Leading article: How to avoid backroom loans and dodgy deals

We must not imagine that the dilemma over how to fund political parties is a problem only in Britain. It is a question that vexes the entire democratic world. We should also recognise that it is not only the Labour Party that is struggling with the problem. The Conservatives and the Liberal Democrats have an unhealthy dependence on a small number of wealthy benefactors too. So, from one perspective, the loans scandal afflicting the Government is simply another symptom of one of the great unresolved issues of democratic politics.

This puts the recent behaviour of the Government into context. But it does not excuse it. In the mid-1990s New Labour promised to deliver Britain from the years of Tory sleaze. It was Tony Blair himself who told us that his Government would be "purer than pure" in office. The Prime Minister deserves credit for introducing a greater degree of transparency into party funding by making big donations to Labour declarable. But this only makes what we have learntabout Labour's covert acceptance of £14m in undeclared loans before the last general election all the more distasteful. Mr Blair tried to get round the very transparency regulations that he had introduced. Those who wonder why so much of the public is cynical about politics need only examine Mr Blair's conduct in this affair to understand why. It is no good the Prime Minister complaining that the Conservative Party has long indulged in the same practice. He asked to be judged by a higher standard. He cannot now complain when he is held to that.

Yesterday's scrabbling around by the Lord Chancellor to repair the damage done to the Prime Minister's reputation by this affair is too little, too late. The Lord Chancellor announced that all loans to political parties should be declared in future, and a former civil servant has been charged with conducting a review of the party funding system. This will not be the end of the matter, though. Labour's National Executive Committee meets today, at which the party's treasurer, Jack Dromey, will detail the preliminary findings of his inquiry into the affair. And yesterday's release by Labour of the list of lenders will only increase speculation about what has been given in return for this largesse. As a political scandal, this is far from over.

Yet, while all this is going on, the central question about how to fund our political parties should not be neglected. The Conservative proposals outlined yesterday are on the whole a sensible contribution to the debate. The Tories are calling for state funding for parties to match votes at the previous general election. They also want a cap on the size of donations, and tax relief for benefactors. Another proposal is for a general election spending limit for each party of £15m. But other aspects of the Tory plan are misguided. The call for a cut in the number of MPs as a quid pro quo for state funding of political parties is pure populism. MPs are not an expendable element of modern politics. Many have much busier constituency workloads nowadays as a result of the deficiencies of local government. There are many better ways the state can save money.

But it is understandable that the Tories are searching for some way to make state funding of parties palatable to the general public. Many will wonder why we should be forced to pay for the privilege of politicians touring the country demanding our votes every few years. We do not argue that state funding is a perfect solution. But it is the least bad option and the only realistic way of achieving a cleaner politics. The alternative is to struggle on with the present sleazy system of dodgy loans, backroom deals, honours-for-sale and hidden influence in our democratic life.