The time has come for the taxpayer to fund our politics

'If it had enjoyed state funding for research, Labour wouldn't have had to engage Andersen at all'
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Reporting in 1998, the Neill Committee on Standards in Public Life concluded that the arguments for and against public – ie taxpayer – funding of political parties were "finely balanced". It added: "We can envisage circumstances in which substantially increased state funding of the political parties... might become an imperative. But we do not believe that time has come, if it ever will. We believe that our proposals for increased disclosure will go a long way to alleviate the public's doubts about party funding..."

That was then. It is worth considering the background to the 1998 report. The remit that John Major had given the committee did not include party funding. Labour was certainly right to expand it to cover party funding, which had become a headline issue under the Conservatives and which was overdue for reforms, subsequently implemented by the Blair government. But if it was right, it was also convenient. For it offered a mechanism whereby the party could drop its long-held policy of state funding for political parties. When the committee came to consider funding, the Labour Party submitted evidence that called for substantially increased transparency but buried its commitment to state funding.

There was nothing sinister about this. In arguing that the taxpayers would not regard funding political parties as a "priority in terms of public expenditure", Labour was reflecting the rational and sincerely held view of its leader. True, Tony Blair was probably the first Labour prime minister with good reason to expect that donations and sponsorship from business would balance its historic dependence on the unions. But that was anything but underhand. Indeed, for New Labour it was very much something to boast about, part of the theatre, like replacing Clause IV or being supported by The Sun, of demonstrating to the electorate that Labour had changed.

Both Tony Blair and Gordon Brown adhered – and still do – firmly to the mantra that enterprise could and should go hand in hand with social justice. At the same time, business support countered the union-ridden image from which Labour had suffered in the 1980s, with fatal electoral consequences.

So far so good. Except that experience so far does not suggest that the Neill-inspired measures on increased disclosure, admirable as they are, have lifted public "doubts about party funding". Even if all Enron got out of its £26,000 was "access", it intensifies the switch-off factor among the electorate – not to mention the quite possibly unfair belief, identified by academics such as John Curtice as a cause for low turnout, that Labour is now no longer less sleazy than the Tories. Which is why Matthew Taylor, the leading Liberal Democrat, may be doing the Government a favour – if it is wise enough to see it – by reviving some eminently sensible proposals for a low cap on donations (significantly less than £10,000), a register of lobbying meetings, and a big increase in state funding.

Two of the main objections to public funding considered by Neill were that: if based on the votes cast in the previous elections, it helps to fossilise the electoral status quo, making it particularly hard for new parties to break through; and secondly, that it acts against "civic engagement" – the reliance on whist drives and fêtes and bazaars that only romantics imagine can provide the £20m or so a year that the Labour Party was spending, say, before the 1997 election. But both objections are demolished if public funding is explicitly tied to the money that the parties can themselves raise in subscriptions – and perhaps small donations – from individual members.

Supposing, say, a party got £5 from the Exchequer for every £1 it raised from individual members. By using membership as the measure rather than votes cast, such funding would actually stimulate membership growth at a time when the latest figures show it is lamentably declining – Labour's having dropped by 10 per cent since last September. Parties would be less dominated by political junkies and élites. And the increasing gulf between the political and non-political classes would start, at least modestly, to narrow.

Nor is this just a matter of unhealthy cosiness between the governing parties and businessmen with an agenda to peddle. For Labour, public funding would do much more than a few rich donors have done to end its reliance, at once unhealthy and precarious, on the unions for money. (It's puzzling that there has not been more fuss about the blackmailing monstrosity of the RMT threatening this week to reduce constituency funding to its sponsored MPs, including Robin Cook and John Prescott, for not doing more to further their interests This goes against all old Labour tradition, which held that the party governed for the people and not one interest, and MPs represented their constituents. Indeed when Sid Weighell, the leader of the same union, tried something similar in the 1970s, he was accused of a gross breach of parliamentary privilege).

Similarly it would prevent millionaire capture of opposition parties. The businessman Stuart Wheeler is obviously a man of integrity, with nothing commercially to gain from his generosity to the Tory party. But it's equally clear that he would not be giving it money if it were not determinedly Eurosceptic. Potentially that gives one man an extraordinary amount of power.

But it's the Government that is in the frame just now. Changing the funding system would not wholly protect Labour from the furore it has faced this week. Even in the affair of Bernie Ecclestone the main impression was that the governing élite had been very naïve in believing his bloodcurdling yarns about the collapse of industry threatened by a tobacco advertising ban. And that might have happened with or without Ecclestone's £1m. Nor, of course, would a big increase in state funding necessarily rule out political scandal, as the travails of Helmut Kohl's CDU have shown.

But it would help a lot. Consider for a moment the case of Andersen, whose relationship with the Government is now at the eye of the storm. It's pretty obvious what the company, eager to get a lawsuit off its back, had to gain from helping Labour's winning team devise its windfall tax. What's more interesting is what the Government had to gain. The answer is a lot of high-grade financial expertise that it could not have possibly afforded in opposition. If it had enjoyed the state funding for research afforded by the taxpayer in some Continental countries, it wouldn't have had to engage Andersen at all.

A proper cap, as suggested by Taylor and favoured by some ministers, is long overdue. But to make parties viable and intelligent, that needs to be matched by a funding increase. The old anti-statist arguments had merit; but they are outweighed by the all too apparent disadvantages of the alternatives. The amounts needed from the taxpayer is a lot less than, say, the costs of consultants hired by Whitehall. It would restore a sense of ownership of the political process to the very people it is supposed to represent. Neill said in 1998 the time had not yet come. It has now.