

2003 2003 % 2002 2002 %£’000 of total £’000 of total

Income

Donations 240 32 97 19

Membership – – – –


Grants* 150 20 93 18

Notional 10 1 10 2

Conference – – – –

Fundraising – – – –

Other 350 47 321 62

Total 750 521

Expenditure

Donations 3 1 5 1

Grants 92 15 20 5

Conference 9 2 5 1

Notional 10 2 10 2


Campaign expenditure 18 3 9 2

Other** 462 78 373 88

Total 594 421

Surplus (deficit) 156 100

Note: * Public funding in the form of Northern Ireland Assembly Special Adviser Schemeand Party Allowance, and 2003 Northern Ireland Assembly election reimbursement scheme.



44

SDLP (Social Democratic & Labour Party)

3.31 As shown in Table 10, SDLP (SocialDemocratic & Labour Party) received income of £394,000 in 2001. The vast majority of thisincome – 77% – came from donations, with afurther 17% generated through membershipsubscriptions. The SDLP’s campaignexpenditure that year amounted to £184,000,43% of its total expenditure. A further £244,000,or 57% of total expenditure, was incurred inrelation to other items. Of this amount,£236,000 was used to run the party. The SDLP reported an operating deficit of £34,000 for the 2000/01 period.

3.32 The party’s level of income increased in2002 to £539,000, largely owing to its receipt ofpolicy development grants. The proportion ofincome gained from donations declined from77% to 32%. A further 17% of party incomecame from membership and subscription feesand 13% from conferences. The SDLP incurredconference expenditure of £83,000 andcampaign expenditure of £81,000. Of the£451,000 incurred by ‘other’ expenditure,£421,000 consisted of running costs. The partyreported a significantly bigger operating deficitof £101,000 at the end of 2002, principally dueto the significantly greater amount spent onrunning the party.

3.33 Of the £717,000 generated by the SDLP in 2003, 67% came from donations, 10% frommembership and subscriptions and 22%through policy development grants. In terms ofparty expenditure, the SDLP spent £243,000 onits campaign for the Northern Ireland Assemblyelections. A further £457,000 was allocated for

the purpose of running the party. At the end of 2003 the party recorded an operating deficit of £33,000.



45


Table 10: SDLP (Social Democratic & Labour Party) income and expenditure

2003 2003 % 2002 2002 % 2001 2001 %£’000 of total £’000* of total £’000 of total

Income

Donations 479 67 174 32 305 77

Membership 69 10 91 17 68 17


Grants** 161 22 144 27 – –


Conference 8 1 68 13 4 1

Fundraising – – 41 8 11 3

Other – – 21 4 17 4

Total 717 539 394

Expenditure


Grants – – – – – –

Conference – – 83 13 – –


Cost of fundraising 13 2 25 4 – –

Campaign expenditure 243 32 81 13 184 43

Other† 494 66 451 70 244 57

Total 750 640 428

Surplus (deficit) (33) (101) (34)

Note: * Refers to 15-month period ending 31 December 2002.

** Public funding in the form of policy development grants.† Includes party running costs and, where applicable, other items of expenditure.


46

Conclusion

3.34 The annual accounts detailed above arefor national party organisations and do notcover the income or expenditure of partyaccounting units. That, together with the factthat accounts are not yet published covering acomplete electoral cycle, means that the figuresshould not necessarily be seen as providing acomplete picture. Nevertheless, it is clear thatmost parties are having difficulties raisingsufficient funds to meet their day-to-day costslet alone the additional burden of funding majorelection campaigns. Borrowing appears to beused to meet the shortfalls. Arguably politicalparties that rely on significant borrowing are justas much at risk from what might be regarded asimproper pressure as a party that is dependenton a small number of wealthy benefactors. It isperhaps no exaggeration to say that if politicalparties were businesses some could beregarded as trading while insolvent.



474 National and candidatespending limitsPrior to PPERA there was nosystem of regulating nationalspending by political partiesalthough there were, and continueto be, limits on the electionexpenses of individual candidates.

The funding of political parties: national and candidate spending limits

4.1 Candidate expenditure limits wereintroduced under the Corrupt and IllegalPractices Act 1883, which was passed at a timewhen general elections were principally foughtout at the constituency level and when nationalcampaign spending was virtually non-existent.The Representation of the People Act 1983 setsout the amounts that parliamentary candidatescan spend in relation to election expenses, theamounts being revised periodically byParliament, usually before each generalelection, in order to take account of the rate ofinflation since the previous election. Candidateexpenditure limits also apply to other nationaland local elections in the UK.

Political Parties, Elections andReferendums Act 2000 (PPERA)4.2 The Neill Committee’s recommendationsconcerning campaign expenditure, enactedunder PPERA, reflected growing public concernabout the accelerating cost of Westminstergeneral elections and the pressure among themain parties to match or outspend each other.The Committee argued that this ‘arms race’ hadbrought with it an unhealthy and persistent driveto raise ever larger funds to pay for campaignspending. National spending limits would, it was argued, prevent parties’ undueconcentration on fundraising, and particularlythe pressure to seek out very large, individualdonations. It was also considered that limitswould ensure a more level-playing field andhence fairer competition between the parties.The Committee further argued that a new legalstructure was long overdue, given that generalelection campaigns were now primarily fought


48

between political parties at the national levelrather than between individual candidates at the constituency level.

4.3 Since the control of campaign expenditureprovisions in PPERA came into force there havebeen five elections at which registered politicalparties have been required to observespending limits.

4.4 We believe that the relationship betweenlocal and national campaign expenditureshould be examined afresh following theintroduction of national spending caps in 2001.These issues are examined in this chapter.

National spending limits4.5 Following an election to the WestminsterParliament, European Parliament, ScottishParliament, National Assembly for Wales orNorthern Ireland Assembly, political parties arerequired to submit a report to the Commissiondetailing the campaign expenditure they haveincurred. There are no separate limits oncampaign expenditure incurred during localelection campaigns. However, spendingincurred at local elections must be included in a party’s expenditure return if the spending isincurred during a regulated period of a relevantelection. The report must itemise eachindividual item of expenditure, and give abreakdown of total expenditure incurred byreporting category in each part of the UK.

4.6 Reports must be submitted within threemonths of the election if the party incurredexpenditure of £250,000 or less, or within sixmonths of the election if more than £250,000

was spent. Parties spending more than£250,000 must submit a statement from an independent auditor with their report.

4.7 Parties’ spending limits are determined by the number of constituencies and/or regionsthat a party is contesting. Where expenditure is incurred across the whole of Britain, partiesare required to apportion this expenditure toeach of England, Scotland and Wales, in orderto ensure that the individual limit for each is not breached.

4.8 Table 11 provides details of the nationalspending limits applying at different UKelections.



49

4.9 Below we present details of levels ofcampaign expenditure incurred by partiesgaining seats at the 2001 general election andthe 2003 elections to the National Assembly forWales, Scottish Parliament and Northern IrelandAssembly.31 Campaign expenditure returns forparties spending more than £250,000 at theJune 2004 European Parliamentary electionsneed to be reported to the Commission by 9 December 2004.


Table 11: National spending limits

Election Regulated Determination of Maximum period (ends expenditure limit expenditure with the date (based on party of poll) contesting all

constituencies/regions)

Westminster Parliament 365 days £30,000 per £19.23m GBconstituency contested £540,000 NI

Scottish Parliament 4 months £12,000 per constituency £1.516mcontested plus £80,000 per region contested

National Assembly for Wales 4 months £10,000 per constituency £600,000contested plus £40,000 per region contested

Northern Ireland Assembly 4 months £17,000 per constituency £306,000contested

European Parliament 4 months For each region contested, £3.375m GB£45,000 multiplied by the £135,000 NInumber of MEPs returned for that region

Source: Part II of Schedule 9 to the Political Parties, Elections and Referendums Act 2000.

31 The campaign expenditure figures given below arebased on returns submitted by political parties to TheElectoral Commission, some of which were amendedfollowing compliance checks. The figures refer tocampaign expenditure incurred during regulated periodsfor elections – for example, the 2003 Scottish Parliamentelection had a regulated period of 4 months (2 January-1 May 2003). It should be noted that these figures do notmatch those figures recorded under ‘campaignexpenditure’ in the parties’ statements of accountspresented in chapter 3 of this report, which relate to anaccounting year of 1 January to 31 December.


50

National spending at recent elections2001 general election

4.10 The 2001 general election was the first atwhich party campaign expenditure wasregulated. Since this provision of PPERA cameinto effect on 16 February 2001, the regulatedperiod for the election ran from that date to 7June 2001, rather than for the 365-day periodthat will ordinarily apply. The spending limits forthe election were reduced by Parliament toaccount for the shorter regulated period, withparties allowed to incur up to £24,000 for eachseat contested, rather than the £30,000 that willnormally be applicable per constituencycontested at Westminster general elections.

4.11 For a party that contested all 641constituencies in Great Britain, the overallspending limit was set at £15.384m. Sincetraditionally the main parties do not contest theseat in which the Speaker is seeking re-election, the Labour, Conservative and LiberalDemocrat parties could have had a maximumspending limit of £15.36m.32 The overallNorthern Ireland limit – based on a partycontesting all 18 constituencies – stood at£432,000.

4.12 Parties contesting an election in each partof Great Britain are subject to specific limits foreach of England, Scotland and Wales, and arerequired to apportion expenditure betweenthem. Therefore, the Scottish National Party

was subject to the total limit for contestingScotland’s 72 Westminster seats of £1.728m,while Plaid Cymru was subject to the £960,000limit for contesting Wales’ 40 seats. Partiescontesting England’s 529 seats were subject to a limit of £12.696m.

4.13 For those parties that contested a smallernumber of seats, the spending limit was eitherthe constituency amount multiplied by thenumber of seats contested, or £810,000 inEngland, £120,000 in Scotland or £60,000 in Wales, whichever limit was greater.

4.14 All registered parties, including Labourand the Conservatives, incurred expenditurethat was comfortably within the overallspending limits of £15.384m in Great Britainand £432,000 in Northern Ireland. As Table 12shows, the Conservatives and The Labour Partywere by far the biggest spenders, incurring 83%and 71% of their respective spending limits.Other main parties spent between 4% and 41%of their limits.


32 Liberal Democrats withdrew their candidate in WyreForest and fielded 639 candidates; they were thereforesubject to an expenditure limit of £15.336m.


51


33 Shows political parties gaining seats at the 2001general election. For details of campaign spendingincurred by all parties contesting the election see TheElectoral Commission (2002) Election 2001: Campaignspending.

Table 12: Campaign spending at the 2001 general election33

Party No. of seats Campaign Campaign % of limitcontested expenditure expenditure incurred

limit (£) incurred (£)

The Conservative and Unionist Party 640 15,360,000 12,751,813 83

The Labour Party 640 15,360,000 10,945,119 71

Liberal Democrats 639 15,336,000 1,361,377 9

Scottish National Party 72 1,728,000 226,203 13

Ulster Unionist Party 17 408,000 167,495 41

SDLP (Social Democratic & Labour Party) 18 432,000 155,565 36

Plaid Cymru – The Party of Wales 40 960,000 87,121 9

Democratic Unionist Party 14 336,000 73,230 22

Sinn Féin 18 432,000 18,508 4

Independent Kidderminster Hospital 1 30,000 0 0and Health Concern

Source: The Electoral Commission (2002) Election 2001: Campaign spending.

4.15 The Commission’s analysis of campaignspending at the 2001 general election foundthat both the Labour and Conservative partiesconducted their campaigns largely on the basisof advertising. Both parties ran widespreadbillboard advertising campaigns that had beenplanned and started several months in advanceof polling day. A total of 35% of theConservative’s campaign expenditure wasspent on advertising, while The Labour Party

spent 46% of its budget on this category ofcampaign activity. The Liberal Democrats’campaign was less based around advertisingcampaigns – the party spent 14% of itscampaign funds on advertising – and centredmore upon traditional campaigning methods,such as daily press conferences and buscampaigning tours.


52

2003 National Assembly for Wales election

4.16 At the 2003 National Assembly for Waleselection (Table 13) the biggest spender was The Labour Party, which spent £265,009,representing just 44% of the allowable amount.


Table 13: Campaign spending at the 2003 National Assembly for Wales election34

Party No. of regions No. of Campaign Campaign % of contested constituencies expenditure expenditure limit

contested limit (£) incurred (£) incurredThe Labour Party 5 40 600,000 265,009 44Liberal Democrats 5 40 600,000 249,339 42The Conservative 5 40 600,000 80,716 13and Unionist PartyPlaid Cymru – 5 40 600,000 72,976 12The Party of WalesJohn Marek 1 2 60,000 9,633 16Independent Party35

Source: The Electoral Commission (2004) The National Assembly for Wales election 2003: Campaign spending.

34 Shows political parties gaining National Assembly forWales seats. For details of campaign spending incurredby all parties contesting the election see The ElectoralCommission (2004) The National Assembly for Waleselection 2003: Campaign spending.35 Subsequently registered as Forward Wales.

By contrast Plaid Cymru, incurred just below£73,000 representing 12% of its limit.


53

2003 Scottish Parliament election

4.17 At the 2003 Scottish Parliament election(Table 14) only one party came close tospending 50% of its limit. The Labour Partyspent almost £727,000, representing 48% of the

allowable amount. The Scottish National Partyspent 31% of its limit and the Conservatives21%. The Scottish Socialist Party incurred just5% of its overall expenditure limit of £1.48m.


36 Shows political parties gaining Scottish Parliamentseats. For details of campaign spending incurred by allparties contesting the election see The ElectoralCommission (2004) The Scottish Parliament election2003: Campaign spending.

Table 14: Campaign spending at the 2003 Scottish Parliament election36

Party No. of regions No. of Campaign Campaign % of contested constituencies expenditure expenditure limit

contested limit (£) incurred (£) incurredThe Labour Party 8 73 1,516,000 726,702 48Scottish National Party 8 73 1,516,000 473,107 31The Conservative and Unionist Party 8 73 1,516,000 323,279 21Liberal Democrats 8 73 1,516,000 130,360 9Scottish Socialist Party 8 70 1,480,000 74,362 5Scottish Green Party 8 0 640,000 63,864 10Scottish Senior 3 1 252,000 3,672 1Citizens Unity Party

Source: The Electoral Commission (2004) The Scottish Parliament election 2003: Campaign spending.


54

2003 Northern Ireland Assembly election

4.18 The 2003 Northern Ireland Assemblyelection (see Table 15) saw two partiesspending more than 50% of their overall limit.The SDLP spent nearly £235,000 on its

campaign, representing 77% of the totalallowable amount, with the UUP spending 56%of its limit of £306,000. The lowest spender wasSinn Féin, which incurred £28,766 of campaignexpenditure, just 9% of its limit.


Table 15: Campaign spending at the 2003 Northern Ireland Assembly election37

Party No. of seats Campaign Campaign % of limitconstituencies expenditure expenditure incurredcontested limit (£) incurred (£)

SDLP (Social Democratic 18 306,000 234,911 77& Labour Party)

Ulster Unionist Party 18 306,000 170,912 56

Democratic Unionist Party 18 306,000 147,867 48

Sinn Féin 18 306,000 28,766 9

Alliance – Alliance Party 18 306,000 24,631 8of Northern Ireland

Progressive Unionist Party 11 187,000 11,321 6of Northern Ireland

United Kingdom Unionist Party U.K.U.P. 5 85,000 5,190 6

Source: The Electoral Commission (2004) The Northern Ireland Assembly election 2003: Campaign spending.

37 Shows political parties gaining Northern IrelandAssembly seats. For details of campaign spendingincurred by all parties contesting the election see TheElectoral Commission (2004) The Northern IrelandAssembly election 2003: Campaign spending.


55

Candidate spending limits2001 general election

4.19 Limits on the expenditure of individualparliamentary candidates, as opposed topolitical parties contesting national elections,have been in force for more than a century. Thestatutory maximum limit for candidates’ electionexpenses at general elections is calculatedseparately for each constituency, and is basedon a formula that takes into account the sizeand nature of each individual constituency. The prescribed limit is revised periodically by Parliament, usually before each generalelection, in order to take account of the rate of inflation since the previous election.

4.20 At the 2001 general election, the limit wasdetermined as follows:

• For county constituencies (mainly rural),candidates were allowed to spend 6.2p forevery entry in the register of electors to beused in the election, plus a further £5,483.

• For borough constituencies (primarily urbanand some suburban areas), the limit was 4.6pfor every elector, plus a further £5,483.38

4.21 In 2001 the average size of a constituencywas just over 67,000 electors. In a countyconstituency of this size, each candidate wouldbe allowed to spend up to about £9,640. In aborough constituency, the limit would be£8,565. However, given the actual variation insize of the constituencies, the prescribed limitin county constituencies ranged from £6,846 to

£11,957, while in borough constituencies the expenses ranged from £7,630 to £9,461.

4.22 The average amount spent per candidatein 2001 was £3,581. Across the UK, 702candidates (21% of all candidates) spent morethan 80% of the permitted maximum in theirconstituency, while 1,761 candidates (53%)spent less than 30%, including 105 (3%) whodeclared no election expenditure.

4.23 Candidates representing the larger, moreestablished political parties spent more thanthose from minor parties or independentcandidates. Of the four parties fielding thelargest number of candidates, thoserepresenting the Labour and Conservativeparties were much more likely to spend close tothe legal maximum in their constituencies thanrival candidates from the Liberal Democrats orthe UK Independence Party:

• Thirty-seven per cent of Conservativecandidates and 23% of Labour candidatesspent more than 90% of the maximumpermitted amount, whereas 9% of LiberalDemocrat candidates and only one candidaterepresenting the UK Independence Partyspent such a proportion of the legalmaximum.

• Seventy per cent of Conservative candidatesand 68% of Labour candidates spent morethan 50% of the maximum permitted amount.In contrast, 52% of Liberal Democrats and83% of UK Independence Party candidatesspent less than 20% of the maximumpermitted amount.


38 Representation of the People (Variation of Limits of Candidates’ Election Expenses) Order 2001.


56

2003 National Assembly for Wales election

4.24 Constituency candidates standing forelection to the National Assembly for Wales arealso required to observe expenditure limits. The2003 limits were calculated as follows:

• For county constituencies, candidates wereallowed to spend £5,761 plus 6.5p for everyentry in the register of electors to be used inthe election.

• For borough constituencies, candidates wereallowed to spend £5,761 plus 4.8p for everyentry in the register of electors to be used inthe election.39

4.25 The average size of a constituency was55,311 electors. In a county constituency of thatsize the spending limit would be £9,356 and ina borough constituency £8,357. In practice, thespending limits ranged from £7,954 to £10,218in county constituencies, and in boroughconstituencies from £8,508 to £8,868.

4.26 Candidates on average spent £3,691, lessthan half the permitted maximum for theaverage expenditure limits of both county andborough constituencies. Only 27 candidates –or 13% of all those candidates submittingreturns – spent over 80% of the permittedmaximum for their constituency.

4.27 As occurred at the 2001 general election,candidates representing the larger or moreestablished parties spent more on average thanthose representing smaller parties or individualcandidates. Eighty per cent of all candidates

represented the Conservatives, Labour, theLiberal Democrats or Plaid Cymru, and theirexpenditure accounted for 95% of the totalamount spent by all candidates.

2003 Scottish Parliament election

4.28 At the 2003 Scottish Parliament electionscandidate expenditure limits were calculated asfollows:

• For county constituencies and theconstituencies of the Orkney Islands and theShetland Islands, candidates were allowed tospend £5,761 plus a further 6.5p for everyentry in the register of electors to be used inthe election.

• For burgh constituencies, candidates wereallowed to spend £5,761 plus a further 4.8pfor every entry in the register of electors to beused in the election.40

4.29 The average size of a constituency was53,116 electors. In a county constituency of thatsize the expenditure limit would be £9,214 andin a burgh constituency £8,311. Actualexpenditure limits ranged from £6,768 to£10,119 in county constituencies and in burghconstituencies from £7,921 to £8,681.

4.30 The average amount spent per candidatewas £2,871, less than half the permittedmaximum figure for the average expenditurelimits of both county and burgh constituencies.A total of 37 candidates – 9% of all thosesubmitting returns – spent more than 80% ofthe permitted maximum in their constituency,while 305 candidates (75% of all candidates


39 National Assembly for Wales (Representation of thePeople) Order 2003. 40 The Scottish Parliament (Elections etc.) Order 2002.


57

who submitted returns) spent less than 50% oftheir permitted maximum.

4.31 Seventy-two per cent of all candidatesrepresented one of the four parties that fieldedcandidates in every constituency (theConservatives, Labour, the Liberal Democratsand the Scottish National Party). Theirexpenditure accounted for 91% of the totalamount spent by candidates.

2003 Northern Ireland Assembly election

4.32 At the 2003 Northern Ireland Assemblyelections limits were calculated as follows:

• For rural constituencies (such as Fermanaghand South Tyrone), candidates were allowedto spend £5,483 plus a further 6.2p for everyentry in the register of electors to be used inthe election.

• For urban constituencies (such as BelfastEast) candidates were allowed to spend£5,483 plus a further 4.6p for every entry inthe register of electors to be used in theelection.41

4.33 The maximum expenditure limits were£9,854 in a rural constituency, and £7,868 in anurban constituency. The average amount spentper candidate was £3,504, less than half thepermitted maximum figure for the averageexpenditure limits of both rural and urbanconstituencies as detailed above.

4.34 Just over 61% of all candidatesrepresented one of the four main political

parties (SDLP (Social Democratic & LabourParty), Ulster Unionist Party, DemocraticUnionist Party and Sinn Féin). Each of theseparties fielded candidates in every constituencyat the 2003 election and their total expenditureaccounted for 72% of the total amount spent byall candidates. A number of the smaller partiesreported very little or no campaign expenditurebut their candidates spent a similar amount onaverage to the main parties’ candidates.

European Parliamentary elections

4.35 Candidates and parties contestingelections to the European Parliament aresubject to limits in relation to campaignexpenditure. Details of parties spending£250,000 or less at the June 2004 EuropeanParliamentary elections were required to submitexpenditure returns by 9 September 2004.Returns in excess of this amount need to besubmitted to the Commission by 9 December2004. A full report detailing expenditure bycandidates and parties at the 2004 EuropeanParliamentary elections will be published in2005.

Issues4.36 As noted in the previous chapter, politicalparties require a steady flow of income in orderto fight election campaigns on top of meetingthe day-to-day running costs of the party. Yet asthe statements of accounts data show, thepressure to raise significant sums of money tofund election campaigns has tended to placeconsiderable strain on party finances, callinginto question the financial viability of some. In the context of a closely-fought election


41 Representation of the People Act 1983, Section 76(2),applied by the Northern Ireland Assembly (Elections)Order 2001.


58

campaign, the pressure to spend up to thecurrent expenditure limits will be greater,placing further pressures on limited partyresources.

4.37 Political parties play an essential part in our democratic system and they requireadequate funding to run their campaigns andcommunicate with voters. That said, we do notconsider that either abolishing or raisingnational expenditure limits would serve theinterests of voters or political parties. Recentelections at which the spending limits haveapplied have seen parties spending well belowthose limits. In addition, increasing spendinglimits could place greater pressure on the mainparties to seek out large donations, which mayfurther undermine public confidence in thedemocratic process.

4.38 We consider limits on campaignexpenditure by political parties to be in thepublic interest. The vast majority of written andoral submissions received supported this view.Most respondents to our issues paper believedthat spending caps had helped to control the‘arms race’ of spending at elections and thatthis was a good thing.

4.39 Our review also considered whether therewas a case for reducing campaign spendinglimits. Some respondents to our issues paper,including The Labour Party, felt that it would bepremature at this stage to recommend anyreduction, given that there had not yet been a full 365-day regulated period prior to aWestminster general election. A fewrespondents argued that the current limits hadnot been properly tested and that, in the contextof a closely-fought election campaign, politicalparties may indeed wish to spend up to thecurrent expenditure limits.

4.40 The Conservative Party argued thatreduced limits could make it harder for partiesto campaign and communicate with electorsand consequently did not wish to see anyreduction in the current limits. The Institute ofDirectors considered that the current system, in which expenditure limits apply at national andconstituency level, worked reasonably well andsaw no need for reform.

4.41 Some, including the Liberal Democrats,took a different view, arguing that spendinglimits were too high:

We believe that the PPERA of 2000 hadsome effect in reducing the spending‘arms race’ between the main parties atnational level – but that limit ofapproximately £20m in a full calendar yearis too high. We believe that this should beno more than £15m for a full year and thatthis would still be a high level given that itwould have meant only a very slightreduction in declared spending at the lastgeneral election. Further consideration


We recommend that spending limits shouldcontinue to apply to parties contestingWestminster general elections and electionsto the European Parliament, ScottishParliament, National Assembly for Wales andNorthern Ireland Assembly. There is no casefor either increasing or abolishing nationalspending limits.


59

should be given to a maximum cap ofaround £10m for a general election.

Liberal Democrats

The current limits of roughly £20m for thelarge parties in general elections aremuch too high and well beyond thecurrent funding capacities of the parties.This is particularly true in light of the factthat the parties have additional spendingcommitments as a result of the devolutionlegislation introduced since 1998.

The National Trade Union and Labour Party Liaison Committee

The general election cap should bereduced to £12m and remain under reviewby the Electoral Commission. A yearlyspending cap should be introduced of£20m, being reduced over a period of fiveyears to £15m.

institute for public policy research (ippr)

4.42 Other organisations recommending areduction in the spending limit for Westminstergeneral elections included the New PoliticsNetwork, which argued that the limit should be reduced from approximately £20m to £10m.This, it suggested, would reduce the amountsthat parties felt they needed to raise.

4.43 Some respondents to our issues paperargued that a reduction in national spendinglimits could be combined with an increase incandidate-spending limits:

This could encourage political parties toput more resources into local and regional

organisational structures andcampaigning, which could help bringpolitics closer to local people.

Councillor Jessica Crowe, Deputy Mayor of Hackney

4.44 The electorate is likely to be best servedby political parties and candidates runningcampaigns that engage directly with voters andmake politics directly relevant to them. Indeed,research carried out for the Commission hasconsistently shown that voters respond better to local communications and campaigning thannational level political advertising. The balancebetween national and candidate expenditurelimits could better reflect that principle.

4.45 MORI’s 2001 panel survey for theCommission asked respondents whether or not they voted, and the extent to which variousaspects of the 2001 general election campaignhad influenced their decision on what to do onelection day (see Table 16).



4.46 Using this data, Bartle, Mortimore andAtkinson argue that:

When we consider those who said thatthey had been influenced ‘a great deal’ byeach source, we find in almost every casethat those who did not vote were morelikely to have been influenced than thosewho did; in other words, the televisioncoverage, newspaper coverage, PEBsand adverts on billboards were all morelikely to influence the public not to vote atall than to vote for a particular party. Yet,the two forms of distinctly localcampaigning covered, leafleting andpersonal canvassing, did not have this

effect; personal calls were more likely tohave influenced voters than non-voters,and leaflets or letters had an equal effecton both groups.42

4.47 In addition, research by Professor JohnCurtice for the Commission in Scotland lastyear found that perceptions of, and contactwith, the political parties were instrumental indetermining whether people who had voted atthe 1999 Scottish Parliament elections did soagain in 2003. The Commission’s 2002 study

60


Table 16: Q. Please tell me how much influence, if any, each of the following had on your decision about what you would do on the day of the general election?

% influenced ‘a great deal’ Voted Did not voteElection coverage on TV 12 17Election coverage in newspapers 7 10Party election broadcasts on TV 5 8Views of friend or family 5 6Election coverage on radio 5 5Leaflets or letters delivered by the parties 4 4Opinion polls 2 3Political advertisements on billboards 2 3Personal calls from representatives of the parties 2 1Election coverage on the internet – 1

Source: MORI/The Electoral Commission.

Base: 1,162 UK adults aged 18+, 9-18 June 2001 (reinterview of panel).

60

42 John Bartle, Roger Mortimore and Simon Atkinson(2002) Political Communications: The General ElectionCampaign of 2001, Frank Cass, London.


61


Making an impact also found that direct contactwith voters plays a significant role in motivatingpeople to vote.43

Commission positionSpending limits

4.48 We believe that national campaignspending limits at Westminster generalelections should be reduced and that the limitsapplying to individual parliamentary candidatesshould be increased.

4.49 We are aware that there has not yet been a full 365-day regulated period prior to aWestminster general election by which to testthe appropriateness of the current spendinglimits. Nonetheless, we believe there should be a presumption in favour of reducing the limitafter the next Westminster general election anda shift to allowing candidates to spend more inorder to engage with the electorate. How sucha rebalancing of national and local spendinglimits should work in practice should bedetermined following the next Westminstergeneral election. But our preferred option wouldbe to reduce the national spending limit from£20m to £15m – or from £30,000 to around£23,000 per constituency – and increasecandidate-spending limits by a proportionateamount. This would effectively almost doublethe limit for candidates’ election expenses.

4.50 We believe that a similar rebalancing ofnational and candidate-spending limits shouldthen take place with respect to Scottish

Parliament, National Assembly for Wales,Northern Ireland Assembly and EuropeanParliament elections.

43 The Electoral Commission (2002) Making an impact:the local promotion of electoral issues.

We recommend that the financial limits onpolitical parties’ campaign expenditure,together with those applying to individualcandidates, be reviewed for all relevantelections, starting with a review of thespending limits for Westminster generalelections.

The national spending limit applying toWestminster general elections should bereduced following the next Westminstergeneral election.

We also recommend that candidates’spending limits be raised to enable moreactivity at the local level.

4.51 As noted earlier in this report, a minority of candidates spent over 80% of the existingexpenditure limits for candidates in 2001. Thismay well reflect cautiousness in ensuring thatthe limit is not breached, which, in the case ofthe winning candidate, would run the risk of theresult being overturned, as well as lack offunds. A higher limit would provide theopportunity for candidates to run more effectivecampaigns to ensure that their messages reachmore voters. Coupled with a lower limit fornational spending, parties would beencouraged to channel more of their funds into local campaigns.


62

4.54 We think this needs further examination to establish whether the pattern of campaignspending for Westminster does involvesignificant expenditure over a longer periodthan four months before polling day.


We recommend that greater transparencyshould be applied to candidates’ electionexpenses. The (Acting) Returning Officershould be required to publish the amountsspent by candidates so that election expensesare readily available for public scrutiny as soonas possible after the election.

Following the next Westminster generalelection we recommend that the regulatedperiod for campaign expenditure be reviewedwith a view to bringing the regulated periodfor campaign expenditure at general electionsmore closely in line with other major elections.

Regulated period for campaign expenditure

4.53 As pointed out earlier in this chapter (Table11) the regulated period for campaignexpenditure is generally four months, except forWestminster general elections where a 365-dayperiod has been set. The reason for this whenPPERA was going through Parliament was thatit was considered that the period of sustainedcampaigning prior to a devolved or Europeanelection was likely to be somewhat shorter thanfor a Westminster general election.

4.55 An effect of PPERA was to specify thepoint at which a person becomes a candidate.Under that Act, a person becomes a candidateat a local government election on the last datefor publication of notice of election if before thatdate they have been declared or selected as acandidate; or on the date on which they arenominated or declared if they are nominated ordeclared after the last date for notice ofelection. For national elections, the relevantstart date for becoming a candidate is thedissolution of the relevant legislature (or whenthey subsequently declare themselves as acandidate). In both cases, the start date forcandidates’ election expenses is around five to six weeks before the date of the election.

4.56 In our review of PPERA44 we noted thatnumerous candidates, agents and electoraladministrators had expressed concern that thestart date for candidates’ election expenseswas too close to the date of the election, and

44 The Electoral Commission (2003) Political Parties,Elections and Referendums Act 2000: Recommendationsfor change.

Scrutinising of election expenses

4.52 The Commission believes that anyincrease in candidate spending limits should beaccompanied by a more rigorous system ofscrutinising election expenses. The presentsystem is essentially self-policing and lacks thetransparency that now applies to nationalspending by parties. In our view, the (Acting)Returning Officer should be required to publishthe amount spent by candidates so thatelection expenses are readily available forpublic scrutiny as soon as possible after theelection. At present the only requirement is for a notice to be put in at least two localnewspapers that the returns have beenreceived, together with details of where andwhen they may be inspected.


63

that a significant period of campaigning wouldtherefore not be regulated by the new controls.We also noted that some parties hadcomplained that its effect was to rendercandidates’ expenses limits meaningless.

4.57 We recommended that the legislationcontrolling candidates’ election expensesshould be amended so that the cost of anycampaigning activity that takes place within a specified regulated period in advance of anelection counts towards a candidate’s electionexpenses limit, regardless of when the personis declared to be a candidate. We consideredthat the appropriate regulated period would befour months ending with the date of the poll andrecommended that this control should apply to all elections.

4.58 The effect of a four-month regulatedperiod for candidates and for Westminstergeneral elections would be to ensure paritybetween the regulated periods for all elections.Such a lengthened period would also increasethe likelihood of candidates making full use of the raised spending limits we recommendabove and better engaging with the electorate.


We recommend that the regulated period forcandidates’ election expenses should befixed at four months ending with the date ofpoll. This control should apply to all elections.



655 Political donations

Private political donationsconstitute an important source ofincome for many political parties.Despite the transparency regimeintroduced under PPERA there isstill public unease about the size ofsome donations and a perceptionthat donations may buy eitherinfluence over policy or access todecision makers. This is damagingto the relationship between theelector and the political process.

Background5.1 An effect of PPERA has been to lay open topublic scrutiny information relating to those whohave made major political donations. Althoughthe transparency model advocated by the NeillCommittee has undoubtedly benefited ourdemocratic system it has not had the desiredeffect of removing public concern about undueinfluence in the political process. While there isno evidence of improper influence inconnection with political donations, theprominent media coverage accorded to theseissues since PPERA, together with insinuationsthat certain large donors expect some form ofreturn or favour, continue to undermine publicconfidence in parties and politicians. TheCommission shares the public concern relatingto large donations while recognising thatcapping donations would raise somefundamental issues.

5.2 At the same time, the decline of parties’traditional support bases has led to a situationin which the major parties have increasinglyshifted towards ‘high value fundraising’, anactivity involving the soliciting of largedonations from wealthy individuals.45 Yet theprospect of unwelcome publicity has, we aretold, discouraged individuals and companiesfrom making donations, compounding thefinancial uncertainty and pressures experiencedby the main political parties.

The funding of political parties: political donations

45 Matt Cain with Matthew Taylor (2002) keeping it clean:the way forward for state funding of political parties, ippr, p. 11.


66

International context

5.3 Some countries have attempted to addresspublic unease about large donations or, in a fewcases, corruption scandals, by imposingstatutory limits on corporate, trade union and/orindividual donations.

5.4 In France a ban on contributions fromcorporations and trade unions has been ineffect since 1995. Individuals can donate up to €4,600 (approximately £3,000) per year tocandidates, which are tax deductible. In theRepublic of Ireland, donations to parties arecapped at a maximum of €6,348(approximately £4,000) from any one donor in any given year. Other European countries that have either imposed limits on donations or banned certain categories of donation areBelgium, Germany, Greece, Italy, Poland,Portugal and Spain.

5.5 In Japan the maximum amount anycompany or trade union can contribute to apolitical party in a year is ¥100m (£505,000).Individuals are permitted to donate up to ¥20m(£101,000) per year.

5.6 A new law in Canada limits individualdonations to each registered political party toCan$5,000 (£2,200) per year. The law also bansdonations from corporations and trade unionsto political parties and restricts contributions to MPs’ riding (constituency) associations to Can$1,000 (£435) per annum. In Québeconly ‘qualified electors’ can make politicaldonations. The total contribution allowed per elector to each of the parties, elected

members and candidates during the samecalendar year is Can$3,000 (£1,300).

5.7 In the United States of America,amendments to the Federal Election CampaignAct in 1974 resulted in limits being placed oncontributions from individuals (US$1,000 or£550 per election) and Political ActionCommittees (US$5,000 or £2,800) tocandidates. The 2002 Bipartisan CampaignFinance Reform Act increased these ‘hardmoney’ contributions from individuals tocandidates to US$2,000 (£1,100) per electionand banned unlimited campaign contributions –known as ‘soft money’ – to political parties.

Donations under PPERA5.8 Prior to the passage of PPERA there was no system of regulating political donations. The Act contains various provisions relating to the control of donations to registered political parties, which are intended to promotetransparency but do not restrict the amount that can be donated, although donations from certain sources are prohibited.

5.9 Under PPERA political parties must registerwith the Commission and submit a financialscheme showing how the party will comply with financial controls. Once registered with the Commission, political parties on the GreatBritain register must comply with the regulatoryframework governing political donations.Political parties on the Northern Ireland registerare currently exempt from the controls onaccepting and reporting donations. TheGovernment recently announced that thecurrent arrangements should be extended for a further two years.



67

5.10 The Act requires political parties to submitquarterly donation reports to the Commission(weekly during a Westminster general election).These reports must disclose all donations over£5,000 made to main political party offices anddonations over £1,000 to constituency or localparty offices, and must cover cash donationsas well as donations in kind. Failure to submitthese reports is an offence. With the exceptionof multiple donations, that is, donations from a single donor, the aggregate of which exceedsthe specified limits, there is no requirement onparties to record donations whose value is £200or less. The Commission has a statutoryobligation to maintain a register of donations,which is published on our website.

5.11 Political donations are regulated in other ways. Under PPERA the foreign andanonymous funding of political parties isprohibited. Only ‘permissible donors’, that isindividuals who are registered to vote in the UK(including overseas voters) and companies andorganisations registered and carrying onbusiness in the UK, may make donations topolitical parties. In addition, the Companies Act1985 as amended by PPERA, requirescompanies to obtain prior shareholder approvalif they wish to make donations to any registeredparty. A company does not need to seek priorshareholder consent for donations that inaggregate do not exceed £5,000 in a particularqualifying period. The Companies Act 1985 alsorequires companies to obtain authorisation forthe incurring of expenditure for political purposes.

Donations since 20015.12 Before examining the arguments for andagainst capping donations it is important togain a sense of the size and source of politicaldonations. Using data from the register ofdonations we have undertaken an analysis ofreported donations in 2001, 2002 and 2003.46

The analysis has sought to establish the degreeto which political parties rely on big donors.

5.13 It is worth pointing out that of registeredpolitical parties only two – the Conservativesand The Labour Party – have received singleindividual donations in excess of £1m, thelargest of which was £5m accepted by theConservatives in 2001. One other party – the Liberal Democrats – has received a cashdonation in excess of £200,000. The UKIndependence Party (UKIP) has receivedseveral non-cash donations, or ‘benefits-in-kind’, in excess of £200,000 since 2001,including one in 2004 worth £715,000. The Conservatives have received two large,non-cash donations, each worth more than £100,000.

2001

5.14 In the year of the last general electionpolitical parties received 1,948 reportabledonations (since 16 February 2001), totalling


46 By donations we refer to cash and non-cashdonations by individuals, trade unions, companies andother organisations, and donations by exempt trusts. Ouranalysis does not include party income obtained throughpublic funding. As noted earlier, with the exception ofmultiple donations, there is no requirement on parties torecord donations whose value is below £200 and it hasnot been possible to determine the volume of donationincome that was not reported.


68

just over £28m. The largest donations werereceived by the Conservative Party, whichaccepted separate cash donations of £1m fromNorbrook Laboratories (GB) Ltd, £2.45m fromMr John S. Wheeler and £5m from Sir PaulGetty. The Conservatives accepted a furtherfive cash donations from companies andindividuals of between £105,000 and £206,000,collectively totalling £775,000.

5.15 The Labour Party’s biggest individual cashdonation in 2001 was a £200,000 contributionfrom Sir Alan Sugar, although it also received 10 cash donations of between £335,000 and£750,000 from five trade unions, and a further16 in excess of £100,000, 15 of which werefrom trade unions.

5.16 During 2001, the Liberal Democratsreceived one cash donation in excess of£200,000 from the Joseph Rowntree ReformTrust. UKIP received three cash donations of£25,000 and the Scottish National Party one of £25,000. A number of large, non-cashdonations were received, most notably by theConservatives – which received two in excessof £100,000 – and UKIP, which accepted two in excess of £200,000 and one in excess of£100,000. Most donations to political partieswere far smaller.

5.17 More than a quarter (26%) of the £28mreported donation income received by parties in2001 – £7.45m – was comprised of donationsabove £1m. Or putting this another way, two£1m+ donations out of 1,948 donations in totalmade up more than a quarter of the totaldonation income received by political parties.

5.18 The next largest share of reportabledonation income – 24% – consisted ofdonations up to the value of £25,000. Suchdonations were by far the most popular, with1,830 out of 1,948 donations, or 94% of thetotal number received, being within this range.Seventeen per cent of donation incomeconsisted of donations within the £100,001 –£250,000 range, with a further 11% comingfrom donations whose value was between£500,001 and £1m.

5.19 More than one third of reportable donationincome received by parties in 2001 came in the form of donations above £500,000,representing less than 1% of the total number of donations. Looking at the broader picture,almost two thirds of total donation incomecame from donations above £100,000,representing less than 2% of the total numberreceived.

5.20 Figure 3 shows the percentage ofdonation income received by political parties by range in 2001, with Figure 4 showing theproportion of the total number of donationsreceived in each donation category.



69


Figure 3: Percentage of donation income received by donation category, 2001

Source: Register of donations to political parties 2001, The Electoral Commission.

£1m+

£500,001 – £1m

£250,001 – £500,000

£100,001 – £250,000

£75,001 – £100,000

£50,001 – £75,000

£25,001 – £50,000

£0 – £25,000

24%

17%

11%

9%

8%

3%

2%

26%


70


£1m+

£500,001 – £1m

£250,001 – £500,000

£100,001 – £250,000

£75,001 – £100,000

£50,001 – £75,000

£25,001 – £50,000

£0 – £25,000

Figure 4: Percentage of total number of donations received by donation category, 2001

Note: The remaining donation categories not shown in the pie chart collectively total 1% of the percentage of total number of donations.


1% 1% 3%

94%


71

2002

5.21 In 2002 political parties reported 1,511donations totalling almost £17.2m. The LabourParty received a £2m donation from LordSainsbury, a £500,000 bequest from Lord Paul Hamlyn and three donations which, takentogether, totalled £935,625 from UNISON. It also accepted 20 donations in excess of£100,000 from trade unions and a further twofrom individuals.

5.22 During the same year, the Conservativesreceived one donation worth £520,000 from IIR Ltd. It also received six cash donations ofbetween £110,000 and £250,000, togethertotalling £865,500.

5.23 The Liberal Democrats received onedonation of £125,000 from the JosephRowntree Reform Trust. Of the other registeredpolitical parties, the Democratic Party receivedone cash donation of £100,000.

5.24 The largest share of donation income in2002 came in the form of donations within the£100,001 - £250,000 range. Such donationsrepresented 30% of the total donation incomereceived and 2% of the total number ofdonations reported that year. A similarproportion of party income was made up of donations below £25,000. A total of 1,421 of the 1,511 donations received (94%) were in this range.

5.25 Compared to the general election year of2001, the parties received a smaller proportionof their donation income – just under 12% – inthe form of £1m+ contributions. More than 50%

of total donation income in 2002 consisted of£100,000+ donations, representing just over2% of the quantum for that year.

5.26 Figure 5 shows the percentage ofdonation income received by political parties by range in 2002, while Figure 6 indicates theproportion of the total number of donationsreceived in each donation category.



72


£1m+

£500,001 – £1m

£250,001 – £500,000

£100,001 – £250,000

£75,001 – £100,000

£50,001 – £75,000

£25,001 – £50,000

£0 – £25,000



12%

8%

7%

7%

29%

4%

3%

30%


73


£1m+

£500,001 – £1m

£250,001 – £500,000

£100,001 – £250,000

£75,001 – £100,000

£50,001 – £75,000

£25,001 – £50,000

£0 – £25,000



1% 1%2%

94%

2%


74

2003

5.27 In 2003 political parties reported 1,907donations totalling almost £22.5m. The LabourParty received a donation of £2.5m from LordSainsbury and £1m from Sir ChristopherOndaatje CBE. The party received furtherindividual donations worth £500,000 from LordPaul Hamlyn and £330,000 from Mr WilliamHaughey OBE. It also accepted four donationsfrom UNISON together totalling just under£1.4m. A further 20 cash donations of morethan £100,000 from trade unions were received,12 of which were above £200,000. The partyalso accepted one further cash donation of£200,000 from Sir David Garrard and one worth £250,000 from Sir Ronald Cohen.

5.28 The Conservatives accepted one donationof £504,000 from Mr John S. Wheeler andreceived a further five cash donations fromindividuals and companies of between£105,000 and £250,000.

5.29 The Liberal Democrats’ biggest donationsin 2003 came from the Joseph RowntreeReform Trust, which made four separate£125,000 donations.

5.30 The largest share of donation income in2003 was comprised of donations up to a valueof £25,000, representing just under a third ofthe total sum received and 94% of the totalnumber of donations. As in 2002, aconsiderable proportion of donation income –27% – came in the form of donations in the£100,001 - £250,000 range. This represented2% of the total number of donations received.The single £2.5m donation represented 11%

of total donation income. Fifty-five per cent of total donation income for 2003 consisted of £100,000+ donations, representing 2% of the total number.

5.31 Figure 7 shows the percentage ofdonation income received by political parties by range in 2002, with Figure 8 indicating theproportion of the total number of donationsreceived in each donation category.



75


£1m+

£500,001 – £1m

£250,001 – £500,000

£100,001 – £250,000

£75,001 – £100,000

£50,001 – £75,000

£25,001 – £50,000

£0 – £25,000



10%

11%

7%

27%3%

5%

30%

7%


76


£1m+

£500,001 – £1m

£250,001 – £500,000

£100,001 – £250,000

£75,001 – £100,000

£50,001 – £75,000

£25,001 – £50,000

£0 – £25,000



94%

1% 1%2%

2%


77

Summary of analysis

5.32 By way of summary, Figure 9 presents the total value of donations reported to theCommission for 2001, 2002 and 2003 bydonation category. Of almost £68m in reporteddonations to political parties, nearly £12m –approximately 18% of the total donation income– came in the form of £1m+ donations. Afurther £15.9m (23% of the total) was derivedfrom donations within the £100,001 - £250,000range. Donations below £25,000 totalled£18.7m, representing the largest share of totaldonation income (28%), and 94% of the 5,366donations received by parties. In total, 58% of the donation income received by partiesbetween 2001 and 2003 was obtained throughdonations in excess of £100,000.



78


19,000,00018,000,00017,000,00016,000,00015,000,00014,000,00013,000,00012,000,00011,000,00010,000,000

9,000,0008,000,0007,000,0006,000,0005,000,0004,000,0003,000,0002,000,0001,000,000

0

Figure 9: Total donations 2001–3

Source: Register of donations to political parties 2001–3, The Electoral Commission.

Valu

e (£

)

Donation category

£1m

+

£500

,001

–£1

m

£250

,001

–£5

00,0

00

£100

,001

–£2

50,0

00

£75,

001

–£1

00,0

00

£50,

001

–£7

5,00

0

£25,

001

–£5

0,00

0

£0 –

£25,

000


79

5.33 The preceding analysis also shows thedegree to which parties have been moresuccessful in attracting very large donations in general election as opposed to non-generalelection years. A small number of largedonations clearly constitute an importantcontribution to the total donation incomereceived by political parties. In the next sectionwe consider arguments for and against limitingdonations, taking into account evidence frompolitical parties, trade unions, MPs, think-tanksand academics.

Arguments for a limit on donations5.34 Views on whether donations to politicalparties should be limited were mixed, with asmany respondents to our issues paper arguingfor as against. Those supporting a limit tendedto argue that it would be the most effectivemethod of removing the perception orsuspicion that private interests can buyinfluence over party or Government policy.Several respondents to our issues paperargued that the acceptance of large donationsby political parties was damaging todemocracy and had contributed to declininglevels of trust in the political system:

Participation levels in democracy, togetherwith trust in politicians and the politicalsystem are dropping too quickly to riskany further erosion of democracy, which is inevitable while political parties areaccepting donations now running intomillions.


There is a perception that politicians arefor sale and as long as parties aredependent on a limited number of largedonors this will persist.

Diana Wallis MEP

The reputation of politics has been sulliedby incidents such as the donations madeby Bernie Eccleston, Lakshmi Mittal andothers.

Liberal Democrats

5.35 Another argument put to us was that thecurrent system provided the main beneficiariesof large donations – the Labour and theConservative parties – with an unfair advantageover their competitors which distorted electoralcompetition:

There is a huge imbalance betweenpolitical parties in terms of expendituregrounded in a small number of very large donations from wealthy donors/organisations to the two major politicalparties. This inequity is clearly seen inScotland where, at the 2001 generalelection, Labour spent some £1.1m inScotland, the Conservatives £0.9m andthe SNP, £0.2m. The SNP has long arguedthe need to level the playing field.


5.36 Others suggested that a donation cap –particularly if combined with a system of matchfunding or tax relief for small donations – wouldencourage political parties to seek outdonations from a broader range of supporters,resulting in more representative support bases:



80

This would have some degree of effect inensuring that parties are accountable totheir members and through them to thepopulation as a whole.

New Politics Network

5.37 A further argument in favour of donationlimits was cited in the Neill Committee’s 1998report, namely, that a cap could prevent partiesfrom becoming over-dependent on a narrowincome base. This would enable parties toavoid apparent or real illegitimate pressuresand reduce the risk of parties encounteringfinancial difficulties following the withdrawal of a large donation.47 However, the Committeedecided against a cap.

Arguments against a limit on donations5.38 During our consultation, we were alsopresented with a number of arguments againstlimiting donations to political parties. Oneargument is that allowing individuals to makeunlimited donations and political parties tocompete freely for them is a sign of a healthydemocracy. Several witnesses at the publichearings and respondents to our issues paperreflected this position:

In a free society it is right that all voters,including the well-off, should be free todonate to causes in which they believe.

The Conservative Party

Donation caps are only another way theGovernment orders us about and tells uswhat to do with our own money. In anyfree country we should be able to choosewhether to back a possible futuregovernment or the 3.30 at Kempton Park.

Miss H. A. Prowse

To stop people doing what they want to do with their own money is anextraordinary interference with theirpersonal liberty. If you want to take thatright away you’ve got to have an extremelygood reason for doing so.

Stuart Wheeler, public hearing, London

5.39 A further point put to us was that any such‘interference’ with individual liberty wouldincrease the likelihood of evasion, by dividingresources among friends and relations, or byestablishing subsidiary companies in order tolegitimise any donations by sub-dividing them.In its review of the funding of political parties,the Neill Committee referred to the difficultiesinvolved in detecting any such attemptedevasions and the thick layer of bureaucracy that would be needed to enforce any newsystem. The Neill Committee concluded thatsuch bureaucracy ‘would not be justified by the purpose of the cap’.48

5.40 Some suggested that the transparencyprovisions introduced under PPERA in themselves were enough:


47 The Committee on Standards in Public Life (The NeillCommittee) (1998) Fifth Report: The Funding of PoliticalParties in the United Kingdom Cmnd. 4057, October, p. 79.

48 The Committee on Standards in Public Life (The NeillCommittee) (1998) Fifth Report: The Funding of PoliticalParties in the United Kingdom Cmnd. 4057, Vol. 1, para.6.10.


81

Transparency allows voters to make uptheir own minds on whether or not anydonation is inappropriate depending onthe circumstances, whereas fixed capsare non-discretionary and arbitrary.


The judgement about whether largedonations are in themselves a good thingor a bad thing, or a wise or an unwisething to accept by parties is for theelectorate to decide, and largely thatmeans rather relentless media interest inwho’s giving what to whom.

The Labour Party, public hearing, London

As long as donations are transparent,honest and accountable, then thereshould not be a cap. The electorate isaware of who donates to whom and howmuch; it is for them to make a judgementon whether that is acceptable.

USDAW (Union of Shop, Distribution and Allied Workers)

5.41 The Labour Party, together with a largenumber of trade unions, argued that statutorylimits on donations could inadvertently andunjustifiably affect the constitutional ormembership structure of political parties. UnderSection 50 of PPERA, fees paid for affiliation topolitical parties are defined as donations. Someargued that unless it were accepted thataffiliation fees paid to The Labour Party shouldbe treated differently to large individualdonations, a statutory cap would undermine thetrade unions’ historical link to The Labour Party:

There is a danger that if a contribution capwere to be introduced, the constitutionalstructure of the Labour Party would ineffect be unlawful. Trade unions would no longer be able to affiliate to the partyon the basis of their levy payingmembership, but would be constrained by an artificial limit imposed by law. Allunions regardless of size would be able to affiliate the same number of members.That would be absurd.

The National Trade Union and LabourParty Liaison Committee

We would strongly oppose any reformwhich would have the effect – directly orindirectly – of undermining the historicconstitutional structure of the Party… .Political parties must be free to determinetheir own composition.

The Labour Party

5.42 On a related point, most trade unionsargued that the choice of affiliation was ademocratic decision of union members andthat a donation cap could undermine, ratherthan facilitate, participation in that democraticprocess:

Any system of donation caps whichincludes affiliation fees would do hugedamage to the most powerful anddemonstrably successful way of ensuringwide and active participation in politics.

UNISON

The GPMU does not see how withdrawingthe right from seven million trades union



82

members to decide for themselves if they wish their union to affiliate or donateto a political party, will create greaterparticipation in and interest in Britishpolitics.

Graphical, Paper & Media Union

5.43 The issue of affiliation fees, trade unionsand The Labour Party was examined in detail in a recent paper published by The CatalystForum.49 In the paper, Professor Keith Ewingargued that any statutory contribution limitswould mean changes to the constitution of TheLabour Party and, furthermore, would probablycontravene the principle of freedom ofassociation enshrined by the Human Rights Act1998.

5.44 A possible way around this problem,suggested by one respondent, would be tomake an exception to any donation cap for‘stakeholder funds’, such as trade unionaffiliation fees or funds from public limitedcompanies that had complied with consentprovisions in PPERA and the Companies Act:

The effect of this procedure would be thatalthough large sums would be transferredto parties, in excess of the generalcontribution cap, it would have been doneso on the part of large numbers ofstakeholders – invariably meaning that theaverage donation would thus have beenbelow that threshold, although theaggregate sum would not. Not only doessuch a scheme preserve the democratic

linkage between parties and supporters, it eliminates the distorting effects of vastdonations in an even handed manneralong the political spectrum. Any otherdonations would be constrained by thebasic donation caps.

Navraj Singh Ghaleigh

5.45 Another option, suggested by the NewPolitics Network, is as follows:

Reform the way trade unions affiliateallowing individuals to knowingly opt in orout of paying the affiliation fee and not justthe political levy. While also ensuring thatindividuals are informed of their rights, inreturn the requirement to hold politicalfund ballots every 10 years should bescrapped.


5.46 As well as these issues, severalrespondents pointed out that a statutorydonation cap would mean a significant shortfallin party income, which would in turn necessitatea large increase in levels of public funding. Theextent to which this would be an issue woulddepend on the level at which any cap were set,and that is what we turn to now.

Proposed levels of donation limit5.47 Of those who supported a donation cap,most argued that it would need to be set at alevel sufficiently low to ensure an end to publicsuspicion that influence in the political processcould be bought. Table 17 provides details oflevels of donation cap proposed by various


49 K. D. Ewing (2002) Trade Unions, the Labour Party andPolitical Funding: The next step: reform with restraint, TheCatalyst Forum.


83

organisations and individuals. As can be seen,the most common level proposed was £5,000per year, with two suggestions that the limitshould be set somewhere between £5,000 and£10,000. The Liberal Democrats suggested anannual limit of £50,000.

5.48 Some have argued that setting a cap lowin order to eliminate the perception of influencebeing bought was of lesser importance thaneliminating very large, individual donations.

According to this view, there is a danger that asingle individual’s wealth could, under presentarrangements, distort the political processbecause an individual’s ability to donate largeamounts of money could affect politicaloutcomes. To address this issue a cap might be set at £500,000 or £1m.


Table 17: Proposed donation cap levels (total amount allowed per year)

Organisation/individual Donation cap (£) Further information

Plaid Cymru - The Party of Wales 5,000 Per donor

Scottish National Party 5,000 Per individual or organisation

institute for public policy research 5,000 Per individual, company or trade union

Michael Foster MP 5,000 Per individual

New Politics Network 5,000 - 10,000 Per individual, group, company or trade union. Cap level to be set by The Electoral Commission.

Diana Wallis MEP 5,000 - 10,000 Per individual, company or trade union

Ron Davies 10,000 Per individual

Charter 88 5,000 Per individual

10,000 Per institution

Liberal Democrats 50,000 Per individual or organisation

Source: Written and oral evidence submitted to The Electoral Commission.


Financial implications of limiting donations5.49 In chapter 3 of this report we highlightedthe considerable resources needed by partiesto fund their campaigns, to run theirorganisations and more generally to carry out their democratic functions.

5.50 As part of our review we sought toestablish the likely effect that a limit ondonations would have on the financial health of political parties. We undertook an analysis of capping, based upon reported donations for 2001, 2002 and 2003.50

5.51 Figure 10 shows the likely loss in incomethat would result were donations capped at£5,000, £10,000 and £50,000. Between 2001and 2003 the total value of cash donations, non-cash donations and donations from exempttrusts was just under £68m. Had donationsbeen capped at £5,000 during this period,political parties would have had to reject 3,002donations totalling just under £60m, leaving justunder £8m in reported donation income.

5.52 A similar situation would have arisen had a capping threshold been set at £10,000. Underthis scenario, 2,940 donations totalling almost£56m would have been disallowed, leaving theparties with approximately £12m in reporteddonation income.

5.53 If the capping threshold were set evenhigher at £50,000 political parties would,between 2001 and 2003, have refused 2,747donations worth £46m in total. The total amountreceived by parties in donations would havebeen almost £22m.

84


50 Our capping analysis was undertaken on the basis thatwhere a donor had given multiple donations of which asingle donation breached the capping threshold thedonation amount was reduced to the threshold and thenumber of donations shown as one. The projected loss inthe number of donations was increased by the number ofother donations given by the donor in the same calendaryear. Where a donor had given multiple donations that didnot breach the capping threshold there was no projectedloss in the number of donations. For example: if the samedonor had given one donation of £65,000, two donationsof £20,000 and five donations of £1,000 in the samecalendar year and donations were capped at £50,000 theprojected income would be £50,000 and one donation andthe projected loss would be £60,000 and seven donations.


85


80,000,000

70,000,000

60,000,000

50,000,000

40,000,000

30,000,000

20,000,000

10,000,000

0

Figure 10: The financial impact of different capping thresholds

Source: Register of donations to political parties 2001–3, The Electoral Commission.

Valu

e (£

)

Capping threshold

Act

ual

dona

tions

Don

atio

ns c

appe

dat

£5,

000

Don

atio

ns c

appe

dat

£10

,000

Don

atio

ns c

appe

dat

£50

,000


86

Commission position5.54 The disclosure provisions introduced byPPERA have undoubtedly been a positivedevelopment and opened up party finances to public scrutiny. However, we believe thattransparency may have further stimulatedpublic disquiet about the funding of politicalparties – particularly large donations – andimpacted on levels of public confidence. Yet the evidence discussed in this chapterhighlights the disagreement that exists onwhether limiting donations is a necessary next step after transparency.

5.55 We believe that a donation-cappingregime could have the effect of rebuilding orincreasing levels of public confidence in thepolitical party system. We also recognise thatthere are different views with respect to theintended objective of any capping regime and,accordingly, the level at which any cap shouldbe set. However, in attempting to persuademembers of the public that the likely effect of a donation cap would be to minimise the risk of corporate, trade union or individual interestsbuying influence, and to maximise the likelihoodof enhancing public confidence, we are firmly of the view that it would need to be set at arelatively low level – that is, in the region of£10,000 per individual donor or organisationper annum. Even so, we acknowledge thatrelatively small donations have been the causeof controversy.

5.56 We also recognise that political parties areessential to the functioning of a sustainable,representative democracy and, as such, requireadequate funding. In order to ensure that

political parties would continue to be able to perform their democratic functions, theintroduction of a donation cap would need to be combined with the state stepping in toprovide substantially more financial supportthan it does at present. We believe that beforethis could take place there would need to befirm evidence that any changes would work inpractice and be acceptable to the majority ofpeople. The Commission would be prepared to develop and assess alternative propositionsin order to permit an informed debate to take place.

5.57 Clearly, any regime to cap donationswould need to demonstrate that it was capableof being effectively applied and would not actas a hindrance to the emergence of new partiesor the effective operation or organisation ofexisting parties. While we believe that adonation-capping regime could be made towork – indeed, such regimes are made to workelsewhere in the world – in order to be effectiveit would undoubtedly require effective powersof enforcement and the introduction ofadditional compliance burdens that would fall on political parties.

5.58 One of the arguments put to us was thatpeople should be free to spend their ownmoney in the way they choose. While thisargument of individual freedom is clearly astrong one it has to be balanced by issues of wider public good. We have not sought toestablish a view about the application of humanrights legislation but any move towards cappingwould need to take this into account. In thiscontext we note that the current rules prohibit



87

paid political advertising in the broadcastmedia.

5.59 Assuming these issues were resolved, itwould then be necessary to develop a systemof public funding based on understandable,transparent and uncomplicated eligibility anddistribution criteria, which would not entrenchthe existing party system nor inhibit thedevelopment of new parties. The Commissionwould again be ready to commence work inrelation to the development of such a scheme.

5.60 While we are not in principle opposed tothe introduction of a donation cap, we do notbelieve that such a major departure from theexisting system now would be sensible. Thetransparency reform brought in by PPERA is still relatively new and a good deal more workwould need to be done before any cap (and themajor accompanying increase in public fundingthat would be necessary) could be introducedthat would be both practicable and acceptable.

5.61 We are, however, of the view that politicalparties should be encouraged to seek out moresmall-scale donations as a means of betterengaging with and developing their grass rootssupport and membership, and reducing thelevel of dependence on a small number ofwealthy donors. This issue is explored in greaterdepth in the next chapter.


Existing checks and balances, includingdisclosure requirements and donationcontrols, should be maintained. At presentthe Commission considers that it would beinappropriate to introduce a limit ondonations together with a comprehensivesystem of public funding.

Should circumstances change, however,following implementation of other changeswe recommend, a further review could beundertaken, focusing more specifically on thepracticability and operation of a donation-capping regime and any associated systemof general public funding.



896 Public funding of political partiesSince the early twentieth centuryBritish political parties havebenefited from limited stateassistance. Candidates currentlyreceive free mailings and use ofpublic rooms at elections, while thelarger parties get free airtime forpolitical broadcasts. Oppositionparties additionally receive ‘Short money’ to assist with theperformance of their parliamentaryduties and there are equivalentschemes in the House of Lords(‘Cranborne money’) and devolvedlegislatures. More recentlyParliament has initiated a schemeto provide policy developmentgrants to parties sitting atWestminster.

Background6.1 In its 1998 report the Neill Committeeconcluded that the time had not yet come for substantially increasing public funding of political parties, if it ever would. It did notconsider that the parties were in a generalsense under-funded, in view of the parties’spending levels at the 1997 general election.The Committee recommended that ‘no newsystem should be introduced whereby the stateis obliged for the indefinite future to providefinancial support for the political parties’. However, it did recommend a policydevelopment grant scheme ‘to enable theparties represented in the House of Commonsto fulfil better what is, after all, one of their mostvital functions’. This scheme was implementedfollowing the passage of PPERA.

6.2 Since the publication of the Neill Committeereport the public funding debate has continued.Those in favour of increased public funding,who have also tended to favour a donation cap,have argued that such measures would ‘purify’the political process and do much to restorepublic confidence in the political process. If, asis often suggested, political parties are, throughlack of adequate funds, struggling to fulfil their democratic functions, there is a furtherargument that the provision of further state aid would be in the public interest.

6.3 Others have argued that political parties areessentially voluntary organisations that shouldnot rely on the public purse for funds. Critics ofpublic funding argue that taxpayers should notbe forced to contribute to the support ofpolitical parties with whose politics they

The funding of political parties: public funding of political parties


90

strongly disagree. In addition, it is argued thatmost regimes of public funding favour the majorparties, causing party systems to ossify andpreventing new or minor parties from gaining aneffective foothold in the political system. It hasfurther been suggested that increased levels ofpublic funding could undermine levels of civicengagement, since any new system mightresult in parties being tempted to abandonfund-raising activities at the grass roots level.

6.4 In the previous chapter we concluded thatwe did not believe the time was right tointroduce a cap on donations, nor acomprehensive system of public funding tocompensate for the loss of party income arisingfrom any such cap. However, we do believe a case can be made for providing additionalfinancial support to parties. In this chapter weprovide an assessment of existing forms ofpublic funding. We also recommend somemodest changes to the current system that wehope will assist parties and candidates in thefulfilment of their democratic remit.

Direct public fundingShort and Cranborne monies

6.5 As mentioned, political parties alreadybenefit from modest public support for theiractivities, although there is no direct publicfunding for political parties to fight elections.Perhaps the best known form of public fundingof parties is Short money, given to oppositionparties to assist with the performance of their parliamentary duties. The system wasintroduced in 1975. The amount given toopposition parties in the House of Commons

is related to the number of seats and votesobtained at the previous general election. There are two additional components of funding:

• funding for the running costs of the Leader of the Opposition’s office; and

• a travel fund for opposition frontbenchers setup in 1993, for travel expenditure related toparliamentary business.

6.6 There has been a significant increase inShort monies in recent years. In 1998-9 Shortmoney totalled £1,696,127 but following a 270%increase in 1999, the 2001-2 and 2002-3 figureswere each around £5m.51 The most recentallocations of Short money – pertaining to the2004-5 period – amounted to £5,350,509.52 Thisgeneral increase has in part been a reflection ofthe Neill Committee’s observation that ‘theadequate funding of the office [of the Leader ofthe Official Opposition] remains a problem andhas been a cause of embarrassment anddistraction to successive Opposition leaders for some time’.53

6.7 Short money is largely spent on researchsupport for front-bench spokesmen, assistancein the Whips’ offices and staff for the Leader of the Opposition.54


51 House of Commons Standard Note Paper SN/PC/1663,4 October 2002.52 House of Commons Standard Note Paper SN/PC/1663,20 July 2004.53 The Committee on Standards in Public Life (1998), Fifth report, The Funding of Political Parties in the UnitedKingdom, Cmnd. 4057, October.54 House of Commons Library Research Paper (1987)Parliamentary Pay and Allowances: Current Rates, 01/87.


91

6.8 Equivalent funding for opposition parties in the House of Lords, known as Cranbornemoney, was introduced in 1996. This totalled£138,048 in 1998-9 and £316,867 in 2001-2. It increased significantly in 2002-3 to £620,555.The amount payable in 2003-4 was £639,792,increased to £656,426 in 2004-5.55

6.9 The amounts paid to opposition partiesthrough Short and Cranborne monies areupdated annually on 1 April by the percentageincrease in the Retail Price Index in the year toMarch.

Devolved bodies

6.10 An equivalent scheme is in place in theScottish Parliament and transitional systems arein place in the National Assembly for Wales andNorthern Ireland Assembly.56 Section 97 of theScotland Act and the Scottish Parliament(Assistance for Registered Parties) Order 1999allows for funding of the opposition parties andpartners in coalition government. The NationalAssembly for Wales does not have the power toestablish a funding scheme equivalent toWestminster Short money. However, Section 16of the Government of Wales Act 1998 providesthe power to pay salaries and allowances toAssembly members. There is currently anallowance payable to party leaders. TheNorthern Ireland Assembly approved a motionon payments to parties on 25 June 2002. Thelevel of funding provided has been set on ascale reflective of the level of representation.

Policy development grants

6.11 The Neill Committee identified policy-related research and development as beingespecially important to opposition partiesbecause they lack the resources of the civilservice available to the governing party. Itestimated that in 1997 the three main partiesspent less than £1.5m on research andrecommended the introduction of policydevelopment grants to ‘enable the partiesrepresented in the House of Commons to fulfilbetter what is, after all, one of their most vitalfunctions’.57 Payments were introduced throughthe Elections (Policy Development GrantsScheme) Order 2002,58 which prescribed how a total spend of £2m per annum was to be splitamong parties with two or more sittingmembers of the House of Commons who hadtaken the oath. The fund is administered by theCommission and the first grants were paid outin 2002.

European Union

6.12 In February 2003, the EuropeanCommission published its proposal for acouncil regulation on the statute and financingof European political parties. The proposalstated that in order to be eligible for financingfrom the European budget, ‘parties should berepresented by elected members in theEuropean Parliament, or in the national orregional Parliaments of at least one third of the


55 House of Commons Standard Note Paper SN/PC/1663,20 July 2004.56 Statutory Instrument No 1745.

57 The Committee on Standards in Public Life (1998), Fifth report: The Funding of Political Parties in the UnitedKingdom, Cmnd. 4057, October.58 SI 2002/224.


92

Member States.59 Alternatively, it should havereceived at least five per cent of the votes castat the most recent European elections in atleast one third of the Member States’. Thefunding of political parties at the European levelwould not be used for the direct or indirectfunding of other political parties, and inparticular national political parties, which wouldcontinue to be governed by national rules.

6.13 Use of such money is restricted toexpenditure directly linked to the fulfilment ofparties’ European political programmes, andcan assist with administrative expenditures andexpenditure linked to technical assistance,meetings, cross-border events, studies,information and publications.

6.14 The European Commission proposed that€8.4m be committed for the financing ofEuropean political parties. Of this amount, 15%is distributed equally to all qualifying parties,with the remaining 85% being distributedamong the European parties with MEPs. Legalprovision for such funding was made in aregulation of the European Parliament and ofthe Council on 4 November 2003. TheEuropean Parliament will publish a report notlater than 15 February 2006 on the applicationof this regulation and the activities funded.

Referendums

6.15 Referendums also represent an areawhere political parties can receive statesubsidies. Subject to certain conditions, PPERA allows the Commission to appoint a‘designated organisation’ for each possiblereferendum outcome in a referendumcampaign.60 These would be the lead campaignorganisations on either side of the referendumdebate and it is open to political parties, as wellas to other campaign organisations, to apply tothe Commission for such designation, providedthey have also registered as ‘permittedparticipants’ for that referendum. Designatedorganisations are entitled to financialassistance. Up to £600,000 can be given to either side in a national referendum.

PPERA start-up grants

6.16 The Political Parties, Elections andReferendums Act 2000 (PPERA) allowed for the Commission to provide one-off financialassistance to political parties registered beforethe Act came into force, to facilitate registrationand compliance with the Act’s requirements.61

A total sum of £700,000 was made available to political parties under this one-off scheme.

Indirect public fundingParty political and party election broadcasts

6.17 In the UK the purchase of media airtimefor political advertising is prohibited. However,


59 Commission of the European Communities (2003)Commission proposes rules on statute and financing of European political parties, press release IP/03/260,Brussels, 19 February. For further information seeCommission of the European Communities (2003)Proposal for a regulation of the European Parliament and of the Council on the statute and financing of Europeanpolitical parties, COM (2003) 77 final atwww.europa.eu.int/eur–lex/en/com/pdf/2003/com2003_0077en01.pdf.

60 See PPERA Sections 108–110 (Assistance fordesignated organisations) and Schedule 12 (Assistanceavailable to designated organisations).61 See Section 36 of PPERA.


93

the BBC (by convention) and certainindependent television and radio broadcasters(by statute) provide airtime free of charge toqualifying parties at the time of elections and atother key events in the political calendar. Thisdoes not constitute direct state aid since it isprovided at no cost to the public purse.However, it is, in effect, an indirect subsidy ofthe activities of political parties. Under currentarrangements, any party fielding candidates inone-sixth of the seats being contested at anelection qualifies for a party election broadcast,and major parties are allocated series ofbroadcasts.

Free postage and distribution of electioncommunication

6.18 Public monies are used to finance thedistribution of candidates’ election addressesat parliamentary elections and Europeanparliamentary elections, free of charge to theparties. The Representation of the People Act1983 allows free postage for one electioncommunication to every address or electorwithin the relevant electoral area.62 The freepostage allowance is also available at electionsto the Scottish Parliament, National Assemblyfor Wales and Northern Ireland Assembly andreimbursement made to the universal serviceprovider (Royal Mail) by the Scotland Office, the National Assembly for Wales, the NorthernIreland Office and the Department forConstitutional Affairs. Local mayoral electionsalso have freepost for candidates’ literature,which is paid for by the relevant local authority.63

6.19 Under the Greater London AuthorityElections (Election Addresses) Order 2003 allmayoral candidates were entitled to put anaddress in a booklet prepared, produced anddistributed by the Greater London ReturningOfficer. The budget for the booklet was £1.3m,with each voter – 5.2m in total – receiving abooklet. Those choosing to include an addressin the booklet were required to contribute£10,000 towards the booklet’s printing anddistribution costs.

6.20 The provision of free postage anddistribution of candidates’ election addressesdoes not apply at local elections in GreatBritain, although such a facility has existed forcandidates at local elections in Northern Irelandsince 1985.

Free use of public buildings

6.21 The Representation of the People Act198364 provides for the free use of publicbuildings – schools or any other buildingmaintained by public money – for public meetings during campaigns forparliamentary elections, local elections,European Parliamentary elections, and by-elections. In the case of devolved elections, this provision is also available for elections tothe Scottish Parliament and National Assembly for Wales. However, this provision does not


62 Section 91(1) (as amended).

63 Representation of the People Act 1983, Section 91, as applied by the Northern Ireland Assembly (Elections)Order 2001; Article 64 National Assembly for Wales(Representation of the People) Order 2003; The ScottishParliament (Elections etc.) Order 2002 also makesprovision for access to buildings (Section 3.15).64 Section 95(1).


94

apply to any elections in Northern Ireland.Expenditure on this is likely to be relativelyminimal and the decline in the practice ofholding election meetings will have reduced this.

Electoral register

6.22 Electoral Registration Officers are requiredby statute to make available a copy of theelectoral register for electoral purposes toelected representatives and candidates,registered political parties and localconstituency parties.65

Additional public funding

6.23 Some politicians and commentators havesuggested that politicians’ salaries representpublic funding of political parties (not leastbecause of the blurred distinction betweenparliamentary and party activities) as doesstate security at party conferences and events,time off for councillors to carry out their civicduties and allowances for them to do their job.

Stakeholders’ views6.24 In general most of those who gaveevidence during our enquiry were stronglysupportive of the principle that existing levels of state support for political parties shouldcontinue. However, there were three areas of the existing system which generateddifferences of opinion.

Short and Cranborne monies

6.25 With respect to Short and Cranbornemonies, the Conservative Party argued that the system:

… has been shown to be of benefit to thepolitical process, helping ensure effectiveParliamentary scrutiny of the governmentof the day.


6.26 The Labour Party in its submission referredto the uncontroversial nature of this form ofsubvention but stated that:

It is curious that Short/Cranborne fundsand their devolved equivalents do notapply to the party of Government or, indevolved settings, the sole (or majority)party of the Executive. The party inGovernment has no lesser need todevelop politically and organisationallythan those in opposition.

The Labour Party


65 Representation of the People (England and Wales)(Amendment) Regulations 2002, Sections 102-109.

We consider that both the Short andCranborne money systems, together with their devolved equivalents, serve thedemocratic system well. It is important thatopposition parties with representation shouldhave sufficient resources to hold thegoverning party or parties to account and we believe that the systems should continue.We are not persuaded of the need to extendthe systems to the party or parties ofGovernment, which are backed by the full resources of the civil service.


95

Free delivery of election addresses

6.27 A second issue concerns the free deliveryof election addresses. Some respondentssuggested that this provision could beextended to local elections:

Candidates for the House of Commons,Scottish Parliament and Welsh Assemblyall receive significant financial supportthrough the Post Office delivery of electionaddresses and the London Mayoralcandidates pay a token contribution to the printing and distribution of a bookletfeaturing all the candidates. The principlecould be extended to local electionswhere turnouts are usually lower. Thecosts to the public purse of local electionFreeposts could be reduced bycombining deliveries in some cases with poll cards.

Liberal Democrats

6.28 Survey research for the Commission inareas of England with local elections in 2002found that 61% of the public said they receivedtoo little information about the candidates intheir ward – higher than the equivalent 55% atthe 2001 general election.

6.29 In 2002, MORI found that three-fifths (61%)said they would be more likely to vote in localelections if they had more information aboutwho their candidates were, and what their viewswere.66 Other research has found that bothElectoral Registration Officers and votersconsidered direct methods of communication

to have a greater impact on turnout than eitherthe information conveyed via the media or otherforms of campaigning such as posters androadshows.67

6.30 However, this needs to be balancedagainst a realistic assessment of what suchinitiatives might achieve in terms of actualdifferences to turnout. In May 2002, HyndburnBorough Council, situated in Lancashire, ran anelectoral pilot scheme designed to test whetherextending the availability of information aboutcandidates to voters would increaseparticipation in the local election. Although thefinal turnout of 35.8% was slightly higher thanboth the most recent comparable election (32%in 2000) and the national average in 2002,turnout did not appear to be substantiallyaffected by the pilot arrangements. In addition,the council’s own survey, based on a relativelysmall sample of 144 people, found that asignificant majority (78%) felt that receiving theleaflets made no difference to whether or notthey voted.68

6.31 Of course, better information provision at the local level should not be judged solelyagainst levels of participation. In so far as it is possible to causally link the two, and asevidenced by a recent Commission audit,awareness/understanding represents just oneof many facets of political engagement.69 At the


66 MORI Telephone Surveys/Local GovernmentInformation Unit, 1 May 2002.

67 The Electoral Commission (2002) Making an impact: the local promotion of electoral issues.68 The Electoral Commission (2002) Modernisingelections: A strategic evaluation of the 2002 electoral pilotschemes.69 The Electoral Commission (2004) An audit of politicalengagement.


96

same time, there is much to suggest that theprovision of more, and better, information aboutlocal election candidates and party policieswould enhance the reach of local electioncampaigns and facilitate public interest andparticipation in them.

6.32 In principle we would favour the extensionof the freepost facility to candidates standing atlocal elections in England, Scotland and Wales.However, we are concerned that such ameasure could have considerable logistical andfinancial implications, both in terms of themanagement of the printing and distribution ofelection addresses in local government areaswith large numbers of candidates contestingseats across a large number of wards, and interms of obtaining the necessary financial andstaff resources to fund such an operation.

which had nevertheless secured representationat the devolved, local or European level:

The Green Party of England and Waleshas had local councillors for over twodecades. It has also had two MEPs fornearly five years. The Scottish Green Partyhas had one MSP from 1999 to 2003 andhas had seven MSPs since May 2003. Yet neither party qualifies for a policydevelopment grant. Is this situationjustifiable on any grounds? … We suggestthere is an undeniable case for extendingpolicy development grants to any politicalparty with elected representatives at anylevel.

Scottish Green Party

Alliance is most unhappy with the currentscheme for the distribution of policydevelopment grants. The distortionsarising from the current application ofpolicy development grants are most acutein relation to Northern Ireland. At present,three local parties have access to thesegrants through their representation inWestminster: the UUP, DUP and SDLP. Themain focus for all Northern Ireland partiesis now the NI Assembly. These parties areable to use these funds in relation toinstitutions other than Westminster; in practice, there are no obstacles todeploying such grants in support ofAssembly activities. This creates a severedisadvantage to those parties representedin the Assembly but not in Westminster.

Alliance – Alliance Party of NorthernIreland


In principle we would favour the extension of the freepost election address facility tocandidates standing at local elections inEngland, Scotland and Wales. However,before proceeding with this recommendationthere should be a fuller analysis of how sucha scheme might operate and what it wouldcost.

Policy development grants

6.33 The third area of public funding whichproved controversial concerned policydevelopment grants. Several respondents toour issues paper argued that the current meansof allocating the grants was unfair. The systemwas strongly criticised by several partieswithout representation at Westminster, but


97

6.34 While some parties were critical of thescheme for its exclusively Westminster focus,others raised different concerns. The LiberalDemocrats argued that the current distributionof funds should be ‘more closely related to thenumber of constituencies fought across the UKwith a serious candidature as determined by atest such as returned deposits’. They alsoargued that the system should be extended toencompass the promotion of parties’ policiesas well as their development.

6.35 The Conservatives argued that theCommission should review the current methodof allocating policy development grants, ‘sothere is a stronger link between allocation offunding and parties’ House of Commonsrepresentation’.

6.36 The Labour Party welcomed thecontinuation of policy development grants butargued that ‘the sums involved under the schemedo not begin to meet the policy developmentrequirements of the political parties’.

Commission position6.37 As illustrated earlier in this report, partieshave a continuing battle to raise funds to meettheir day-to-day operating costs. Although weare very much of the view that parties mustoperate in a free market with their financialviability ultimately determined on the ability toattract supporters, we feel that the state doeshave responsibility to facilitate the role that theyplay in a democratic system. It already does soby the means described above, but we believethere are grounds for providing a modestincrease in levels of financial support.

6.38 These should not undermine the need for parties to solicit donations. Indeed, we arefirmly of the view that conditions should be setwhich will encourage parties to broaden thebasis of their funding sources in order to reduceas much as possible the dependence on smallnumbers of wealthy donors to meet day-to-dayexpenses. We suggest in the followingparagraphs a number of ways in which this canbe achieved involving a modest increase indirect funding to enable parties to better carryout their democratic functions. We very muchconsider that parties should bear the mainresponsibility for raising funds to fight electioncampaigns.

Reforming the policy developmentgrant schemeAssessment of existing scheme

6.39 The Commission’s own assessment of thepolicy development grant scheme reveals thatthe scheme has had a beneficial effect on thepolitical parties’ long-term policy development.The three largest parties previously had a policydevelopment capability, which has now beensupplemented by the grant and this has led to these parties’ policy units having moreconsistent communication and involvementwith party members and stakeholders.

6.40 In Wales, Scotland and Northern Ireland,the policy development grant has ensured thatthe parties who operate only there employpermanent policy staff, consult with membersand conduct research. Very little of this activityhad been carried out prior to the introduction ofthe scheme. Where parties had previously had



98

some policy process in place, we found that itwas mainly research-based, with little or noconsultation with party members. Theprocesses were ad hoc and relied on the workof volunteers.

6.41 In Northern Ireland the grant has enabledpermanent policy teams to develop policiesrelating to the devolved powers of theAssembly. This has enabled the parties’manifestos to concentrate on developingpolicies in these areas.

6.42 We believe the scheme has been effectivein meeting its objectives and sets a usefulprecedent for targeted funding which serves to meet a democratic need.

Broadening the eligibility criteria

6.43 The current policy development grantscheme splits the sum of £2m among partieswith two or more sitting members of the Houseof Commons who have taken the oath. Section12 of PPERA enables eligible parties to usepolicy development grants in the developmentof policies for inclusion in any manifesto. We believe that such grants should not berestricted to those parties with representation at Westminster, but should be extended to anyparty with at least two sitting members in eitherthe House of Commons, European Parliament,Scottish Parliament, National Assembly forWales or Northern Ireland Assembly. However,we consider it important that no party should be awarded less than it currently receives as a consequence of broadening the eligibilitycriteria. That is why we are proposing that theannual amount provided for policy development


We recommend that the achievement of adefined level of representation in specifiedelected institutions should be the onlycriterion determining political parties’ eligibilityfor receipt of policy development grants.

We recommend that the eligibility criteria forthe policy development grant scheme bebroadened so that parties with at least twomembers elected to either the House ofCommons, European Parliament, ScottishParliament, National Assembly for Wales orNorthern Ireland Assembly would be eligibleto receive a share of such funding.

In order that existing payments are notreduced, we recommend that the annualamount provided for policy developmentgrants should be increased from £2m perannum to £3m. This would ensure that the six new eligible parties would also receive the basic payment of £125,000 and a variableamount based on electoral success. Thissum should be reviewed by The ElectoralCommission on a periodic basis.

New forms of public fundingEncouraging small donations

6.44 Under the Inheritance Tax Act 1984,donations made to political parties with twomembers elected to the House of Commons, orto those parties that have one elected memberand gained at least 150,000 votes are exempt

grants should be increased from £2m perannum to £3m per annum.


99

from inheritance tax.70 One way of encouragingpolitical participation in the democratic processand democratic renewal at the grass roots levelwould be to introduce income tax relief on smalldonations to political parties. In 1998 the NeillCommittee recommended tax relief, limited tothe basic rate, on donations of up to £500 ayear to ‘eligible’ registered political parties. The Committee argued that in order to providea check against any potential abuse of such a system only political parties that had twomembers elected to the House of Commons at the last general election, or which had onemember elected and gained at least 150,000votes would be eligible for such tax relief. TheGovernment did not take up the NeillCommittee’s proposals on tax relief.

6.45 Another means of encouragingparticipation and parties to solicit a broaderrange of small donations would be matchfunding. Such systems operate in a number ofcountries but essentially the state contributes asum of money in proportion to the size of thedonation. Under New York City’s voluntaryCampaign Finance Program, each dollar givento a candidate up to US$250 is matched withfour dollars of public funds. The maximumamount payable in public funds per contributoris US$1,000. The total amount each candidatecan receive in match funding is capped at 55%of the spending limit. When running against ahigh-spending non-participant in the Program,a participant benefits from an accelerated rateof public funding, which allows up to two-thirds

of the spending limit to be received via publicfunds. In Germany a political party receives€0.38 for every euro that it attracts inmembership subscriptions, contributions byelected representatives and donations up to a total of €3,300 per person per year. Whilesuch approaches can also be a stimulus tobroadening the donation bases of parties theyrequire a greater degree of administration thana tax relief scheme. For reasons of simplicity we prefer a tax relief scheme to a match-funding scheme. As described below, there is also a precedent of sorts for tax relief ondonations in the charity sector.

6.46 Under the Gift Aid scheme, registeredcharities can reclaim tax on donations, whetherlarge or small, regular or one-off, providedcertain conditions of the scheme are satisfied.Gift Aid offers an opportunity for donors toincrease the value of their donations to charitieswhich they support.

6.47 We believe that a similar scheme shouldbe introduced for political parties. This wouldserve to reinforce the principle that politicalparties contribute to the public good. Incometax relief would encourage political parties tobroaden the base of their finances, sobecoming less reliant on large donors. A furtheradvantage is that such schemes depend onindividual donors deciding where they wish their money to go.

6.48 Critics of tax relief schemes have arguedthat poorer supporters of political parties wouldbe disadvantaged, since the scheme wouldonly apply to taxpayers:


70 The Inheritance Tax Act 1984, Section 24. Gifts andbequests to political parties made on or after 15 March 1988are exempt from inheritance tax with no limitation on value.


100

It is a form of political participation whichis not available to citizens on an equalbasis, and it is a form of public funding ofthe parties which discriminates betweenparties according to the bank balance oftheir members and supporters rather thanthe depth or breadth of their electoralsupport.

The Catalyst Forum (Professor Keith Ewing)

6.49 The Neill Committee concluded that it wasvery unlikely that many people with income at alevel which did not attract income tax would bepaid-up members of political parties. We do notthink that possibility can be excluded. However,neither do we consider the fact that there wouldbe no tax to be reclaimed from non-taxpayers’donations to be a good reason for notintroducing such a scheme.

6.50 In order for any income tax relief system tobe fair, we consider that it should be limited torelatively small donations. A reasonable figurewould be £200 in any one year (or the first £200of larger donations), up-rated in line withinflation. There should be no minimum donationamount required to qualify for tax relief.

6.51 Table 18 gives an indication of whatdifferent donations would be worth to politicalparties were an income tax relief system alongthe lines of the Gift Aid scheme introduced.Calculations are made on the basis of the basicrate of income tax, which is currently 22%.

6.52 Under such a scheme a political partywhich received a £50 donation from each of50,000 of its members in any one year wouldpotentially yield tax relief worth £705,000. Werethe same party able to attract the same numberin £100 donations, the potential tax relief wouldbe worth more than £1.4m. We believe thatsuch a scheme would be attractive to politicalparties and would encourage them to seek outlarger numbers of smaller donations andincrease their support and membership bases.

6.53 We agree with the Neill Committee’srecommendation that tax relief should be givenon membership subscriptions and cashdonations, although not on benefits-in-kind oron payments which involve a potential benefit


Table 18: Proposed donation levels and theirvalue under income tax relief scheme

Proposed donation (£) Calculation on basic tax rate (£)71

25 32.0550 64.10

100 128.21150 192.31200 256.41

71 The level of income tax parties could reclaim is based onthe Gift Aid formula for calculating tax relief, i.e. amount of giftmultiplied by 22/78. For a person donating £100, forexample, the calculation would be thus: £100 x 22/78 =£28.21, meaning that their donation would be worth £128.21.


101

to the donor, such as the purchase of raffletickets.72

6.54 As mentioned, the Neill Committeeproposed the application of an eligibilitythreshold for the receipt of tax relief ondonations. While we believe that some criteriawould need to be imposed in order to ensurethat any system is not abused, we are notpersuaded that restricting tax relief to thoseparties with representation at Westminster is the most effective way of assisting politicalparties in the performance of their democraticfunctions, chief of which are participation inelections and the mobilisation of voters. That isnot to say that we believe tax relief should beavailable to all registered political parties;rather, we consider that it should be available to those which can demonstrate representationor a significant level of electoral activity at theEuropean, devolved or local level, as well asparties represented in the House of Commons.

Non-taxpayers

6.55 As mentioned above, one criticism of a taxrelief system for political parties is that, if basedon the Gift Aid formula, it would only apply totaxpayers and therefore not be available tocitizens on an equal basis. We believe that allpolitical parties and their supporters should beable to benefit from such a scheme and wouldrecommend that the practicability of extendingthe benefits of a tax relief system to non-taxpayers be explored. If this were notconsidered achievable, we think it would beworth exploring the extent to which a match-funding system could be introduced for non-taxpayers. In this respect, the amount to bepaid to the party would be equivalent to thelevel of tax relief that the donation would haveattracted had it been made by a taxpayer.


72 The Committee on Standards in Public Life (The NeillCommittee) (1998) Fifth Report: The Funding of PoliticalParties in the United Kingdom Cmnd. 4057, October, Vol. 1,p. 99.

A system of income tax relief on smalldonations to political parties should beintroduced. The scheme should be limited to relatively small donations, up to a value of£200 (or the first £200 of larger donations) inany tax year, the value being up-rated in linewith inflation. We recommend that tax reliefshould be given on membershipsubscriptions and cash donations, but not on benefits-in-kind or on payments whichinvolve a potential benefit to the donor.

The system should be open only to thoseregistered parties that can demonstraterepresentation or a significant level ofelectoral activity at the Westminster,European, devolved or local level.

Any tax relief scheme should extend to non-taxpayers, possibly through a match-fundingsystem.



1037 The way forward

In this chapter we set out ourconclusions on the funding ofpolitical parties.

The importance of political parties7.1 Political parties are essential to thefunctioning of a sustainable, representativedemocracy. In order to carry out their coreactivities political parties require adequatelevels of funding. Political parties needresources to fund their campaigns, conductresearch and develop policies and manifestosto present to the electorate. They also requireresources to meet the day-to-day administrativeand other costs associated with running apolitical party.

7.2 The Commission aims to promote andmaintain openness and transparency in thefinancial affairs of political parties and othersinvolved with elections. We also aim toencourage greater participation in, andincreased understanding of, the democraticprocess. While conducting our review we haveconsidered a broad range of options, and fromthe outset have been guided by the principlethat any proposed new system of party fundingwould need to demonstrate that itsimplementation would help political parties tofulfil their democratic functions and to maintainthe health of our democracy. We have alsobeen guided by the principles that any systemof party funding should be practical,transparent and straightforward, and that anypublic monies should be available to allmeeting the entry-level criteria, regardless of the ideological or policy stances of particularpolitical parties.

7.3 During our review we have gathered a largeamount of evidence from political parties, tradeunions, individual donors, elected

The funding of political parties: the way forward


104

representatives, think-tanks and otherstakeholders. We have also commissionedresearch exploring public attitudes towards thefunding of political parties. We have examinedall of the evidence carefully and havedeveloped a package of proposals that webelieve will be of benefit to political parties,candidates and the electors which they serve.In the paragraphs below we summarise ourproposals for reform.

The way forwardParty income and expenditure

7.4 Our review of party income and expenditurehas shown that most political parties experiencedifficulties in raising sufficient funds to covertheir day-to-day costs let alone the costs ofrunning national election campaigns. Ouranalysis of the main parties’ statements ofaccounts demonstrated that the five partieswhich submitted details of their income andexpenditure for the general election year of2001 ended that year in deficit. Levels of debtranged from £27,000 in the case of Plaid Cymruto almost £9m in the case of The Labour Party.The financial position of The Labour Party,Conservatives, Liberal Democrats and PlaidCymru improved in 2002, largely owing to thefact that there were no major elections tocontest. The devolved elections in 2003 clearlyplaced financial pressures on several parties –including the Scottish National Party, PlaidCymru, Ulster Unionists and DemocraticUnionist Party – all of which experiencedincreased levels of deficit.

7.5 While ultimately the sustainability of a partymust depend on their ability to attract supportand raise funds, the accounts show the extent to which some parties are already relying onsignificant contributions of public monies to fund their activities.

Campaign and candidates’ expenditure

7.6 The campaign spending limits introducedunder PPERA were designed to reduce thefundraising pressures on political parties and to engender a situation in which parties felt lessobliged to increasingly outspend each other.Our analysis of campaign expenditure at the2001 general election and Scottish Parliament,National Assembly for Wales and NorthernIreland Assembly elections in 2003 showed that all parties were comfortably within theirspending limits. In order to reduce the pressureon parties to spend large sums on nationalelection campaigns, we recommend thatnational expenditure limits for all relevantelections be reduced, beginning with the limitsapplying to parties contesting Westminstergeneral elections. The limit should be reviewedfollowing the next Westminster general electionbut our preferred option would be to reduce thenational spending limit from £20m to £15m.

7.7 At the same time, we consider thatcandidates’ expenditure limits should besignificantly increased and in principle doubled.Research shows that voters respond morepositively to the direct campaigning efforts ofcandidates than to political parties’ advertisingcampaigns and we would wish to see moreparty resources being channelled intocampaigning at the local and constituency



105

levels. The increase that we recommend shouldbe accompanied by greater transparency,allowing opponents and electors to reviewcampaign spending. A similar rebalancing ofnational and candidate spending limits shouldtake place for all other relevant elections.

7.8 We are also recommending that theregulated period for candidates’ electionexpenses and for national spending by partiesshould be fixed at four months ending with thedate of poll.

Donations

7.9 Our review has also considered the issue of donations to political parties and, inparticular, whether there is a case forintroducing contribution limits. We recogniseand share public concern relating to largedonations and believe that such concern isdamaging to the relationship between parties,politicians and the electorate.

7.10 We believe that any cap would need to beset at a very low level (in the region of £10,000per individual donor per annum) if the publicwere to be persuaded that its likely effect wouldbe to eliminate the risk of corporate, trade unionor individual interests buying influence. Thatsaid, we acknowledge that even relatively smalldonations have been the cause of controversy.Such a cap would have a significant impact onthe funding of parties, raise questions about theacceptability of compensating public funding,about the rights of individuals to spend theirmoney in the way they choose, and about theindependence of parties from the state.

7.11 We recognise the strength of the argumentfor a cap as one means of rebuilding orincreasing public confidence in the politicalparty system. We also recognise that politicalparties are essential to the functioning of asustainable, representative democracy and, as such, require adequate funding. In order to ensure that political parties could continue to perform their democratic functions, theintroduction of any donation cap would need to be combined with the state stepping in toprovide substantially more financial supportthan it does at present. We believe that beforethis could take place there would need to befirm evidence that any change would work inpractice and be acceptable to the majority ofpeople.

7.12 We do not believe that the introduction of a donation cap can be justified at the presenttime. However, the Commission would beprepared to undertake further work on thepracticability and implementation of such acap, as well as more detailed modelling ofassociated public funding options.

Public funding

7.13 We have further examined arguments andoptions surrounding the public funding ofpolitical parties. During our review we haveconsidered whether there is a case formaintaining, increasing or reducing currentlevels of public funding. Our deliberations onthis issue have been guided by the principle thatany additional forms of direct or indirect fundingshould be used to assist parties in their policydevelopment role and to foster public confidenceand participation in the democratic process.



106

7.14 We have recommended that existing forms of public funding, including Short andCranborne monies, free mailings and use ofpublic rooms at elections, free airtime forpolitical broadcasts and other benefits-in-kindshould continue. In addition to existing publicfunding, we recommend a modest expansion of the policy development grant scheme so that parties with at least two members electedto either the House of Commons, EuropeanParliament, Scottish Parliament, NationalAssembly for Wales or Northern IrelandAssembly would be eligible to receive a shareof such funding. The annual amount providedfor policy development grants should beincreased from £2m per annum to £3m and reviewed by the Commission on a periodic basis.

7.15 We do, however, believe that partiesshould be encouraged to broaden their supportbases and seek a larger proportion of theirincome from smaller donations. Publicperceptions of improper influence would beconsiderably lessened if political parties werenot over-dependent on limited sources ofincome. That is why we are recommending thatincome tax relief be introduced for donations toeligible political parties up to the value of £200.We also recommend that the benefits of such a scheme should be extended to include non-taxpayers.

7.16 Finally, we are in principle in favour ofextending the freepost facility that is currentlyavailable to candidates contesting nationalelections to local elections in England, Scotlandand Wales. However, this recommendation issubject to there being a fuller analysis of anysuch scheme’s practicability.



107

Political partiesAlliance – Alliance Party of Northern Ireland

The Citizens Party of Halton

Communist Party of Britain

The Conservative and Unionist Party

Durham County Labour Party

The First Democrat Party

The Green Party

The Labour Party

Liberal Democrats

Plaid Cymru – The Party of Wales

The Plymouth Party

Scottish Green Party


SDLP (Social Democratic & Labour Party)

Stoke Central Constituency Labour Party

UK Social and Countryside Party

IndividualsRichard Balfe MEP

David Barnby

Councillor Richard Bertin, Vale of GlamorganCounty Council

Steve Brunt

Councillor Will Charlton, Vale Royal Borough Council

Michael Connarty MP

Councillor Mrs A. Cook, Sevenoaks District Council

Councillor Jessica Crowe,London Borough of Hackney

Patricia d’Ardenne

Michael V. Davies

Chris Ffelan

Trevor Fisher

J. Fortin

Michael Foster DL MP

Councillor Ted Fry, Plymouth City Council

Peter Gardner

Navraj Singh Ghaleigh

Councillor Martin Jennings, Wychavon District Council

Dr Gaye Johnston

Patrick Kelly

Peter Kenyon

Max Lang

Bob Laxton MP

Councillor Keith Loney, Sevenoaks District Council

Neil MacCormick MEP

Alice Mahon MP

John Maples MP

Philip Narbrough

Councillor Tim Palmer, Dorset County Council

H. A. Prowse

Tim Root

D. Shepherd

The funding of political parties: appendix 1

Appendix 1Respondents to our issues paper


108

Matthew Taylor MP

Dr David A. Tibbutt

Michael J. Wade

Diana Wallis MEP

Harry Watson

Councillor Kevin Wigens, Plymouth City Council

Mick Williams

Trade unionsAmicus

Amicus-AEEU

Associated Society of Locomotive Engineersand Firemen

Communication Workers Union

Connect

The Fire Brigades Union

The General Federation of Trade Unions

GMB

Graphical, Paper & Media Union

ISTC – The Community Union

National Union of Rail, Maritime & Transport Workers

Transport and General Workers Union

Transport Salaried Staffs’ Association

Union of Construction, Allied Trades andTechnicians

Union of Shop, Distribution and Allied Workers

UNISON

OthersThe de Borda Institute

Institute of Directors

The Joseph Rowntree Reform Trust

Labour Reform

Local Government Association IndependentGroup

The National Trade Union and Labour Party Liaison Committee


Popularis

Local authoritiesLeicestershire County Council



109Appendix 2Programme of public hearings

London, Royal Institute of BritishArchitects (RIBA)Monday 1 March 2004

Dr Justin Fisher, Senior Lecturer,Brunel University

Ian Geary, Political and Parliamentary Organiser, AMICUS-AEEU

Matthew Cain, institute for public policyresearch

Dave Prentis, General Secretary, UNISON

Peter Facey, Director, New Politics Network

Paul Ogden, Head, Local GovernmentAssociation Independent Group

James Walsh, Parliamentary and EuropeanAdvisor, Institute of Directors

The Green Party: Penny Kemp,Former Chair; Hugo Charlton, ExecutiveCommittee Chair

Tuesday 2 March 2004

Stuart Wheeler, Conservative Party donor

The Labour Party: Chris Lennie, Deputy GeneralSecretary; Peter Watt, Head of Legal andConstitutional Unit; Gerald Shamash, solicitorand electoral lawyer to The Labour Party;Professor Keith Ewing, Professor of Public Law,King’s College London

Jessica Crowe, Deputy Mayor of Hackney

The Conservative and Unionist Party: GavinBarwell, Registered Treasurer; David Simpson,Head of Compliance; Sheridan Westlake,Assistant Director of Conservative ResearchDepartment

Liberal Democrats: Chris Rennard, ChiefExecutive; David Allworthy, Head of Complianceand Constitutional Support

The Joseph Rowntree Reform Trust: Lord Shuttof Greetland; Sir Archy Kirkwood MP

Patrick Kelly, local government commentator

Tony Dubbins, General Secretary, Graphical,Paper & Media Union, Joint Chair, The NationalTrade Union and Labour Party LiaisonCommittee; Byron Taylor, Secretary to TheNational Trade Union and Labour Party LiaisonCommittee

Belfast, Spires Conference andExhibition CentreThursday 11 March 2004

Alliance - Alliance Party of Northern Ireland:Stephen Farry, General Secretary; Ian Parsley,Party Organiser; David Ford, Party Leader

Sinn Féin: Francis Molloy, Member ofLegislative Assembly; Margaret Adams,Treasurer; Séamus Drumm

Friday 12 March 2004

SDLP (Social Democratic & Labour Party):Gerry Cosgrove, General Secretary; YvonneByrne, Vice Chairperson

Ulster Unionist Party: James Cooper,Party Chair; Jack Allen, Honorary Treasurer



110

Edinburgh, Business Centre,Edinburgh City CouncilTuesday 23 March 2004

Scottish National Party: Peter Murrell, ChiefExecutive; Craig Milroy, Head of Policy Unit

Scottish Labour Party: Murdo Mathison,Deputy General Secretary

Scottish Liberal Democrats: Dr Derek Barrie,Chief of Staff

Navraj Singh Ghaleigh, Lecturer in Public Law,Edinburgh Law School, University of Edinburgh

Cardiff, St. David’s Hotel & SpaThursday 1 April 2004

Plaid Cymru – The Party of Wales: Dr DafyddTrystan, Chief Executive; Dai Lloyd Evans AM;Helen Mary Jones AM

Welsh Labour: David Costas, Deputy GeneralSecretary; Mike Penn, Head of Assembly Unit

Welsh Liberal Democrats: Chris Lines,Chief Executive

Forward Wales: Ron Davies



111Appendix 3Programme of public debates

London, House of CommonsMonday 1 March 2004

Chair: Sam Younger, Chairman, The ElectoralCommission

Panel members: Andrew Tyrie MP, ShadowMinister for Economic Affairs; Tom Watson MP,West Bromwich (Labour); Peter Facey, Director,New Politics Network

Belfast, Spires Conference andExhibition CentreThursday 11 March 2004

Chair: Wendy Austin, BBC Northern Ireland

Panel members: Brian Feeney, Irish News; Dr Stephen King, Belfast Telegraph

Edinburgh, Business Centre,Edinburgh City CouncilTuesday 23 March 2004

Chair: Kit Fraser, BBC Scotland

Panel members: Alex Johnstone MSP, ScottishConservatives; Nicola Sturgeon MSP, ScottishNational Party

Cardiff, St. David’s Hotel & SpaThursday 1 April 2004

Chair: Glyn Mathias, Electoral Commissioner

Panel members: Tamsin Dunwoody-KneafseyAM, Welsh Labour Party; Helen Mary Jones AM,Plaid Cymru; Ron Davies, Forward Wales; Dr Jonathan Bradbury, University of WalesSwansea; Paul O’Shea, UNISON Cymru/Wales



112Appendix 4Programme of study tours

United States of AmericaCommission representatives:

Sam Younger, Chairman

Karamjit Singh CBE, Electoral Commissioner

Mark Williams, Assistant Policy Review Manager

Washington, Monday 1 and Tuesday 2December 2003

Meetings held with:

Joe Sandler, General Counsel,Democratic National Committee

Charles R. Spies, Election Law Counsel,Republican National Committee

Professor Roy A. Schotland, Professor of Law,Georgetown University Law Center

Bob Schiff (Sen. Russ Feingold, DemocratWisconsin, sponsored 2002 BipartisanCampaign Finance Reform Act)

Donald J. Simon, Counsel for Common Causeand Democracy 21

Kenneth Lin, Legislative Assistant to SenatorJohn McCain, Republican

Ellen Weintraub (Chair), Federal ElectionCommission

Working dinner with Professor Paul Herrnson,Director, Center for American Politics andCitizenship, University of Maryland; RichardSoudriette, IFES President; Trevor Potter,Campaign Legal Center; Thomas Mann, The Brookings Institution; Michael Malbin,Campaign Finance Institute

New York City, Wednesday 3 and Thursday 4December 2003

Meetings held with:

Gene Russianoff, Senior Attorney, New YorkPublic Interest Research Group/StraphangersCampaign

Matthew Tollin (Speaker Gifford Miller’s office),Counsel to the Governmental OperationsCommittee, New York City Council

Ed Koch, former Major of New York City

Richard Briffault, Vice-Dean, Columbia LawSchool; Joseph P. Chamberlain, Professor ofLegislation, Columbia Law School

Lawrence A. Mandelker, Lawyer

Fritz Schwarz, Chair, New York City CampaignFinance Board

Nicole Gordon, Executive Director, New YorkCity Campaign Finance Board

CanadaCommission representatives:

Karamjit Singh CBE, Electoral Commissioner


Ottawa, Monday 26 and Tuesday 27 January 2004

Meetings held with:

Jean Pierre Kingsley, Chief Electoral Officer,Elections Canada

Diane Davidson, Deputy Chief Electoral Officer,Elections Canada



113

Janice Vezina, Senior Director – ElectionsFinancing, Elections Canada

James Sprague, Senior Practitioner & GeneralLegal Services, Elections Canada

Johanne Massicotte, Senior Council toCommissioner of Canada, Elections Canada

Leslie Seidle, Senior Director, National andInternational Research and Policy Development,Elections Canada

Claudine Renauld, Director of Communications,Elections Canada

Howie Wilson, Ethics Commissioner

Chris Watson, Federal Secretary, NewDemocratic Party of Canada; Eric Herbert,Assistant Federal Secretary, New DemocraticParty of Canada

Jamie Innes, Director of Organization, LiberalParty of Canada; Jonathan G. Herman, GeneralCounsel, Director of Legal Affairs, Liberal Partyof Canada

Jerry Rice, Senior Policy Advisor, ConservativeParty of Canada

Informal discussion meeting hosted by PublicPolicy Forum. Participants were:

Nancy Averill, Director of Research &Methodology, Public Policy Forum

Bill Neville, Chairman of Strategies Group,Public Policy Forum

Anita Mayer, Vice President, Public PolicyForum

Rishi Datta, Research Associate, Public Policy Forum

Professor Jon Pammett, Carleton University

Hon. Senator Terry Mercer, former Liberal PartyNational Director and Chair-elect of theAssociation for Professional Fundraisers

Québec City, Wednesday 28 January 2004

Meetings held with:

Marcel Blanchet, Chief Electoral Officer ofQuébec and Chairman of the Commission de la représentation électorale du Québec

Jean Chartier, Director of Investigations,Legislation and Special Projects, Commissionde la représentation électorale du Québec

Adèle Dugal, Co-ordinator for the Departmentof Political Party Financing, Commission de lareprésentation électorale du Québec

Francine Barry, Assistant to the Chief ElectoralOfficer and Chairman of the Commission de lareprésentation électorale du Québec andGeneral Secretary

Montréal, Thursday 29 January 2004

Meetings held with:

Robert Parent, Director General,Parti Libéral du Québec

Daniel Turp, Member of the National Assemblyof Québec and Parti Québécois Spokespersonon intergovernmental relations and externalaffairs

Pierre Seguin, Director of AdministrativeServices, Parti Québécois

Professor Louis Massicotte,University of Montréal



114

L. Ian MacDonald, Editor, Policy Options, Institute for Research on Public Policy

Republic of IrelandCommission representative:

Sam Younger, Chairman

Dublin, Friday 26 March 2004

Meetings held with:

Sean Dorgan, General Secretary, Fianna Fáil

Stiofan Nutty, General Secretary,The Green Party

Mike Allen, General Secretary,The Labour Party

Tom Curren, General Secretary, Fine Gael

Brian Allen, Secretary of the Standards in PublicOffice Commission

GermanyCommission representatives:

Glyn Mathias, Electoral Commissioner

Mark Stratton, Policy Officer

Berlin, Monday 29 and Tuesday 30 March 2004

Meetings held with:

Frau Wettig-Danielmeier,Social Democratic Party

Dr Winter, Chief Financial Officer,Christian Democratic Union

Herr Strehl, Treasurer, Bündnis 90/The Greens

Herr Eschweiler, Plenipotentiary of theTreasurer, Free Democratic Party

Dr Janss, Party Finance Section,Preidum Bundestag

The NetherlandsCommission representatives:

Karamjit Singh CBE,Electoral Commissioner


The Hague, Monday 10 and Tuesday 11 May 2004

Meetings held with:

Mr Meine-Henk Klijnsma, Head Strategic PolicyUnit, Ministry of the Interior

Mr M. Siebes, Ministry of the Interior

Mrs H. Bruins Slot, Ministry of the Interior

Mr R. Koole, Chairman of the Labour Party(PvdA)

Mr M. Stolk, Director CDA-Bureau, ChristianDemocrats



115


Appendix 5Fringe meetings at 2003 party conferences

Plaid Cymru Conference19 September 2003Chair: Glyn Mathias, Electoral Commissioner

Panel member: Sam Younger, Chairman,The Electoral Commission

Liberal Democrat Conference24 September 2003Chair: David Griffiths, Registered Treasurer,Liberal Democrats

Panel members: Lord Rennard, Chief Executive,Liberal Democrats; Sam Younger, Chairman,The Electoral Commission; Sir Neil McIntosh,Electoral Commissioner

Scottish National Party Conference25 September 2003Chair: Sir Neil McIntosh, Electoral Commissioner

Panel member: Sam Younger, Chairman,The Electoral Commission

Labour Party Conference1 October 2003Chair: Professor Keith Ewing, Professor of Law,King’s College London

Panel member: Peter Hain, Leader of the Houseof Commons, Lord Privy Seal and Secretary ofState for Wales

Conservative Party Conference8 October 2003Chair: Dr David Butler, Fellow of NuffieldCollege, Oxford University

Panel members: Sam Younger, Chairman, TheElectoral Commission; Roger Creedon, ChiefExecutive, The Electoral Commission


Appendix 6Funded research

Set out below are methodological detailsrelating to the two pieces of funded researchdiscussed in chapter 2 of this report. Bothreports can be downloaded from The ElectoralCommission website:www.electoralcommission.org.uk/elections/research.cfm

MORI – Attitudes towards votingand the political process in 2003This project, conducted by the MORI SocialResearch Institute on behalf of the Commissionlooked at key issues around voting andelections. Eight questions on the subject of thefunding of political parties were included inMORI’s survey.

MORI interviewed a representative sample of1,500 UK (including Northern Ireland) adultsaged 18+ by telephone. Interviews were carriedout from 2-11 May 2003. Quotas were set bygender, age, working status, and GovernmentOffice region. Fieldwork was monitored closelyto ensure the number of people in the sampleliving in areas of England where there werelocal elections on 1 May 2003 was in line withthe true proportion of the UK living in thoseareas (these results were based on 1,026interviews, or 68% of the UK population). Datawere weighted by gender, age, working status,social class, tenure and Government OfficeRegion to the known population profile.

Cragg Ross Dawson – Attitudestowards the funding of politicalpartiesCragg Ross Dawson undertook qualitativeresearch in November 2003 in order to explorepublic and political party activists’ attitudestowards the funding of political parties.

Focus groups with members of the public

Twelve focus groups were held with the generalpublic, between 3 and 10 November 2003.Each group comprised seven or eight people,and lasted around two hours. The groups weredevised to ensure that the study as a wholespoke to a cross-section of the electorateacross the UK, although, for ease of discussionand analysis, each group comprised a fairlyhomogeneous demographic sample, as set outbelow.

116



117


Recruitment ensured that each group wasmade up of a cross-section of politicalallegiances, levels of interest in or awareness of politics, and past participation in voting.

Depth interviews with local party activists

Local party activists were consulted in pairs(both from the same party) via depth interviewslasting between 45 and 90 minutes. The sampleensured that a range of types of party wereincluded, in terms of size, role and policy focus.The interviews took place with activists workingat a local/branch level in areas similar to thelocations used for the general public groups.The activists were speaking purely from apersonal perspective.

Thirteen paired depth interviews were held,between 31 October and 12 November 2003,with activists from the following parties ororganisations:

• The Conservative and Unionist Party;

• The Green Party;

• Independent Kidderminster Hospital andHealth Concern;

• The Labour Party;

• Liberal Democrats;

• Morecambe Bay Independents;

• Plaid Cymru – The Party of Wales;

• Scottish National Party;

Table A1: Focus group demographic sample

Location Age Socio-economic grade

Group 1 Edinburgh, Scotland 18-22 C2DEGroup 2 Edinburgh, Scotland 31-44 BC1Group 3 Swansea, South Wales 45-55 C2DEGroup 4 Swansea, South Wales 23-30 BC1Group 5 Belfast, Northern Ireland 56-65 C2DEGroup 6 Belfast, Northern Ireland 45-55 BC1Group 7 Guildford, Hampshire 45-55 C2DEGroup 8 Guildford, Hampshire 18-22 BC1Group 9 Wolverhampton, West Midlands 23-30 C2DEGroup 10 Wolverhampton, West Midlands 31-44 BC1Group 11 Manchester 31-44 C2DEGroup 12 Manchester 56-65 BC1


• Scottish Socialist Party;

• Thames Ditton/Weston Green Residents’Association;

• UK Independence Party; and

• Ulster Unionist Party.

A fourteenth interview was scheduled to takeplace with activists from Sinn Féin. However,Cragg Ross Dawson was unable to secure aninterview with such activists either side of theNorthern Ireland Assembly election inNovember 2003.

For the purposes of their analysis Cragg RossDawson divided the activists’ sample into fourcategories. These are set out below:

The classification was not intended as an‘objective’ description of the parties’ size,status or political reach. Rather it reflectedactivists’ self-perceptions of the role and scopeof their party. Cragg Ross Dawson used theclassification to demonstrate the commonthreads running through activists’ responsesand because activists themselves largelyrelated the nature of the problems faced bytheir party to its current position in the nationalpolitical scene.

Both the Liberal Democrats and the UKIndependence Party have been shown as beingwithin two categories because at times theiractivists’ responses and the issues they citedmeant that they had points in common withdifferent types of party.

118


Table A2: Categorisation of party activists’ sample

Local parties Regional parties ‘Minor National’ ‘Major National’ parties parties

Thames Ditton Scottish National Party Green Party ConservativesResidents’ Association (SNP)

Independent Kidderminster Scottish Socialist PartyHospital & Health Concern (SSP)

Morecambe Bay Ulster Unionist Party Independents (UUP)

Plaid Cymru

Liberal Democrats

UK Independence Party (UKIP)

Labour




121Main headings

The funding of political parties: section heading


The Electoral CommissionTrevelyan HouseGreat Peter StreetLondon SW1P 2HW

Tel 020 7271 0500Fax 020 7271 0505info@electoralcommission.org.ukwww.electoralcommission.org.uk

We are an independent body that was set up by the UK Parliament. We aim togain public confidence and encouragepeople to take part in the democraticprocess within the UK by modernising the electoral process, promoting publicawareness of electoral matters andregulating political parties.

© The Electoral Commission 2004ISBN: 1-904363-54-7


Documents

The funding of political parties · Public funding of political parties We have further examined arguments and options surrounding the public funding of political parties. Political