Taxpayers to fund Labour cash shortfall

TONY BLAIR is to introduce state funding for the political party that is in power, in a move which would hand Labour about pounds 500,000 of taxpayers' money each year.

But Mr Blair also plans a big increase in the amount of money handed to opposition parties, which will help the Tories and Liberal Democrats.

At present, governing parties receive no state aid. Since last year's general election, Labour has lost pounds 250,000 it received in opposition to fund the running of the Parliamentary Labour Party. It has also had to find another pounds 250,000 to fund his political office at Downing Street, which handles his Labour Party work and is not paid for by taxpayers.

The Prime Minister now intends to make up the pounds 500,000 shortfall as part of a shake-up of party funding that will follow an inquiry into the issue by the Neill Committee on standards in public life, which reports next Tuesday.

Mr Blair has been reluctant to bring in the large-scale state aid for parties that is provided in some other countries, fearing a public backlash. But he has been persuaded that a limited extension is justified.

The Tories and Lib Dems could benefit more than Labour from the changes. In the current year, the Tory opposition will receive pounds 1m and the Lib Dems pounds 377,000 under a formula related to the number of seats and votes they won at the last election.

Mr Blair believes the grants should be increased as they do not reflect opposition parties' work in Parliament or allow them to recruit high-calibre staff. In opposition, he and other shadow ministers set up blind trusts funded by wealthy donors, which ran into controversy over their secrecy and will now be banned under the Government's proposals.

Ministers will welcome the Neill inquiry but may not adopt its blueprint in full. The inquiry has not accepted all of the proposals put to it by Labour. While the committee will agree there should be a national limit on general election spending, it will set a higher ceiling than the pounds 15m the party proposed.

An electoral commission, which will be set up to police the new system, should have real teeth, the committee will suggest. It is expected to recommend an independent body answering to Parliament, rather than through the Home Office, which could give ministers more control over it.

The new system will include full disclosure of political donations, sponsorship deals and arm's-length support such as that given by pressure groups, trade unions and businessmen during election campaigns.

One recommendation which all political parties have already endorsed will be the banning of foreign donations, a Labour manifesto promise last year.