Labour may back donation tax relief

The Government is considering allowing tax relief on donations to political parties, Charles Clarke, the Labour chairman, said yesterday.

The move could end the stalemate between Labour and the Conservatives over whether state funding for political parties should be introduced.

The Tories support tax relief and Tony Blair is reluctant to bring in taxpayer-funding without all-party agreement. Labour rejected a call in 1998 by the Neill Committee on Standards in Public Life for tax relief but is now ready to make a U-turn.

Mr Clarke said: "We are considering the merits of implementing the Neill Committee recommendations on tax relief on political donations. Giving £10 to the Conservative Party would be broadly the same in taxation terms as giving £10 to Oxfam."

He added: "I don't think it is an unreasonable thing. We haven't gone down that course in the past but we are thinking about it.

"I am personally sympathetic to trying to find something in that area."

A final decision has not been taken by the Cabinet and ministers say the Chancellor, Gordon Brown, is sceptical about handing public money to political parties.

Support for the move comes today in a report published by the Institute for Public Policy Research, a think-tank with close links to Downing Street. It recommends a "tax relief plus" system to encourage small donations, under which a £50 gift would attract £50 of tax relief while a £100 donation would attract £80.

The institute proposes a £5,000 cap on donations and saysthe identities of people giving more than £1,000 should be disclosed.

The proposed ceiling would end the recent million-pound donations to Labour and the Tories and put a question mark over Labour's link with its trade union founders. The report proposes that the £20m limit on spending at general elections be cut to £12m.

The institute says a £5,000 limit would "remove the perception that money buys influence and trade unions cannot be treated differently from any other donor", adding that "there has never been a better time to introduce state funding".

But unions expressed alarm, with the GMB saying: "If people want to break the historic link between the party and the unions, they should have the guts to come clean on their agenda rather than pussyfooting around."