Dominic Lawson: The solution to political funding is simple: parties should live within their means

Would it matter if they could no longer afford to cover the nation in mendacious advertising?
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You've got to hand it to them. Who else but the leaders of our political parties would respond to the discrediting of their fund-raising methods with the suggestion that the rest of us pay to sort out the mess?

While it would surprise me if the Crown Prosecution Service decided that the police had accumulated enough evidence for charges to be brought under the 1925 Honours (Prevention of Abuses) Act, New Scotland Yard's investigations have already convinced Blair, Cameron and Campbell of two things: that the taxpayer must shoulder the bulk of party funding, and that the House of Lords should rapidly become an elected or partly elected assembly. Both of these conclusions are unwarranted, like most things which command the undivided support of the political class.

The Conservatives are motivated largely - please don't laugh - by a guilty conscience. The funding methods now being scrutinised by the Specialist Crime Directorate were pioneered by the Tories, which is why Yates of the Yard has interviewed more of them than he has associates of the present Government.

But the Conservatives generally understood the wisdom of the maxim that hypocrisy is the compliment that vice pays to virtue. So any donor who was recommended for a peerage had to be "plausible." This meant, in essence, that his elevation to the ermine should not seem startlingly incongruous.

You could say that the two words "Jeffrey" and "Archer" prove otherwise. It was unfortunate that John Major did not listen to the warnings which dissuaded Margaret Thatcher from nominating a professional fantasist to the peerage. But in part because of their inherent respect for the Upper House, the Conservatives have always had a visceral motive for not bringing the place into disrepute.

Not so Tony Blair, whose complete lack of interest in the parliamentary process and outright contempt for the conventions of the Upper House has been reflected in his indiscriminate nominations, whether they be party donors who even the Stock Exchange has ostracised, or deeply undistinguished Labour MPs who need some inducement to retire in favour of one or other of his acolytes.

Nevertheless, as a revising and debating chamber - which is what it is - the House of Lords still contains enough of the genuinely great and good to justify its place in the scheme of things legislative. Its scrutiny of dangerously ill-thought out aspects of Government's "anti-terror" legislation was expert. Its recent debate on Lord Joffe's proposals to legalise "assisted suicide" was astonishing in its quality and depth. Given that there seems no chance that the Commons would cede even to an elected second chamber the right to throw out - rather than just delay - laws they had passed, what sort of people would stand for election to the Upper House?

The brightest and best of aspiring politicians would still head for the Commons. The second rank, as now, would stand for the European Parliament. I suspect that the C-list would remain attracted to such power as still resides in local government. The political detritus might be persuaded to campaign to become an ML - I assume that there will not be the attraction of a title. Such people will be fodder for the party Whips' office - you can forget about crossbenchers - thus ensuring that the independence of the Upper House will be extinguished.

In 2000 Mr Blair threw a sop to those offended by his exercise of patronage, and set up, under Lord Stevenson, a committee to nominate so-called "people's peers". The idea had merit, but in practice it has been a fiasco. With one or two honourable exceptions, the successful nominees have made no impact whatsoever.

I like and admire John Browne, but it's hardly surprising that, as Lord Browne of Madingley, he has failed to vote in any of the 730 divisions during the past year. Not only does the man have to run BP, he is also a director of Goldman Sachs and Intel. For similar reasons, it was wrong of the Conservatives to ennoble Gordon White - a generous donor to party funds. The model for Sir Larry Wildman in the film Wall Street, the US -based White was scarcely seen in this country except when his horses were running at Ascot.

The same criticisms apply to the recent donors unsuccessfully nominated for the peerage by Tony Blair. Even had they not been blocked by the House of Lords Appointments Commission over unease about the connection between their nomination and their financial relationship with Labour, they would have been unsuitable: as very active businessmen, they would have had no wish to waste their valuable time legislating.

So, for what it is worth, here is my own suggestion for reform: any businessmen nominated for the peerage must agree to retire from their principal occupation if they wish to sit in the Lords. They must, in other words, make a choice: to serve their shareholders or to serve the country.

The Conservatives now propose that all individual donations, both institutional and personal, be limited to £50,000, in order to prevent the purchase of influence. While this might seem self-denying, it would be a dagger at the heart of the Labour Party, which still receives about half of its funds from the unions. Those funds do buy political power: in 2004 the unions' explicit demand for more bang in return for their buck resulted in the Warwick Agreement, under which Labour agreed to incorporate a number of the TUC's demands into the 2005 election manifesto.

All three parties have a simple solution to the inevitable shortfall caused by a limit on individual donations: that the public should stump up the difference. Well, here's what the taxpayers need to know: there has been a 50 per cent drop in political party membership since 1980, during which period spending by the parties, in real terms, has tripled. If these were businesses, they would probably be guilty of trading while insolvent.

Even under the present arrangements, as the Conservative MP Andrew Tyrie points out in his pamphlet Clean Politics, the main political parties enjoy £135m worth of subsidies during an election year - chiefly in the form of party political broadcasts, for which they pay the networks nothing. Would it really matter if the parties were no longer able to afford to cover the entire nation in mendacious billboard advertising once every four or five years? Do even they really believe that to be necessary, especially after a recent Mori poll revealed that only 2 per cent of those who actually bothered to vote said that they were "greatly influenced" by such posters?

Both Labour and Conservative say that they wish to regain the respect of the public, in the wake of the funding scandal. The best way to do that would be to behave as they tell us to do, and to live within their means.