Taxpayers to fund Labour shortfall

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TONY BLAIR is to introduce state funding for the party in power in a move that would hand Labour about pounds 500,000 of taxpayers' money each year. But he also plans a big increase in the money handed to opposition parties.

At present, state aid is restricted to opposition parties; the Government does not qualify. Since the election, Labour has lost pounds 250,000 it received in opposition to fund the Parliamentary Labour Party. It has also had to find pounds 250,000 to run the Political Office at Downing Street, which is not paid for by taxpayers.

Mr Blair intends to make up the shortfall as part of a shake-up of party funding that will follow an inquiry by the Neill Committee on standards in public life, which reports next Tuesday.

The Tories and Lib Dems could draw more benefit than Labour. This year the Tory opposition will receive pounds 1m and the Lib Dems pounds 377,000 under a formula related to the number of seats and votes they won at the last election.

Mr Blair believes parties need more money when they suffer a heavy defeat like the Tories last year.

Current grants do not reflect the opposition parties' workload in parliament or allow them to recruit high-calibre staff.

Labour's new general secretary, Margaret McDonagh, said the limited extension of state aid being proposed was "not for a partisan reason, but about fairness".

Labour would reject the big subsidies given parties in other countries. "It is a question of striking a balance.

The public would not want great dollops of taxpayers' money spent on posters and newspaper adverts. But it probably would accept that a limited amount could be spent on training people to help them become school governors, councillors and MPs."

Although Mr Blair is certain to welcome the report as a weapon in his drive to "clean up politics," Ms McDonagh said the Government might go further. "If Neill doesn't go far enough, we will do it for him."

Despite controversy over big donations to Labour by figures such as Bernie Ecclestone and Lord Sainsbury, the party is on the front foot over funding.

As soon as Lord Neill reports, Ms McDonagh will challenge other parties to implement its main planks immediately under a voluntary code, because legislation is unlikely to bite for two years.

This would mean identifying donors and the amounts they give, with parties publishing regular lists.

"It's not a question of living with what Neill proposes but creating a healthy basis for politics," said Ms McDonagh, who succeeded Tom Sawyer at last week's party conference.

Some Labour figures fear businessmen may shy from making big donations once the amounts are published. "It is possible we may lose some," said Ms McDonagh. "But I think most donors are happy to be associated with the party, because they believe in it."

Imposing a ceiling on general election campaign spending - Labour proposes pounds 15m, but Lord Neill is likely to go higher - should make the party less dependent on big donors, she said. "I don't think people support the election arms race. We and the Conservatives spent pounds 50 million between us on last year's election; we cannot go on like this. In five or 10 years it would get out of hand; look at America."

A limit on spending and revealing donations would "go hand-in-glove." However, Labour is cooling to the idea of limiting the size of individual donations in any one year, a proposal it asked Lord Neill to consider.

"I think the point that concerns voters is about the source of funding and whether people wish to have influence," said Ms McDonagh. "In the first instance, I don't think there should be limits. But if the system is not working, the new electoral commission [which will police the new rules] would come back to it."