The price of a stamp can stop peerages for donors

We need state funding of political parties

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Even Lloyd George, who knew more than most about the dark side of political patronage, would have been shocked by the numbers. The old Welsh goat had despised the House of Lords since it voted down his 1909 People's Budget. But when he described the then hereditary peers-only upper house as a "body of 500 men drawn at random from the ranks of the unemployed", he could not have guessed that in 2013 that body would be a ludicrously oversized 838.

By illustrating how much easier it is to appoint peers than get rid of them, David Cameron's creation last week of 30 more – 14 from his own party – has rightly prompted demands for change. And while it looks as if the coalition will do no more than a dispiritingly small part of it, the agenda for reform short of election is well known: a proper retirement system, abolition of the remaining 92 hereditaries, expulsion of convicted peers. And so on.

Especially significant were the six appointments, in all three parties, intimately connected with political funding. This cuts spectacularly across David Cameron's half-forgotten promise in 2010 to "fix our broken politics" – one element of which he cited as "money buying influence". But it also exposes yet again the vulnerability – which Lloyd George, who did plenty of his own peerage-hawking, would have recognised all too easily – of British politics to the granting of favours in return for party donations. Of these honours for cash may not be the most important. But it is the most visible.

Statutory independence for a Lords appointment commission, another proposed reform, would certainly help. Would such a commission really have accepted the Tories' argument that the ennoblement of JCB chairman Sir Anthony Bamford is merely because he is an "incredibly significant industrialist" and had nothing to do with the £5m he has given to the party?

But it would not solve the underlying political funding crisis which caused those six appointments in the first place. All the parties have pretended, and failed, to grapple with this. Traditionally the Conservatives welcome the status quo because they see themselves as the likeliest recipient of large donations from rich businesspeople. Tony Blair courted such donations, partly because they reinforced the message that New Labour was pro-business. Cross-party talks on serious funding reform under Sir Hayden Phillips in 2007 broke down partly because Gordon Brown objected, fearing union outrage at losing the influence conferred by their affiliation fees and donations. In the most recent negotiations – convened, and then halted, by Nick Clegg – the Conservatives insisted on a cap no lower than £50,000 on individual donations And Labour's counterproposal of £5,000 had a hollow ring, since it would have left the unions' larger handouts intact.

Ed Miliband's dramatic decision to take union money only from levy-paying members who opt in may have been a back-of-the-envelope answer to a crisis. But while the Tories' Lord Feldman was justified in insisting on a still dauntingly high cap as long the unions transferred their political levy en bloc to the party, that argument will be harder to sustain if Labour succeeds in making individual small donors of its trade unionist supporters.

And that makes the search for an alternative more plausible. Both Sir Hayden and, more recently, Sir Christopher Kelly, chairman of the committee on standards of public life, proposed additional taxpayer funding to make up the shortfall from a donations cap. Politicians ritually argue that the public will not like forking out for a system it does not trust. This now beginning to sound like an increasingly flimsy excuse – and a circular one. The present system actually fuels that distrust. Nor are the sums large: Sir Christopher proposed a £10,000 donations cap and an increased state contribution of £23m a year over five years – the cost of a first-class stamp for every taxpayer. It's not as if the taxpayer isn't already funding the system, including, most topically, the expansion of the House of Lords. The £300 daily allowance for Lord attenders alone costs over £20m a year.

Because Labour, thanks to its decision on union cash, has the most to lose from the present system, it is likelier to adopt public funding if it wins in 2015. But either way, the tide is surely turning in favour of reform – of the Lords as well as of funding. "With all our faults we love our house of peers," the chorus sings in The Pirates of Penzance. Last week, that "love" came under its greatest strain yet.

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