Miliband under pressure to loosen links with unions

Labour leader is urged to 'cut through' to voters by updating party funding, as Tories pull ahead

Ed Miliband is considering plans to water down Labour's heavy reliance on funding from the trade union movement, The Independent on Sunday has learnt, as the New Year Honours list provoked fresh concern about donations to political parties.

The Labour leader is being urged by several senior figures in the party to "loosen the ties" to the unions by making a bold statement which they say would define his leadership and "cut through" to voters.

The unions currently provide 86.4 per cent of the party's funding. One proposal is to overhaul the way they donate by giving individual union members a say in whether their dues contribute to Labour coffers.

The case for party funding reform was given extra focus this weekend with the knighthood of Paul Ruddock, the hedge fund boss and Conservative Party donor, who has been criticised for making millions from the credit crunch. Sir Paul's Lansdowne Partners made £100m from the 2008 crash by "short-selling" on the price of Northern Rock and other banking shares. He was awarded a knighthood – for services to the Arts – despite senior figures in the coalition earlier condemning the practice of short-selling. He has donated £500,000 to the Tories under David Cameron.

Rod Aldridge, the former Capita chief who donated £1m to Labour, was also given a knighthood in the New Year list. Elsewhere, some Labour MPs have expressed private concerns that one of Mr Miliband's newest advisers is Andrew Rosenfeld; the property tycoon, who has donated £1m to Labour, could be described as one of the City "predators" that the Labour leader railed against in his conference speech last year.

All three main political parties have been urged by Sir Christopher Kelly, Parliament's anti-sleaze watchdog, to agree to a cap on donations of £10,000. The three leaders claim to be in favour of party funding reform but no agreement has been reached, six years on from the cash for peerages scandal which engulfed Tony Blair's government.

Mr Miliband is being pressed by leading figures in his party to make a bold gesture on a par with Tony Blair's Clause 4 moment and David Cameron's "hug a husky" photo opportunity on a glacier.

Aides rejected the notion of a one-off gesture last night, saying the leader would continue to press the case for the "squeezed middle" and the rising cost of living under the coalition government. But it is understood that Mr Miliband will announce reform to the party's relationship with the unions in the next few weeks in an effort to make his party more inclusive. Mr Miliband, who began reaching out beyond his party last year with an appeal to "registered supporters" who do not have to give money to the party, has faced criticism from inside his own ranks for failing to appeal to voters, even though Labour has led the Tories in the polls in recent months.

However, an Independent poll of polls put the Conservatives ahead of Labour yesterday for the first time in 14 months, on 39 per cent against 38 per cent, after Mr Cameron's EU veto last month. The shadow Immigration spokesman, Chris Bryant, in The Independent yesterday, warned Labour not to "box ourselves into being just the party of waifs and strays", adding: "At a time of economic uncertainty and severely straitened personal circumstances, Labour has to have a message for the whole of Britain, the rich assertive entrepreneur and the single mum alike, and not just a manifesto for the party faithful."