Lord Neill has called for tough penalties, including possible prison sentences for parties that fail to publish their donations fully. New limits on election spending will be backed by punitive fines for transgressors.
Most people who have given money to political parties in the past will still be able to do so, but all substantial payments supporting political parties will have to be disclosed.
All national donations over pounds 5,000 will be placed on a public register showing names and total amounts, and local payments over pounds 1,000 will receive the same treatment.
Parties will disclose donations on a quarterly basis between elections but, during election campaigns, they will have to publish the details within a week of receiving the donation.
Although there will be no limit on the size of individual donations, there will be a national spending limit of pounds 20m for each political party at general elections. Labour spent about pounds 24m last time, while the Conservatives spent pounds 28.3m and the Liberal Democrats spent around pounds 3m. Party spending in Scottish Parliament elections will be limited to pounds 1.5m, in Wales to pounds 600,000 and in Northern Ireland to pounds 300,000.
Public concern over honours for political donors will be tackled by new rules for checking awards before they are given.
In future, all cases where a donor has paid more than pounds 5,000 to a party in the past five years will be given special scrutiny to enure that the honour has not been bought.
Blind trusts, like the ones used by Tony Blair and other senior Labour figures before the last general election, will be abolished and replaced with "open trusts" whose donors will be disclosed.
Foreign donations will be banned, although anyone entitled to vote in this country will be allowed to give money.
Anonymous donations of more than pounds 50 will also be ruled out. Corporate donors will have to seek approval from their shareholders before making payments.
The new rules will be policed by an independent electoral commission of five part-time members. The commission will be able to push for swift legal action against those who breach them.
Parties that spend more than their allotted pounds 20m at elections will be fined up to 10 times their over-spend.
People who try to hide donations from the public could be fined to the size of the donation or even imprisoned, and it will also be a criminal offence to intimidate a donor. Pressure groups, trades unions and individuals who want to campaign in elections will still be able to do so, but they will have to register if they wish to spend more than pounds 25,000.
Their national spending will be limited to pounds 1m, and groups such as unions, which give staff time off to help with election campaigns, will be required to declare their salaries as donations.
"Third parties", such as anti-abortionists, which urge support for individual candidates will also be able to spend up to pounds 500 in each constituency on leaflets and advertisements. If they want to make donations to candidates, they must be disclosed if they add up to more than pounds 1,000.
The committee ruled against large-scale public funding of political parties, but it did recommend a number of changes.
"Short money" paid to opposition groups in the Commons should be trebled to pounds 4.8m, with the official Opposition receiving a fixed amount regardless of how many MPs it has.
There should be a pounds 2m policy development fund for all parties, and tax relief for individuals on donations under pounds 500. The leader of the Opposition will receive an extra pounds 200,000 to run his office, and Opposition peers will also receive the same amount.
There will be public funding for referendums, too, with pounds 1.2m being shared between "yes" and "no" campaigns.
Candidates in the Scottish, Welsh and Northern Irish assemblies will receive a free mailing, costing a total of pounds 4m, every four years.
With the cost of the electoral commission - between pounds 2m and pounds 4m - the committee's recommendations will cost up to pounds 13.7m to implement.
Recommendations on referendums may prove controversial. The committee wants equal state funding for each side in future, although the government is not happy about the idea.
The committee was shocked to discover that while the "yes" campaign in last year's vote on a Welsh assembly had pounds 150,000 to spend, the "no" group existed until two weeks before the vote on a pounds 5,000 bank loan and pounds 11,000 in donations.
Eventually, a wealthy supporter gave pounds 90,000 and leaflets were sent out.
In future referendums, groups wanting to support one or other side would have to declare their payments.
For example, if the European Commission wants to put out leaflets promoting the euro during a referendum, it will have to declare its spending to the electoral commission.
The Main Points
Disclosure of all donations over pounds 5,000. Possible prison sentences for transgressors. Local donations over pounds 1,000 to be disclosed. Tax relief on donations under pounds 500.
More state funding for opposition parties. Both sides to receive equal funding in referendums with a pounds 20m limit on spending in general elections.
An electoral commission to enforce the rules.
Controls on "third party" spending with "benefits in kind" to be declared and corporate donations to be passed by shareholders.
Blind trusts to be replaced by "open trusts"
Tighter scrutiny of honours to ensure they cannot be bought.
No limit on individual donations to parties.
Big Party Donors And How They Will Be Affected
In 1987 the Conservatives accepted pounds 440,000 from the Turkish tycoon Asil Nadir, who allegedly hoped the gift would buy him a knighthood. He owed creditors millions of pounds and jumped bail in 1993 when he fled to northern Cyprus to escape trial on 13 charges of fraud and false accounting. As a foreign national with no right to vote in Britain, Mr Nadir would not now be able to make such a donation. But under the new rules he would be able to donate money to a political party through his company, so long as shareholders agreed.
Sean Connery gives pounds 4,800 a month to the Scottish National Party, or about pounds 57,000 per year.
Under the new rules the actor, who lives in Spain, will be able to continue making his donations.
As he has lived in Britain within the past 20 years, he is entitled to register for a vote here and therefore is entitled to give money to a UK political party. However, a committee of MPs has suggested cutting the maximum residence abroad to five years, and if the plan is implemented it could affect many of Mr Connery's fellow Britons abroad.
At the last general election, the Yorkshire multimillionaire Paul Sykes set up a pounds 500,000 fighting fund to support candidates who opposed the single European currency. In future, Mr Sykes would have to register with the electoral commission if he wanted to spend more than pounds 25,000, and his spending would be limited to pounds 1m - 5 per cent of the national pounds 20m cap. If he gave more than pounds 1,000 to any one candidate the gift would have to be disclosed. He could also spend up to pounds 500 in each constituency in support of his favoured candidate.
According to the FBI, Sinn Fein receives up to pounds 7.5m a year from supporters in the United States, largely through Noraid, the republican fund-raising organisation. Despite a ban on foreign donations, this is likely to continue, as will fund-raising by other Northern Irish parties. The committee accepted that people of Irish descent living in America had a right to take part in the political process of the province. People living in the Irish Republic will be allowed to give money to political parties in the North. US donations can easily be made via this route.
At this year's Labour Party conference at Blackpool, security passes worn by 10,000 delegates and visitors were emblazoned with the logo of Somerfield, the national supermarket chain. The store group paid pounds 20,000 to sponsor the passes, and in return received a favourable deal on the cost of a stand in the exhibition area of the conference. In future, though, such spending would be viewed as a political donation. Somerfield would have to ask its shareholders whether they approved a corporate donation before going ahead with the deal.Reuse content