Andrew Grice: The Week in Politics

Party funding and the shadow of Ashcroft

A shadow hovers menacingly over British politics. It belongs to a multimillionaire who provokes fear and loathing in all parties, including his own. He can be intimidating and charming in the same sentence. He is Lord Ashcroft, the deputy Tory chairman.

Bump into two Labour MPs and the chances are they will be discussing how the money Lord Ashcroft is pouring into marginal seats will cost at least one of them their job at the next election. Pressure from Labour MPs spooked by Lord Ashcroft led to the announcement in the Queen's Speech of reforms to the funding of politics. What wasn't spelt out clearly is that the changes are likely to address "the Ashcroft problem" while leaving other proposals on the shelf. The "cash for honours" affair prompted Tony Blair to ask Sir Hayden Phillips, a former Whitehall mandarin, to seek an all-party consensus on reforming the way parties are funded. He toiled for 18 months and, until recently, a classic compromise looked possible.

To end their unhealthy dependence on millionaires, the parties would accept an eventual £50,000 cap on individual donations. That would have stopped Lord Ashcroft ploughing money into the marginals before local spending limits kick in when an election is called. In return, Labour's one-off donations from trade unions would be covered by the cap, but the affiliation fees paid by union members would not. All parties would get more state funding, and there would be a limit on overall spending.

The package made good sense. But the talks foundered. Tories say Labour did not move far enough on the unions. They wanted to make it easier for union members to opt out of paying the political levy to Labour and to be able to give the money to another party instead. The Tories claim Labour's line hardened after Gordon Brown succeeded Tony Blair because he is keener on the union link. "Tony Blair understood the public's distaste for big donors, whether unions, corporations or individuals," said Andrew Tyrie, a Tory MP on his party's negotiating team. "There were strong signals he was prepared to sort it out but that changed over the summer. Labour can't clean up its act because the unions won't let it."

Labour insists the Tories walked away because they did not want to neuter "the Ashcroft effect". The party claims they made an impossible demand for it to weaken the link with its union founders, knowing it would be rejected so they could scapegoat the unions. It says the Tories are sitting pretty because they already get £4.5m a year of state support for the Opposition and Labour gets nothing.

But is Mr Cameron prepared to deal with the "Ashcroft problem"? His support for a £50,000 cap on donations suggests he was. But Lord Ashcroft is an immensely powerful figure in the party and some insiders doubt Mr Cameron was ready to stand up to him. Some Tories feel uncomfortable about Lord Ashcroft's influence: he has an office at the opposite end of the Tories' Millbank headquarters to Mr Cameron, with more staff than the leader and chairman put together. Michael Howard kept Lord Ashcroft at arm's length when he was leader, aware that his peerage was initially blocked and approved only in 2000 on condition that he moved his tax affairs to Britain from Belize. He never discusses such matters, but his spokesman told me Lord Ashcroft has "reneged on nothing" in his experience. The peer and two allies handed £1.3m directly to Tories fighting marginal seats before the 2005 election. They funded candidates in 24 of the 36 constituencies gained by the Tories, who outspent Labour in 19 of the 23 seats they won from it. This provoked claims that Lord Ashcroft was running a "party within a party", claims which continue although his money for the marginals now goes through the Conservatives' HQ.

Labour is keeping one bit of the Phillips package, a £150m limit on the combined spending of the parties in a five-year parliament, in an attempt to dilute the "Ashcroft effect". Labour is right to tackle it. If it is wrong for donors to buy seats in the Lords, it is wrong for a party to buy seats in the Commons. But Labour looks likely to drop extra state funding and a ceiling on donations.

A golden opportunity has been missed. A matching pound-for-pound state subsidy for small donations would encourage the parties to recruit them. A £50,000 cap on donations would help restore public trust in politics.

A compromise between the two main parties should have been possible. The failureto reach one reflects the animosity between Mr Brown and Mr Cameron. So much for a national consensus and an end to the Punch and Judy show,as they advocate respectively. From now on, it's partisan, and personal.

Read Andrew Grice's online column at www.independent.co.uk/todayinpolitics