Labour's fudge won't fool anyone; let's find a better way of paying for politics

At present the mood at the centre of this government is warming visibly to state funding, whatever it may say

The establishment of a new Labour fundraising committee is a classic short-term political fix. It won't stop the steadily increased dependence of the party on millionaires. The new move will certainly dilute the mysterious quasi-monopoly on raising funds from rich men which Lord Levy unusually combines with a berth in the Foreign Office and the role of the Prime Minister's "Personal Envoy". But whether it will reduce the political risk of attracting donations from rich men who think – just like the unions – that they have something to gain from giving money to the party, remain to be seen.

The establishment of a new Labour fundraising committee is a classic short-term political fix. It won't stop the steadily increased dependence of the party on millionaires. The new move will certainly dilute the mysterious quasi-monopoly on raising funds from rich men which Lord Levy unusually combines with a berth in the Foreign Office and the role of the Prime Minister's "Personal Envoy". But whether it will reduce the political risk of attracting donations from rich men who think – just like the unions – that they have something to gain from giving money to the party, remain to be seen.

The worst and most recent case was that of Richard Desmond. Tony Blair said in one of his Newsnight interviews last week that if Mr Desmond was a fit and proper person to run a national newspaper like the Daily Express, then it was equally proper for him to give money to the party. But, hang on, it was a government minister who decided that he was a fit and proper person to own the Express in the first place.

Sure, the Office of Fair Trading had offered no objections. But Stephen Byers could, if he chose, have followed the 1990 precedent which stopped another pornographer, David Sullivan, from making a newspaper acquisition. Maybe, as every government and party spokesman insists, it was a mere coincidence that Mr Desmond socked the party £100,000 around the time these decisions were being made. Mr Blair's argument is still going in circles.

But that isn't the main point. However well intentioned, the Heath Robinson safeguards are wholly inadequate. OK, the businessmen's dealings with party officials will now be recorded. Does that stop him having simultaneous discussions with – say – an influential special adviser in government about a project dear to his heart? OK, the members of the new committee are good men and women and true. None want to be embarrassed by a donation they have approved. But all are Labour loyalists with a keen awareness of the need for the party to raise money. At the very best, there is a potential conflict of interest.

The one benefit, in other words, of the fix is to show that only a far more radical change can really work. One of the organisations with the keenest sense of this is the Institute of Public Policy Research (IPPR), whose director Matthew Taylor has probably thought more deeply about parties and the process of politics than anyone else on the left. It will produce its own review of the funding issue later this year.

Its conclusions haven't been finalised, but they are almost certain to propose an "RPI minus" cap on expenditure designed to reduce election and other party spending progressively over a period of years and a limit of individual and corporate donations of about £5,000. It will suggest the gradual phasing in of state funding over a period of anything from three to 10 years. This would be matched to the level of participation in each party, probably measured by party members and perhaps a new category of registered supporters – the only sensible way of ensuring that state funding encourages grassroots political activity rather than smothers it.

There would be added safeguards, probably enforceable by the Electoral Commission, to ensure that "third parties" like unions, businesses or other interest groups would not be able to circumvent the spending limits with quasi-political advertising favouring one party or another.

The IPPR is also likely to try to solve the parties' fears that financial limits on advertising makes the voting public more dependent on the media prism through which elections are covered. This would require either the Electoral Commission or the Press Complaints Commission to award a swift right of reply in cases where it found that the reporting of parties and their programmes – as opposed to expressions of editorial opinion – was unacceptably distorted.

And the IPPR has a further novel idea: the state would provide a phone bank from which volunteers from each of the parties could answer a wide range of queries direct from voters – another form of state funding with a strong participatory element.

But the IPPR is also, more tentatively, discussing a particularly ingenious proposal to make the funding decisions of the parties a voluntary one. Either the parties could stick with the current morale-sapping series of big bad donor stories. Or they could take the state money in the way described. This would have the immense advantage of clarifying the choice in the public mind. Members of the public who are still sceptical about state funding would start to judge the parties on their willingness or otherwise to be dependent on rich men. And it would dramatise the choice that faces Conservatives anyway. They may oppose state funding, but would they really refuse to take it?

The IPPR has links to Labour. Its proposals – with the possible exception of the last – don't in themselves help the inter-party consensus which Mr Blair says he needs to change the system. But, indirectly, they do just that. First, they can hardly fail to be taken into account by the entirely neutral Electoral Commission when it undertakes its own review of state funding later in the year. Second, a number of the proposals are remarkably close to what some of the more outward looking Tories are already saying.

In a clarion call for state funding yesterday, Andrew Tyrie, MP for Chichester and a former close adviser to John Major, pointed out the extent to which the parties are already dependent on state funding. Mr Tyrie said that if every every aspect of public money – from free postage to the use of BBC licence payers' money to finance party broadcasts – was taken into account, £67m of the £178m spent by all the parties in an election year is privately raised, and £111m is from the public. Cleaning up politics by public funding, in other words, is a matter of degree, not of kind.

Nor is he alone. Sir Norman Fowler, Lord Garel Jones (a key member of the Major administration) and William Hague's former shadow foreign secretary, John Maples, are all on the same side. So – highly significantly – is Sir John Egan, the new President of the Confederation of British Industry.

The mood at the centre of government is warming to state funding, whatever the Government says. But it is timid – too timid in my view – about taking the lead, as it will almost certainly have to do. The consensus, though, is building. The Tories' official line reflects an understandable desire to watch Labour squirm. But it will not survive the hard question of whether they would, in the end, take the money.

The fact is that when the old loyalties started to die a generation ago, the old role of the big business and the union barons in funding each party for tribal reasons started to die with it. None have a place in a modern political constellation. Maybe in some platonic ideal of a polity, state funding would a bad idea and the tiny donations of individual members would keep parties going. But if so, it is a bad idea whose time has truly come.

d.macintyre@independent.co.uk