Party funding system untenable

The "cash for honours" affair could pave the way for sweeping reforms of the way political parties are funded in Britain.

It was Labour's desperation to avoid being outspent by the Conservative Party at the 2005 election that drove Tony Blair to authorise the acceptance of secret loans from rich business backers - including four who had been nominated for peerages. In doing so, he unwittingly created a controversy which has further tarnished the image of politicians.

Related articles

• Fall-out from a saga which brought a knock at the door of Number 10
• End of investigation greeted with relief and recrimination
• So, what now for the seven major players?
• Leading article: A good week for Gordon Brown, but a hard lesson for David Cameron
• Search the news archive for more stories

Even though no charges will be brought, many politicians believe the damage has already been done. The police investigation was prompted by the Scottish National Party, but the Conservatives could hardly exploit it because they were questioned in the early stages of the inquiry. As one senior Conservative put it: "The voters think we are all in it up to our necks. Their attitude is 'a plague on all your houses'."

Significantly, Gordon Brown responded to yesterday's announcement by calling for changes in the way politics is funded. "Proposals are already on the table and we should move ahead to try and get a better system of political funding in our country," he said.

He was referring to a year-long inquiry by Sir Hayden Phillips, a former Whitehall mandarin, who in March proposed an extra £22.9m of taxpayers' money for parties, including incentives for them to attract small donations. In return, the parties would halt the "arms race" between them at elections, with Labour and the Conservatives cutting their budgets by £20m over a four or five-year parliament. An eventual £50,000 cap on individual donations would end the parties' dependence on a small number of wealthy donors.

Talks on the Phillips blueprint have foundered and there is little sign of agreement. Labour wants to extend state funding but fears an electoral backlash unless there is all-party agreement. The Conservatives are instinctively against more taxpayer funding, and the two main parties cannot agree on whether Labour's trade union donations should be fully included in any ceiling on contributions.

Mr Brown wants a limit on spending in constituencies between elections, a device used by the Conservatives to pump money from rich supporters including Lord Ashcroft into marginal seats. They say this is justified because sitting MPs enjoy an unfair advantage under the present system.

The affair will also be seized on by campaigners for House of Lords reform, who argue that a fully-elected second chamber would ensure that seats could never be bought. But again the wheels are turning slowly. Mr Brown wants at least 80 per cent of peers to be elected but has put off legislation until after the next general election to avoid a messy constitutional clash with the Lords, which has voted to retain an all-appointed chamber.

The saga could also result in pressure for a better system of regulating politics - the Electoral Commission watchdog did not bark over the loans taken out by Labour and the Conservatives.

Arguably, the SNP allegations should have been investigated by an independent body rather than the police - even though the police had a duty to look at them. But the Committee on Standards in Public Life, the anti-sleaze watchdog, can only look at general issues, not specific cases. Its remit, or that of the Electoral Commission, could be widened.