Parties may get more state funding to combat 'sleaze'

Labour is to consider a big extension of state funding for political parties to combat allegations of "sleaze" over big donations.

Tony Blair is under pressure from some ministers, Labour and trade union officials to channel millions of pounds of taxpayers' money to the parties so they are not dependent on rich donors. The move follows controversy over the appointment of a string of Labour donors to the House of Lords.

Options include the state matching small donations pound for pound to encourage parties to recruit new members; tax relief on small gifts and a ceiling on individual donations to tackle the perception that wealthy backers can buy influence.

Blair aides insisted that no decision had been taken but confirmed the issue was "on the agenda" as part of plans to re-engage people in the political process.

A multimillion- pound extension of taxpayers' subsidies, already worth more than £5m a year to opposition parties, would risk a public backlash and be challenged by the Tories.

Labour officials are worried the party would become too dependent on a single source if the Transport and General Workers' Union (T&G), GMB and Amicus unions go ahead with plans to form a 2.6 million-strong "superunion". But any switch from union funding would anger union bosses. The rethink was signalled at the weekend by Jack Dromey, Labour's treasurer, who is deputy general secretary of the T&G. He told Labour's national policy forum the issue had to be addressed but stressed: "Nothing should be done which for a moment looks like an attack on the valuable role of the trade unions in the Labour Party. It is of the highest importance that the historic affiliation relationship is maintained, and with it Labour's historic funding structures."

A commitment not to impose a cap on donations to parties formed part of the Warwick Agreement signed by the party and unions in 2004. State funding will now be considered by a Labour policy commission. Supporters believe the move would help "clean up" politics by defusing the controversy over donations. A recent survey found 80 per cent of the money Labour raised from individuals came from people who had received honours. The Prime Minister's plans to appoint a new list of life peers have been delayed amid concerns on the Appointments Commission that four Labour donors are included.

A 2004 inquiry by the independent Electoral Commission backed tax relief on donations up to £200, a £3m policy development fund and said any further rise in state funding should be coupled with a limit on donations.

The New Politics Network, which favours small donations being matched by public money, tax relief and caps on individual donations, welcomed Labour's rethink. Peter Facey, its director, said: "Such reforms will shift the balance away from a few individual mega-donors and encourage political parties to value mass participation. It will also help fight the perception that politics is riddled with sleaze. But we must not be blind to the fact that patronage is a distasteful part of British politics, regardless of whether it involves donations to political parties. The suggestion that philanthropists can expect a peerage in exchange for funding five academy schools shows how important it is for the Lords to be democratically reformed at the earliest opportunity."