Andrew Grice: The Week in Politics

Love them or hate them, parties need state funding
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Deal or no deal? The title of the TV game show looms large in Tony Blair's in-tray after his return from his winter break and the start of his final six months in Downing Street.

Will there be a deal on restoring devolved government to Northern Ireland? Probably. With Iraq in turmoil, Northern Ireland might be the best legacy Mr Blair can get.

Will there be a deal with Gordon Brown on a stable and orderly transition? Eventually. Mr Blair knows Mr Brown will succeed him, so they will probably agree on June.

Will there be a deal on how political parties are funded? This issue will be settled in a few weeks. Much of the press will work itself into a lather if the parties give more taxpayers' money to themselves. But it is worth remembering there is already a lot of state funding of the parties - about £25m a year, with an extra £88m in an election year. Adding a bit more in return for lower spending at elections and a cap on donations would be a good deal for the public.

Like them or loathe them, we need properly-funded parties. Without them, it would be easier for a Jean-Marie Le Pen figure to exploit tensions over immigration and for rich people to buy their way into power. An extension of funding would help parties outside the Lab-Con duopoly, which would be a good thing.

Why do the parties need more of our money? They are living beyond their means, and locked in an election spending arms race. Forty years ago, the Tories had more than two million members, and Labour 800,000. Today the figures are about 290,000 and 200,000 respectively.

Labour's attempt to match the Tories' spending at the 2005 election led directly to the "cash for honours" controversy after it copied the Tory trick of disguising donations as loans. This led tothe police quizzing Mr Blair last month about four lenders he had nominated for peerages.

How he must regret not taking the advice of aides who pressed him for years to grasp the nettle of more state funding. He was too cautious, fearing a media-led backlash and refusing to move without all-party support.

Crunch time is fast approaching because Sir Hayden Phillips, a former Whitehall mandarin who is trying to broker a deal, will issue his final report by the end of the month. He believes agreement is possible, but there is no guarantee of success.

Labour and the Tories should put the long-term health of the political system before short-term advantage. Labour is desperate for an agreement. Its big donations from individuals have dried up after the "cash for honours" affair. It is £23m in the red and increasingly dependent on the unions.

The Tories have been playing politics by proposing a £50,000 cap on donations, which would sever Labour's union cash link. It would suit the Tories nicely since they have plenty of donors able to give that amount. And the Tories are on an upward curve, so money is rolling in.

Some Tories want to take the moral high ground and blame a failure to reach agreement on Labour's refusal to cut its union ties. They are resisting Labour's call to limit spending at constituency level between elections as well as in the four-week campaign. The Tories say this would give an unfair advantage to sitting MPs, but they may have other motives.

At the 2005 election, 23 of the 31 seats the Tories captured from Labour were targeted by three Tory donors, including the deputy chairman Lord Ashcroft, who between them pumped more than £1.3m into 93 marginals. If there is no deal on funding, Labour calculates the Tories could outspend it by a 4-1 ratio before the next election.

There is scope for a trade-off. Labour and the unions should accept that one-off union donations, like the injection at election time, should fall within a new cap. In turn, the Tories should accept that annual affiliation fees paid by union members are tiny individual donations and therefore outside the cap. They should also agree to annual spending limits.

The state should provide matching funds to encourage parties to recruit members and grants based on their share of the vote at the last general election, giving them an incentive to campaign in non-marginal seats.

Will it happen? It probably depends on David Cameron. A devil on one shoulder would tell him to sit tight and blame Labour for scuppering a deal. But an angel sitting on his other would tell him to accept a sensible compromise that would be good for politics.

Mr Cameron may be prime minister one day. If he does a deal now, he might be grateful for it then. If he doesn't, he may become embroiled in his own funding scandal and, like Mr Blair, regret not sorting the issue when he had the chance.