Take the money - and confess: Party treasurers must disclose their sources to the voters, argues Tim Jackson

TODAY'S debate in the Commons on the funding of political parties, occasioned by the Asil Nadir scandal, is likely to present one of the most bitter slanging-matches between Labour and the Conservative Party for months. Both sides have reason to be embarrassed by the subject: if the Tories are in the pocket of big business, Labour is in the pocket of the big trade unions.

There is, moreover, an absurdity in the situation which only Liberal Democrats will dare to point out: while many Tory voters contribute unwittingly to the Labour party, through the political funds the party receives from the unions they belong to, many Labour voters contribute unwittingly to the Tories, because the pension funds that guard their retirement incomes invest in companies that write cheques worth hundreds of thousands every year to Central Office.

The story has plenty of spice. There is Lord McAlpine, admitting from his Venetian retreat that he made a mistake in accepting money from Nadir; there is the discredited tycoon himself, holed up in a village in northern Cyprus, making wild threats of disclosure and apparently inconsistent statements about whether he was offered a knighthood; then there is poor Michael Mates, holder - as junior Northern Ireland minister - of one of the most miserable offices of state.

But two important issues emerge from the past week of scandal. First, have the activities of the Conservative Party been merely disreputable, or might they have been illegal, too? And second, how should the law be tightened up to prevent even the impression of suspect practice in the future?

Labour has offered a stab at the second question in the motion it has tabled for today's debate. This calls for all foreign governments and their agents to be forbidden to make donations to British political parties, and for the ban to apply also to companies registered abroad and to private individuals who are neither British citizens nor residents.

That formulation looks far too hasty. With open markets, foreign governments and companies can be as affected by changes in British government policy as those that have been here for centuries. It is quite understandable that they should wish to head off policies that might harm them, and encourage those that might do them good. That is common practice in most countries of the world. There is perhaps even a case to be made for foreign governments: just as Israel wisely devotes serious resources to getting the best possible hearing on Capitol Hill, so there are numerous countries that would wish to influence British policy.

In any event, it would not be practical to try to stop the contributions at source. Any law would be too easy to circumvent: a company or government that wanted to bankroll a party would merely have to set up a wholly-owned subsidiary in the UK, perhaps a company bought off the shelf for pounds 100, and channel its donations through that.

The way to prevent abuse may not be to ban donations, but to require that they be disclosed. When parties and candidates present themselves to the electorate, voters must be allowed to know who is behind them and for whose interests they speak. Strict disclosure requirements will make political parties embarrassed to accept too much foreign money.

At present there are two puzzling gaps in British legislation on the disclosure of political gifts. One is that the onus is almost entirely on the donor- company; neither the givers nor the parties receiving contributions need report them. Yet political parties are a special kind of public body and there is no reason why they should claim the same right to privacy as a gentlemen's club. They must accept special obligations to make public details of their financing that others might be allowed to hide.

The other gap is that current legislation is drawn up on the assumption that any company that wishes to contribute to a British political party will be happy to be seen to do so. Schedule 7 of the 1985 Companies Act requires that financial gifts, direct or indirect, should be reported. Lawyers believe, however, that this refers only to the route by which a contribution reaches the ultimate beneficiary, rather than the form it takes. It covers, for instance, gifts to a Conservative Party support group, but not gifts in kind (such as the use of photocopiers and cars during elections) or low-interest or interest-free loans.

The scheme drawn up by Central Office last year, details of which were published in the Independent last week, was an ambitious attempt to make use of this loophole. Companies were to be invited to put money into a current account with the Tory party's bankers, and to allow the bank, instead of paying them interest, to reduce charges on the Conservatives' pounds 19m overdraft. They would thus be able to support the Tories without having to tell their shareholders.

Last week, this newspaper contacted more than half a dozen directors of public companies that have given substantial sums to the Conservative Party to ask what they would think of such a scheme. All of them poured scorn on it: 'I'd be amazed if any reputable company would do such a thing,' said one. Another made the point more plainly: his company gives to the Tories because it believes that its interests will best be served by the return of a Tory government. 'Why should we make a secret of that?' he asked.

Central Office clearly knew exactly what it was doing. Under 'Advantages to the Lender', it explained that the proposed interest-free loans would never need to be disclosed. Yet it denies that the reason the paper was withdrawn only 11 days after its first circulation was because of lack of interest from potential donors. A more likely reason why the scheme was never put into practice is that it could have been illegal. By putting company funds into a non- interest-bearing account when it might have earned interest, a director would probably be failing in his common-law fiduciary duty to do the best he can for the shareholders, and would be open to legal action if he participated.

But the fact that the scheme was never put into practice is neither here nor there. What matters is that a party that has been in government for 14 years could even contemplate such a patently dishonest idea. That, rather than the Nadir saga or the question of state funding of parties, is the most urgent question for the Government to answer today.

(Photograph omitted)