Think-tank calls for party state funding

Labour's uneasy relations with the trade unions will come under renewed strain this week when a New Labour think-tank calls for the state to subsidise political parties. It will call on the Government to give tax relief for political donations and match them with Treasury contributions.

With both the Labour and Conservative parties heavily in debt and their membership in decline, the Institute for Public Policy Research (IPPR) report is expected to argue that political activity should not be paid for by a small number of rich benefactors.

It is likely to call for a reduction in the amount that parties can legally spend during general elections, a cap on individual donations and greater state funding.

Its proposals would mean that the Labour Party would be denied the large donations from its millionaire backers – notably from Lord Sainsbury, who has given £6m. Equally, the Conservative Party would have to manage without donors such as Lord Ashcroft.

The Labour Party also receives millions of pounds from the big unions, which have large block votes at the party's annual conference. The IPPR proposals will be seen by suspicious union leaders as a plot to end this connection.